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MINING GUIDE MINING, OIL & GAS GUIDE MAGAZINE

www.miningoilgasguide.com.au | ISSUE MARCH 2013

BUOYED IN A BUBBLE?

Why IPO fever is bursting out again

WAR OF THE WORMS

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THE GLOBAL ECONOMIC CRISIS

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GLOBALIZATION OF POVERTY

FOCUS

Mining Trends for 2013

by Khu ha

MINING TRENDS 2013

nd

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contents MININGGUIDE

EDITOR’S LETTER

4 7

MINING GUIDE FOR 2013

Shortage for skilled labour will remain a challenge for 2013.

MINING BOOM STILL ON

Australia’s mining boom is still going strong with reported increases in staff and profits.

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stiffer penalties Why IPO fever is bursting out again

FEATURES

18

health reform

Gov urged to reform workplace health and safeting in the mines.

08

21 Women in mining

A recent surge of women has joined foreces with the mining industry.

MININGMAG • ISSUE JULY 2011

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protecting ancient art

MINIERS HAVE SAID THEY WILL PROTECT ANCIENT ART IN A MINING SITE

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SOCIAL MINING

SEE THE TOP 3 COMPAINES UTILISING SOCIAL MEDIA

24

02

Miners say they will protect ancient wall

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42 44 COUNSIALS WANT MORE THE FUTURE IN EXPORTS 52 54 NATHAN TINKER ASSEST

OIL IN 60 SHALE AUSTRALIA

56

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how to succeed

56

LEARN THE TOP WAYS TO SUCCEED IN MINING

NSW CITY COUNCIL WANT MORE ROYALTIES FROM MINING

TINKER HAS BEEN THREATENDED WITH AN ARREST IF HE DOES NOT SETTLE HIS DEBT

global warming

GRADE NICKEL - BHP

Cover Story The Australian Bureau of Statistics reports that the slowdown in the mining sector in the last quarter of 2012 caused a reduction in business investment. the amount that businesses invest on assets such as physical facilities and equipment.


Focus Story Pat.Muigai

by

Chief Editor

Mining Trends for 2013 Times are increasingly tougher for the mining industry in Australia. The persisting uncertain global economy, unstable commodity prices, high operating and labour costs and other challenges facing the industry means the mining boom in Australia is likely to slow down. In its annual Tracking the Trends report, Deloitte examines the trends and challenges in the mining industry in Australia for 2013. The rising cost of operation is one of the biggest challenges facing the Australian mining industry today. This will persist in the coming months owing to factors such as high labour costs, a hike in Queensland royalties and taxes and compliance costs. The declining commodity prices are not expected to support these high costs of operations. The most obvious result of these challenges is that mining is becoming more costly in Australia. To remain competitive, Deloitte suggests that mining companies explore ways to increase investment in cost cutting strategies, improved efficiency in operations and in containing operational costs.

BUSINESSMAG • ISSUE JULY 2011

It is also important to have a clearer picture of future commodity demand trends for mining companies to focus their investments on more profitable projects. Accurate prediction for mining, oils and gas commodities is therefore necessary. One way to go about this is to look at past trends when planning the future.

4

There is need to consider quality of mining projects over the quantity. Increasingly, investors want to put their money in projects that seem more viable with a future that is more certain and less in speculative projects. Deloitte suggests that mining companies focus on fewer but more viable projects to attract investment. Deloitte adds that because competition for funding will remain high, mining companies should explore alternative funding options such as joint ventures, acquisitions and mergers. Another challenge that has a direct negative impact on mining is corruption.

The rate of corruption in Australia is generally low. However, deliberate efforts must be made to uphold these standards. Mining companies can also contain their operational costs by involving local communities more in their projects. This includes developing initiatives to provide training and employment opportunities to local communities, building infrastructure and education facilities, healthcare and other programs to improve relations with locals and enhance working relationships.

