The following article was published in SA Mining and Petroleum Bi-Annual, Issue 2 2010, pp 6–10

The article can also be downloaded as a pdf (.pdf 152.5kb)

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Joe Mastrangelo has over 20 years experience in the South Australian government which includes various senior management roles with the Department of Transport, the Department of Trade and Economic Development, and now the Department of Primary Industries and Resources South Australia (PIRSA). Over this period Joe has gained significant international experience having managed projects in China, Indonesia, Malaysia, Sri Lanka and several European countries. Joe has an Associate Diploma in Mechanical Engineering and a MBA from the University of South Australia. He is a Director of Major Projects and Investment Attraction with PIRSA, a role that involves identifying and attracting investment opportunities to the state, and providing case management services that facilitate complex multi-government interactions on behalf of project proponents. Joe's key responsibility is facilitating investment within the Resources Sector. Joe is also the Director of the Resources and Energy Infrastructure Council (RESIC). The Council provides independent advice to government and industry on complex planning and infrastructure matters for the resource and energy sector and its aims to facilitate collaboration between private sector and government. Please direct resource and investment enquiries to: joe.mastrangelo@sa.gov.au

The key to investment in resource infrastructure in South Australia is in raising confidence delivered through resources infrastructure planning and services, writes Joe Mastrangelo.

South Australia is rich with 'untapped' resources and rich in future investment opportunities. In comparison to Western Australia and Queensland, South Australia 'could' be considered the small fish in a big ocean when it comes to the Australian resources sector – however this is slowly but surely changing.

“In the past South Australia has not been seen nationally on the same scale as other states. With new developments including BHPB Olympic Dam and the forthcoming expansion – which will make it one of the biggest mines in the world – and a few others such as Iluka Resources and OZ Minerals copper mine at Prominent Hill, this perception is changing.”

The South Australian resources sector is however unique in Australia and hence the challenges are also unique. If you aggregate the many emerging projects migrating from the exploration phase to potential mining operations, there are strong signals that the sector will become the cornerstone sector for significant economic prosperity for South Australia’s future (South Australia's Strategic Plan and the Economic Statement of the Economic Development Board support the importance of mining to the South Australian economy), which is why this topic is so important to discuss now.

However there are 'chicken and the egg' challenges that need to be resolved to ensure sufficient critical mass can be harnessed so the industry can take full advantage of the potential growth. For example, additional rail infrastructure, a deep sea port to accommodate cape size vessels, intermodal facilities and import export facilities close to mine activity would clearly provide commercial advantages for the sector.

Efficient and cost competitive supply chain infrastructure is a key element to creating a sustainable competitive advantage from the mine-gate to the export market. In this regard the transport solution for a mine needs to be economically justifiable in terms of that mine’s capitalisation and profitability. The whole transport chain from mine to market is critical and typically involves rail or road transport of product, depending on volumes and distance and export port facilities.

Currently one of the challenges is attracting the funding needed for infrastructure for the resources sector. This is because for smaller mining operations which are those typically developed in South Australia, infrastructure costs can represent up to 50 per cent of the total capital cost of the mining operation. The large cost can be attributed to the fact that limited existing infrastructure is available where resources are located and distances are great. Therefore purpose built infrastructure needs to be funded by the project proponent.

In this regard it will be a competitive advantage to industry where ever it can collaborate and coordinate its infrastructure needs to share the costs of infrastructure where possible, eliminating unnecessary duplication and securing aggregation of demand to support the most cost effective scale of infrastructure provision that will be commercially viable. In South Australia, resources companies are expected to build in the capital cost of required infrastructure into their balance sheets.

Whilst the state’s infrastructure is able to service the current resource industry demands, this capability will be stretched as the sector grows. It is well known that the South Australian railway system operates with three different gauges – narrow, standard and broad gauge, generally leased and operated by the private sector. There are several dormant railway corridors which could be useful for the future transportation of commodities. Augmentation of the relevant South Australian rail corridors will take place if the resources sector chooses this mode of transport. Upgrades could include upgraded track speed and axle load limits or passing loops in congested areas.

Identifying what is needed, where it is needed and when it is needed are all matters that require further investigation and is something that commercially focused providers such as the Australian Rail Track Corporation (ARTC) are constantly reviewing based on customer needs. South Australia does enjoy good connectivity through its standard gauge railway lines to the west, north and east. In addition to rail accessing harbour facilities in South Australia at Thevenard, Port Lincoln, Port Pirie and Outer Harbor, this provides flexibility to mining companies to use ports in Darwin, Melbourne or Perth.

