New mining and energy projects are being cancelled faster than they are being finished as the global recession and resources slump intensifies.
And the weaker Australian dollar has helped disguise the impact of the slump in investment.
Figures released yesterday by the Australian Bureau of Agricultural And Resource Economics (ABARE) show a 16% rise in the value, boosted by the fall in the dollar since last July.
Total spending on advanced projects is $A80 billion ($62 billion) at the end of April, 16 % more than in October and 12% higher than a year earlier, the Bureau said in its April report.
But the Australian dollar is around 13% weaker than a year ago against the US dollar, and has been down by 20% to 30% in the time since the last report on investment projects back in November.
ABARE said “The fall in the value of the Australian dollar is estimated to account for around half of the increased capital expenditure between October 2008 and April 2009".
The number of projects at an advanced stage dropped to 74, the lowest number since 2005 and down from 85 in October, in part as mining companies placed projects on hold because of falling commodity prices, the Bureau said.
Fewer projects means fewer jobs and work opportunities for contracting companies like Ausenco and NRW which both revealed downgrades in earnings this week.
Others like Macmahon Holdings have seen project cancellations and mine closures hit revenues and profits. Not even giants like the Leighton Holdings Group of contractors are immune.
The figures contained in this report means the outlook for these companies is decidedly grim. These projects are flesh and blood for the likes of contractors and builders.
ABARE said:
"While the recent global economic downturn is not evident in the value of advanced projects, it is reflected in that only 11 new projects have been added to ABARE’s list in the six months to April 2009.
"This compares with 31 projects being added in the six months to October 2008 and 58 projects being added in the six months prior to April 2008."
According to ABARE, the listing of 321 major projects at the end of April includes 247 projects which are still undergoing feasibility studies.
But that’s lower than the October figure which showed 347 major projects detailed including 262 projects that are still undergoing feasibility studies.
Energy projects account for 54%, or A$43.4 billion, of total spending on projects, while iron ore projects account for 25%, or A$20.4 billion, the bureau said in a separate statement.
Advanced minerals and energy projects to the value of $80 billion support expectations of growing demand for minerals and energy commodities in the medium term, according to ABARE’s Executive Director, Phillip Glyde.
“The relatively high value of advanced minerals and energy projects was achieved despite a number of projects being placed on hold,” Mr Glyde said.
The increase in the value of advanced projects was supported by the commitment of two multibillion dollar projects; the Rapid Growth 5 iron ore project and an upgrade of some of the oil and gas fields associated with the North West Shelf project, and also partly by a decrease in the value of the Australian dollar.
Western Australia accounts for more than 70% of the capital expenditure on advanced projects, including eight oil and gas projects (valued at $26.8 billion) and 10 iron ore projects ($20.4 billion).
“Western Australia continues to account for the largest share of capital expenditure, reflecting the capital intensive nature of iron ore, and oil and gas projects,” said Mr Glyde.
Queensland accounts for a further 15% ($12 billion) of capital expenditure on advanced projects, with more than half of this in coal mining and related infrastructure projects.
The report also showed that expenditure on exploration in Australia’s minerals and energy sector is estimated to top $5.6 billion this financial year.
That, ABARE said would be "the highest on record and more than twice the annual average expenditure of the past 25 years".
But ABARE pointed out that while heading for a record, there was a slowing here underway.
"While actual Australian Bureau of Statistics data has only been published until the end of 2008, it is expected exploration expenditure for the first half of 2009 will be 13 per cent lower than for the same period in 2008.
"This would be consistent with historical trends of exploration expenditure decreasing when commodity prices fall."
"In 2008-09, exploration expenditure on all major minerals and energy commodities is estimated to have increased.
“Petroleum exploration expenditure is estimated to have risen by 36 per cent to $3 billion, the highest on record, reflecting record global oil prices.
"Exploration expenditure on iron ore is estimated to have increased by 14 per cent in 2008-09 to $512 million. This follows a 58 per cent increase in exploration expenditure in 2007-08.
"Exploration expenditure on base metals, (copper, nickel, silver, lead, zinc and cobalt), is estimated to have fallen by 16 per cent in 2008-09 to $656 million.
"The expected fall in base metals exploration expenditure reflects sharp downward price movements in the second half of 2008.
“Despite the gold price remaining at relatively high levels during 2008-09, expenditure on exploration is estimated to have decreased by 20 per cent to $475 million."