Shortage of skilled labour in the mining industry will remain a challenge in 2013. Deloitte says that this is unlikely to change for a while. According to the Minerals Council of Australia, about 86,000 more mining workers will be needed by 2020. This can be tackled by incentives such as wage hikes to attract skilled workers especially in remote areas. For companies aiming to keep their wages costs low, alternative incentives would be to train local talent and sponsor local educational programs and other social responsibility activities. Mining companies will need to be more involved in improving safety standards. Although mining has come a long way in safety, hazards are still many. To further develop the culture of safety, companies should invest in training, education and adopting newer advanced technologies. Deloitte says that organizations can improve safety outcomes through use of advanced data analytics and sophisticated yet affordable software. Investing in


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Profits Pat.Muigai

by

Journolist

“Mining Boom Still on”

Things are looking up in 2013. 1.2 Drop in capital expenditure.

T

BUSINESSMAG • ISSUE JULY 2011

he Australian Bureau of Statistics reports that the slowdown in the mining sector in the last quarter of 2012 caused a reduction in business investment. The ABS capex (capital expenditure) figures show that in the last quarter of 2012, businesses cut their capital spending by 1.2%. Capital expenditure shows the amount that businesses invest on assets such as physical facilities and equipment.

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Things are looking up in 2013 however as mining companies invest and spend more on their businesses. Statistics show that investment on new structures has risen by about 2.9% and 2.5% on machinery, equipment and new plants. Projections for the 2013-2014 financial year show that businesses will increase their capital spending. It is expected that mining companies will spend about $100.2 billion. Economic analysts estimate the expenditure in the 2012-13 financial year was higher by about 4% compared to the 2011-12 financial year.

According to JP Morgan (Australia), capital spending in the mining sector will peak in 2013. Although it is not clear when exactly this will be, the $100 billion investment expected in the in the 2013-14 financial year should not be a surprise, as

the Australian Reserve Bank had predicted it previously. The 2013-14 first estimate of the expected capital spending is lower than the first estimate for 2012-13 by 8.1%. However, it is expected that companies will spend $152


Reserve Bank of Australia therefore may not need to reduce interest rate to rebalance the economy once mining peaks. The bank has kept the interest rate at 3% for a while now.

Contrary to what analysts had predicted, figures on investment showed a 1.2% drop in capital expenditure in seasonally adjusted terms and inflation in the last quarter of 2012. Analysts had expected it to go up by 1.0%. Despite the slower than expected pace in December 2012, estimates for forward spending showed that investment in mining sector would not drop significantly after reaching its peak, which many analysts predict will happen soon. Speculation has been rife that investment in the mining sector would drop sharply once the mining sector reached its peak. Many expected this to influence

the capital expenditure estimates. However, the estimates suggest the peak in the sector will likely be more of a plateau. Reserve Bank of Australia therefore may not need to reduce interest rate to rebalance the economy once mining peaks. The bank has kept the interest rate at 3% for a while now. Although the mining sector has not performed too poorly despite operating in tough conditions, business has been unpredictable and this has shaken the confidence of many investors.

In the recent past, many businesses have had to restructure and adjust their spending until things improve.

The recent drop in investment was attributed to a fall in commodity prices from the second quarter of the year 2012, the unpredictable business environment and other setbacks, the mining sector is still holding up well even though some observers say the boom is over. The RBA has said other sectors need to be strengthened in anticipation for the end of the resource boom. This, it says is a good opportunity to channel more investments to other sectors such as housing, construction and other businesses.

BUSINESSMAG • ISSUE JULY 2011

billion. JP Morgan’s capital spending expenditure estimate for 2013-14 was lower at $145 billion. Despite this, JP Morgan says businesses should not expect a cash rate cut from the Reserve Bank of Australia.

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WORLD ECONOMY

BUSINESSMAG • ISSUE JULY 2011

Growth weak in manufacturing, jobs, building

10

Careers in mining are some of the most lucrative with great career growth opportunities. According to the Australian Bureau of Statistics, more than 60% of full time, nonmanagerial workforce in mining earns about $2,000 per week. Despite this, the female workforce in the industry is still relatively small, making up less than 15%. But this is changing. For a long time, the idea of working in remote areas away from family

and the many demands of the work discouraged many women from applying for jobs in mining. In recent years however, more women have joined careers in mining for several reasons. More employers are implementing strategies to make the careers attractive to women. Some of these strategies include creating equal opportunities for women and changing the stereotypical mindset that mining jobs are not for women. Companies are providing family friendly community services

