Ups and downs for the New Zealand minerals sector while commodity prices stay flat.
By Chris Baker
The 2014 year was a tumultuous one for our minerals sector, with the gold price dropping to below US$200/ounce, export coal staying flat at around US$120 a tonne, the per tonne iron ore price falling below US$80, and the regulatory environment remaining a serious challenge.
The gold story illustrates the fortunes or otherwise of the minerals sector, drawing on the Inside Resources online service for recent news.
The new Waikaia gold dredging operation in Southland is mining 20,000 ounces a year, while L&M’s operation at Earnscleugh, Otago, is closing down. OceanaGold’s Frasers underground mine at Macraes is due to close in 2015, as is the opencast mine near Reefton, a 50,000-70,000 ounce a year operation, while OCG’s underground 570,000 ounce resource at Blackwater is “under consideration”. Newmont Waihi Gold has started developing Correnso, a 600,000 ounce underground ore body, as part of its Waihi operations, with Trio coming to the end of its life. New Talisman plans to start mining at Karangahake.
For the explorers and juniors, there are the commodity price challenges, and more. MOD Resources has an inferred resource at Sams Creek in northwest Nelson of one million ounces, with more drilling planned when the market improves. Strategic Elements may add new exploration ground to its Aorangi asset in Golden Bay. De Gray’s foray into Northland is working through some obstacles; Silver City expects to explore near Taupo next year; and Hardie Resources and Laneway Resources are among companies consolidating their permits. Antipodes Gold has one exploration target, WKP in South Hauraki, with an inferred resource of 260,000 ounces.
So, the commodity cycle exerts pressure on producers, while capital markets make it almost impossible for explorers to raise funds – and on top of this many of the regulatory barriers to development in New Zealand remain.
This is a serious issue to which Straterra has attached high importance. With the National-led Government confirmed in early October for a new Parliamentary term, we continue to press for change, and we can reasonably expect more action this time around.
The Briefings to Incoming Ministers (BIM) from government agencies responsible for resource management advocate “a strategic, integrated approach” to resource management, and that Government form a “standing grouping of natural resource ministers to drive system-wide approaches to issues”.
At issue for the Government’s Business Growth Agenda is a string of recent negative resource management decisions, or decisions likely to stymie development, in aquaculture, roading, irrigation and mining.
Ministers know that Bathurst Resources took more than three years and spent several million dollars gaining environmental approvals for the Escarpment coal mine at Denniston. The Department of Conservation is now suggesting that nationally-significant proposals on conservation land – eg, Bathurst – ought to be able to have concession, access arrangement and resource consent processes heard at a single hearing. We like the similarity of this proposal to Straterra’s Operation Minotaur initiative, which we advanced to Ministers last year.
Offshore, Trans-Tasman Resources’ application for environmental approval to mine ironsands in the South Taranaki Bight was declined (with that decision under appeal). Straterra convened a small expert group to analyse the decision. Our discussion paper, completed in November, concluded that the relevant Act needs amendment, in particular, to deal adequately with uncertainty of information, and adaptive management of environmental effects. We also proposed guidance for the Environmental Protection Authority, and other parties to the hearings process. Straterra appeared before a meeting of senior officials from natural resource sector agencies to hear and discuss our findings. From that, we sense an appetite for improvement.
The above are among issues identified in Straterra’s BIM to natural resource sector Ministers and officials in late October 2014. Others include recommendations for: regulators to enable development; national direction on minerals; the Resource Management Act 1991 reforms to continue; and a review of the Conservation Act 1987.
We note that the health and safety reforms have been progressing on a good track, and in many respects the approach taken by the mining inspectorate provides a good example of how government should operate to enable business.
Returning to the state of the sector, the story for coal is similar to that of gold.
Demand for domestic product is relatively strong, with Glencoal and NZCC consenting new mines in the North and South Island respectively. Total domestic coal consumption in 2013 (2.5 million tonnes) was down 300,000 tonne on the previous year, driven largely by further reductions in coal use at the Huntly power station. Solid Energy surrendered the Pike River mine permit, having determined that it is too unsafe to re-enter the mine. Bathurst Resources picked up two exploration permits in the Waikato, while Fortescue Metals Group has left New Zealand.
On ironsands, NZ Steel is set to expand production at its coastal Waikato mine, at Taharoa, over the next two to three years. In the year to June 2014 NZ Steel exported 2.3 million tonne of iron ore concentrate, up on 1.7 million tonne the previous year, including from its mine at North Head. Just south of Raglan, Sinosteel has posted an indicated and inferred resource of 160 million tonne, with an average titanomagnetite grade of 13.6 percent. More work lies ahead before applications for regulatory approvals can begin.
To other metals, there is talk and some action on a variety of other resources, including titanium, vanadium, zirconium, tungsten, nickel, and platinum.
Taken together, the minerals sector produces more than $2 billion worth of minerals a year, including aggregates and industrial minerals. We estimate that around 8000 people are directly and indirectly employed in the sector. From government reports, workers in our industry earn on average $105,000 a year, which is more than double the national average wage.
In my foreword to the Straterra Minerals Briefing Paper, launched at Parliament in April 2014, I concluded that: “With favourable conditions … New Zealand could treble output and investment in minerals exploration and mining over time, and thus gain the benefits from increased economic activity in our highly-productive, regionally-based and export-focused industry.”
The recent NZ Initiative report by Jason Krupp, “Poverty of Wealth – why minerals need to be part of the rural economy,” supports that notion and is a valuable contribution for the minerals sector.
Above all, minerals, metals, and commodities move in cycles, and sometimes those cycles are severe – as is currently the case. What is certain, however, is that prices for iron, coking coal, and gold will be higher, substantially higher, than they are now – we just don’t know when. Our challenge as a sector is to ensure we can attract our share of new investment when the cycle does turn.