An example of possible upgrade needs is the narrow gauge railway line on Eyre Peninsula. The railway was established principally to service a grain industry and mining in the far west of the Eyre Peninsula. It will need to be extended to provide access to the proposed harbour at Sheep Hill and upgraded to cart ore to Port Lincoln. To upgrade the line to standard gauge with capacity to carry large quantities of ore to the new harbour at Sheep Hill could cost in the vicinity of $300–400 million. A similar expenditure would be required to connect the ARTC standard gauge line to Sheep Hill if Port Bonython does not proceed.

Another issue that provides further complexity in South Australia is how the resources sector can share existing container terminals and rail infrastructure with other commodities, such as agriculture products, given that IMX Resources and other iron ore mining companies in the future are proposing to use 'rotating containers' to transport their ore directly into the hull of a Panamax vessel.

Ports are also an important issue. The South Australian Government along with industry has recognised the pressing need for a deep sea port to service the export of direct shipping ores. We have a good half-dozen potential projects that will come on line over the next five to 10 years that will rely on competitive transportation costs to ensure these companies remain competitive in the global market place. There are two potential cape size deep sea port projects being proposed in South Australia – Sheep Hill, near Tumby Bay proposed by Centrex Metals and Port Bonython which has been the focus of the Spencer Gulf Ports Link Consortium. The Sheep Hill harbour supports Eyre Peninsula mines with the Port Bonython harbour’s connection to the ATRC lines suitable for the northern mines.

Long term with the expected growth of iron ore volumes a deep sea port or ports will become commercial reality.

A further development in the port space has seen OneSteel recently announce that it will undertake a feasibility study to explore the costs and benefits of expanding and opening its Whyalla port facilities to third parties.

Growth within the mining industry is progressing well and by way of example, in the last five years alone South Australia has seen more than a doubling of new mines coming on stream and several operating mines considering expansion plans. In 2004 South Australia had four operating mines, yet now in September 2010 it has 12 mines in operation. In 2010 Jacinth-Ambrosia Mine, Heavy Mineral Sands, White Dam Gold Mine and Cairn Hill Iron Ore Mine have commenced operation.

This trend of new mine operations is expected to continue with over 30 active mineral projects and a further 80 prospective projects in the pipeline. From experience a key indicator for new mine development is the level of exploration expenditure within a region. In 2008 South Australia enjoyed approximately $355 million of expenditure reducing to $220 million in 2009 due to the Global Financial Crisis (GFC). The impact of the GFC continued in 2010 with exploration expenditure levelling off at about $165 million with expenditure increasing as confidence in the market improves. In 2010 this translates on a national perspective to South Australia having 31 per cent of the national share of copper exploration and 30 per cent of the national share of uranium exploration. Iron ore expenditure is increasing sharply being second only to some of the world’s largest operations in Western Australia.

Resource maps and mining project information are available on the Mineral Resources Information page

Given this snap-shot it’s fair to suggest that South Australia’s future looks very bright. This view is supported by the peak industry body, the South Australian Chamber of Mines and Energy (SACOME) (external site, opens in new window) which has indicated in its projections that South Australia could have up to 23 mines by 2015/16 and possibly up to 40 operating mines by 2020.

We know that growth in this sector is largely dependent upon continued high resources demand from China, India and Japan, with expected future Chinese demand growing substantially supported by that country’s urbanisation strategy. Obviously there are many factors and characteristics that make a region such as South Australia attractive as a trading partner and investment location; for example supportive government frameworks, the availability of skilled workers, approval regimes and good infrastructure to mention a few key desirables. South Australia has many of the 'key desirables' that support the sector.

South Australia’s policy and regulatory agency for the resources sector, the Department of Primary Industries and Resources South Australia (PIRSA) has made a commitment to industry to process mine development applications within a six month timeframe from the date of lodgement. The Government provides a Case Management service that is crucial in assisting companies to navigate the multi-government approval processes. This service provides an experienced person that acts as the single entry point into government and assists project proponents to understand relevant approval requirements and wht needs to be addressed in their submissions.

The most attractive attribute of South Australia is the potential prospectivity of the State with large areas that have not yet been fully explored. If you were in the fishing game you could see this as the uncharted waters that have not yet caught the eye of the large fishing fleets. Chinese investors along with a few other nations have recognised the potential of South Australia’s resources sector ahead of other foreign investors. Chinese investment has already flowed to a dozen or so South Australian exploration and junior mining companies over recent times. A few recent Chinese deals include Baotou Iron & Steel Group investment in Centrex Metals, CNOOC (Beijing) Energy Investment Co. Ltd investment in Altona Resources and Wuhan Iron and Steel Corp (WISCO) in Ironclad Mining.

From 2005–2010 over $950 million has been spent on exploration in South Australia – a significant amount from Chinese investors and leveraged through the State Government’s program Plan for Accelerating Exploration (PACE) . An important driver of this exploration investment has been one aspect of the PACE initiative which subsidises eligible exploration activities. PACE coupled with the government’s Case Management service and its online system, the South Australian Resources Information Geoserver (SARIG) leads to an empowered environment in which to do business in South Australia.