“

Many of these jobs do not require candidates to have background training. However, employees can easily progress in these careers as long as they are willing to work hard and improve their skills. Additionally, the pay is good even for careers that require no professional training.


to encourage more women to take up jobs at the mines and to enable workers achieve work-life balance. The government and several groups in the industry have also had campaigns to highlight the many lucrative career opportunities available for women in the resource industry. Australian Women in Resource Alliance for instance, aims to see the number of women in mining careers double in the next few years. Women make an important contribution to the mining industry. The AWRA says the roles women play contributes to the success of many mining, oil and gas industry projects . The alliance aims to boost women’s participation in the industry to 25% by 2020 up from 13.4%. It is estimated that by 2016, about 90,000 new jobs will be created in the resources industry. Many of these jobs do not require candidates to have background training. However, employees can easily progress in these careers as long as they are willing to work hard and improve their skills. Additionally, the pay is good even for careers that require no professional training. The average salary in the mining industry is about $90,000. A truck driver with no prior experience for example, can earn up to $110,000 per year. Senior positions pay much higher. To attract and retain more women in these careers, there is need for employers to engage with tertiary institutions in promoting courses to female students that will enable them find employment in the resources industry. Currently, there are only about 250 female students graduating from mining engineering courses every year. There is a huge gap and more qualified geologists and engineers are needed. The number of female engineers graduating from institutions of higher learning needs to increase by about 100%.

BUSINESSMAG • ISSUE JULY 2011

Employers too have an important role in growing the female workforce in the resources industry. Village facilities at the workplace should be built to accommodate women. Flexible work practices should be implemented as well and many of the jobs, from entry level to senior positions should have gender-neutral roles. Fortunately, the mining industry offers an extremely wide variety of career options that appeal to women. These are both directly related or in fields that support the mining industry including careers in scientific research, ICT, trade based roles and business related jobs. The industry also employs many job seekers in the fields of project management, hospitality, engineering, administration, accounting, cleaning and many others.

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BUSINESSMAG • ISSUE JULY 2011


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BUSINESSMAG • ISSUE JULY 2011


BUSINESS TECHNOLOGY

Mine managers and their employers could be made to pay steeper fines or sent to jail if the Western Australia government implements a proposal to review the state’s mining legislation as a measure to improve safety in mines.

BUSINESSMAG • ISSUE JULY 2011

According to the proposal, the penalties will correspond to the size of the company and its resources, including oil and gas companies. Larger companies will therefore pay a higher price for perceived safety breaches that may contribute to fatalities at mines or oil rig sites. This means managers will be held responsible and could be jailed for death of workers on site or if it is proven that the company contributes to environmental pollution.

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Also in the proposal is the suggested demerit point system. In this system, a company that runs out points because of serious safety failures could have sanctions imposed on it, including suspension of its operations. Other suggested deterrent measures include issuing warnings and imposing fines, amending licenses and prosecution.

Stiffer Penalties for Safety Hitches Proposed Part of the discussion is the possibility of charging the manager or head of company with corporate manslaughter for the workers’ death. This also includes holding the managers liable for cases of pollution to the environment.

The proposal seeks to criminalize safety breaches that result in death of workers. Part of the discussion is the possibility of charging the manager or head of company with corporate manslaughter for the workers’ death. This also includes holding the managers liable for cases of pollution to the environment.

Currently, the Mining Act has no provision for managers and heads of companies to be sent to jail for offences stated under it. However, members of company management can be prosecuted and possibly be jailed for breaching the Dangerous Goods Safety Act.


The initial investigations prior to the review of the mining legislation, under which the revised penalties will be defined, will be undertaken by the state’s Department of Mines and Petroleum. The department says that the penalties will compare to those established in other Australian jurisdictions as well as overseas. The department will also explore different ways to enforce the revised laws.

The department further adds that although safety has improved in the recent past, mining companies and stakeholders must always remain vigilant. It cited the year 2012 as a record setter for having zero fatalities. In addition, records show that every year, safety inspectors hand prohibition notices that suspend mining operations of companies deemed to have unsafe sites or equipment. Nonetheless, the department says, the penalties must be reviewed to maintain high

standards of safety. Majority of mining companies in Western Australia meet the set standards. However, reports still emerge showing that some mining companies are getting away with serious breaches of safety procedures and other violations such as environmental pollutions right under the watch of the responsible watchdog bodies. The review of the mining legislation is therefore necessary to make sure Western Australia learns important lessons from other jurisdictions that meet international standards for best practices.