I might add that South Australia’s environment for doing business has been rated highly by a range of investors and the Canadian-based Fraser Institute. In a Survey of Mining Companies 2009/2010 (.pdf 979.5kb, opens in new window) the Fraser Institute ranked South Australia as the leading Australian state for mining potential. The survey also restored South Australia to the top 10 in the world for policy potential, making it the top-ranked Australian jurisdiction in terms of mining policy for the fourth consecutive year.

In April 2010 South Australia was also named as the most favourable upstream petroleum jurisdiction anywhere in the world outside the United States and Austria for the second year in a row and PIRSA’s one-stop petroleum shop was the highest ranked agency in the Oceania region ranking 14th in the world. South Australia also retains its status as the world’s equal number one, alongside Sweden, for the quality of our geoscientific database. Even in the Fraser’s impromptu mid-year survey to gauge the potential impact of new impending industry taxes, particularly the Australian government’s proposed Mineral Resource Rent Tax, South Australia still outperformed all other Australian states.

Additionally, the Australian Productivity Commission’s 2009 report concluded that “Primary Industries and Resources South Australia (PIRSA) is widely seen as a model for other jurisdictions to emulate” in regard to the implementation of a lead agency (‘one-stop-shop’) approach whereby PIRSA’s MER (Minerals & Energy Resources) Division coordinates all minerals and energy resource approval and licensing processes and provides information on compliance requirements. The result is a streamlined approval process that minimises time delays, and this is a comparative advantage for minerals and energy resource companies operating in South Australia.

If you consider the untapped potential within South Australia, you surmise about the copper-gold provinces within the State, heavy mineral sand provinces, uranium provinces, iron ore and coal provinces and so on. Overlay this with emerging sectors such as unconventional gas and geothermal energy resources, and you start to get a sense that we in South Australia are staring at a huge emerging and growing sector.

For example in relation to unconventional gas, risk-wise investors are backing South Australian projects to explore for and develop: shale gas; coal seam methane; low permeability (tight) gas; underground coal gasification; and the mining of coal for gasification.

In relation to geothermal energy, South Australia’s supportive investment frameworks and geothermal prospectivity have combined to attract 94 per cent of Australia’s investment in geothermal energy projects, and South Australia is the home for the three most advanced geothermal energy projects in Australia: Geodynamics’ Engineered Geothermal System (EGS) and Hot Sedimentary Aquifer plays in the Cooper Basin; Petratherm’s Paralana EGS play near Mount Painter; and Panax Geothermal’s Salamander project in the Otway Basin. The companies focusing on unconventional gas and geothermal energy plays have already deduced the vast potential materiality of these South Australian energy plays, and their respective exploration and pilot demonstration projects are expected to commercialise at least some if not many new sources of gas and geothermal energy.

Take for example the copper gold province where we have two operating mines, Olympic Dam and Prominent Hill, both within the Olympic Domain. You also have Carrapeteena and the Hill Side projects that could also be very large projects. If you travel closer to Adelaide you will find the old Burra copper mines that could have significant copper prospects. You could similarly run the same logic for all the resource rich South Australian provinces and hence over time we will go from the small kid on the block to the kid that punches well above its weight.

So if I can go back to the simple fishing analogy – if you are catching snapper in a particular area – it is for a reason – i.e. the region has the necessary characteristics that attract snapper. Similarly the same goes for our provinces; the characteristics of these regions would suggest that mineral deposits are there and we just need to identify where they are and get them out to market competitively.

So the point of this article is that South Australia is abundant with natural resources – it has been blessed – you could say we were born this way. What is now needed is investment in supportive infrastructure and resources projects to support further exploration activity and mine development. Astute investors will recognise this opportunity well ahead of the general market. In layman’s terms, once it becomes a 'me-too' opportunity – the opportunity is not as lucrative. It’s a well documented strategy in literature that the early adopter takes the biggest risks but has the potential to earn the biggest rewards.

As a means to support the industry with managing issues relating to infrastructure the South Australian Government established the Resources & Energy Sector
Infrastructure Council (RESIC) in 2007. RESIC’s establishment was a joint initiative of government and the mining sector and was based on independent advice from a research study commissioned by the consulting firm Aurecon, previously known as Connell Wagner. It was born from the expectation that the high level of mining exploration expenditure (approx $320 million) in the 2007 financial year would lead to significant additional operational mines coming online within the next five to 10 years. This would test the existing infrastructure and mining companies would also be seeking support and approvals for new infrastructure. The Government felt that a panel of private and public sector experts to provide strategic planning and policy advice to it and who would also act as a shop front for industry to communicate their issues through to government. The global financial crisis came along in 2008 and the pressure for infrastructure build up to support a burgeoning resources industry was released for a little while but things are now picking up again.

Members of RESIC, its charter and strategic goals are detailed on the Resources & Energy Sector Infrastructure Council (RESIC) webpage which is continuously updated.

RESIC has been instrumental in supporting initiatives such as:

• Facilitating third party access regimes;
• The Port Bonython deep water port proposal led by DTEI and Spencer Gulf Port Link Consortia;
• Involvement in the of Marine Parks strategy;
• Completion of the 2009 Infrastructure Demand Study for the resources sector; and,
• The study that led the jurisdictional energy planner ElectraNet SA to progress a feasibility study to upgrade the state electricity transmission infrastructure – this project alone when it eventuates will be a multi-billion dollar project. For example a step-change argumentation in the transmission infrastructure will enable the state to transmit significant renewable energy (geothermal, wind and solar) into the national grid. In parallel, coal-to-gas (syngas), unconventional gas-to-liquids (synfuel) and liquefied natural gas (LNG) plants could come on line in the future, with synfuel and LNG being exported.

The 2009 Infrastructure Demand Study through a survey questionnaire completed by participating resource companies indicated that power demand (installed load) will increase over time, reaching approximately 1,480 MW by 2019, with the Gawler Craton province demanding approximately 1,200 MW over the next 10 years. The transport of input materials on roads over the next 10 years is forecasted at approximately 24 million tonnes inbound and approximately 100 million tonnes of finished product outbound across South Australia. The forecasted rail freight inbound and outbound movements will increase over time reaching over 365 million tonnes in total over the next 10 years, an average of approximately 35 million tonnes per annum.

The water supply requirement across the South Australian resource industry will increase from approximately 43,000 ML in 2010 to approximately 130,000 ML in 2019.

In 2010 RESIC developed its strategic plan with a focus on three strategic themes relating to resources infrastructure – these being:

• The collection and management of data and knowledge;
• The facilitation of collaborative opportunities between industry and industry stakeholders, and government; and,
• The provision of timely and reliable advice to industry and government.

As you can appreciate the resources industry in South Australia is an emerging industry and unlike other jurisdictions has a diversified economy that relies on manufacturing, agriculture, food and beverage, defence and the services sector. So dealing with the growth of the resources industry and associated challenges of undertaking strategic infrastructure planning is relatively new. Up until now it has not been the core business of any specific group, and RESIC aims to fill this gap.

RESIC’s flagship project is the development of the Infrastructure Channel (IC) within the South Australian Resources Information Geoserver (SARIG) system. SARIG is a web-based geographical information system that provides geotechnical and geophysical data, exploration lease and mining lease information. SARIG will be significantly upgraded through the PACE program, providing better search capabilities, Google Earth overlay and improved reporting capabilities.

RESIC is working with a broad range of private and public stakeholders – organisations that capture and collate the necessary data as part of normal business process. These data will be imported into the IC. The goal is to have an up-todate GIS map of current infrastructure that is regularly updated by participating organisations. The end user will be able to integrate the database and find out a range of non-commercial sensitive attributes that are important to the user. For example – South Australia has over 440 airstrips and the system will provide information such as ownership, whether the runway is all weather or not, duration of access, sealed or unsealed etc.

For ports you will be able to extract attributes such as channel length, draft depth, type of vessels accommodated, number of berths and the main commodities shipped from the port and so on.

RESIC is also in the process of commissioning an update of the 2009 Resources Infrastructure Demand Study (.pdf 9.8Mb) for water, rail, road, ports (sea and air), energy (electricity and gas), and telecommunication. This update will be more comprehensive and expanded to a broader target audience and will include mining companies and developers of large scale infrastructure. Following the collection of the current infrastructure and future demands that will be required over specific time periods, analysis of the data and scenario planning workshops will be used to identify possible infrastructure needs for the consideration of infrastructure providers, so they may engage with mine developers to progress their commercial planning of infrastructure to accommodate the anticipated future demands of the resources sector.

We call this type of work 'grey-sky' planning rather that blue-sky planning. It’s about trying to identify infrastructure 'foot-print' solutions that will provide the industry, government and future investors with an understanding of what infrastructure will be required, where it will be required and when. With some clear vision of where we are heading and what is possible RESIC’s strategy to facilitate collaboration is enhanced. Relevant parties can understand the common demands and potential solutions well ahead of when they are needed so that opportunities can be exploited by the commercial players.

RESIC will be able to significantly value add to the private sector and Government decision making processes. Most importantly RESIC will help raise the confidence of the international investment community by providing the necessary tools and support to assist them to make commercial decisions based on the information provided.