Currently, the report is in its formulation stage. It is expected to be ready for release in mid 2013 and will be made open for public and industry discourse. Relatives that have lost family members to mine fatalities are supporting the proposed review. They hope the higher fines and stricter laws will prevent more losses in future.

BUSINESSMAG • ISSUE JULY 2011

“

Majority of mining companies in Western Australia meet the set standards. however, reports still emerge showing that some companies are getting away with serious breaches of safety procedures and other violations.

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NATIONAL Pat.Muigai

by

Journolist

Government

Urged

to Develop a Policy to address Transient Workforce Health Problems There were also concerns about a growing trend in which mine workers were bingeing on alcohol and abusing other substances. Not only was this reported to affect the worker’s wellbeing, but it was also causing other problems such as violence, including domestic violence.

BUSINESSMAG • ISSUE JULY 2011

A parliamentary committee has tabled a report following its inquiry into the practices of using Drive-InDrive-Out (DIDO) and Fly-In-Fly-Out (FIFO) workforce. The inquiry also aimed to explore ways to enhance the FIFO/ DIDO workforce experience for regional Australia communities, workers and their families and the mining industry.

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ees were mentioned as important factors in determining the level of risk. According to the findings, young single males were hit hard by the FIFO effects. Evidence showed that his group was engaging in risky activities in search of excitement during their time off work away from the boring life at remote mine sites.

One of the committee’s recommendations to the Federal Government is the development of a comprehensive policy to address employee health problems that are linked to FIFO/DIDO practices. During the inquiry, the committee gathered crucial information on the negative impact of the FIFO arrangement in Regional Australia.

Many of these workers were getting injured or infected with STIs. Medical practitioners reported that there were more cases of young men coming from Asian Holidays with STIs. There were concerns of introduction of the South Eastern strains of the diseases to Australia. There were also concerns about a growing trend in which mine workers were bingeing on alcohol and abusing other substances.

It emerged that most of the workers’ health problems were a direct result of social isolation, which was linked to a rise in alcohol and substance abuse, mental health problems, poor diet and lack of exercise, fatigue and injury, sexually transmitted infections and injury from high risk behaviour.The age and risk profile of employ-

Not only was this reported to affect the worker’s wellbeing, but it was also causing other problems such as violence, including domestic violence. Increasingly, FIFO workers were displaying a culture of anti social behaviour while mine managers were cashing in on the situation by supplying alcohol to the workers on site.


The committee found that there were insufficient support services for FIFO employees working in remote areas away from social support from family and friends. Although there was insufficient data to support this claim, medical reports showed that the FIFO

practices were aggravating health problems while in some cases it was a direct effect. The ommittee also noted that many employers had programs to promote the wellbeing of their workers such as provision of accommodation and healthy lifestyle programs. However, it recommended the commissioning of a comprehensive study into the effects of FIFO and DIDO on workers’ health and the development of policy to address these problems.

Following these recommendations, some mining, oil and gas employers have appealed to the government to conduct further research based on evidence before implementing the recommendations of the report. The concerns of these employers stem from the huge need for skilled workforce for the growing mining projects and the high cost of operation in Western Australia. According to the employers, FIFO gives workers wider choice in a competitive job market and it is up to them to decide where they wish to work or live.

BUSINESSMAG • ISSUE JULY 2011

Workers who wished to get help for alcohol and substance abuse lacked time to get proper treatment because of long working hours and family commitments. As a result, some of the workers suffered anxiety and depression.

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ARTICLES Pat.Muigai

by

Journolist

Mining Careers to attract more women.

BUSINESSMAG • ISSUE JULY 2011

“ 20

Careers in mining are some of the most lucrative with great career growth opportunities.

For a long time, the idea of working in remote areas away from family and the many demands of the work discouraged many women from applying for jobs in mining.�

According to the Australian Bureau of Statistics, more than 60% of full time, non-managerial workforce in mining earns about $2,000 per week. Despite this, the female workforce in the industry is still relatively small, making up less than 15%. But this is changing. For a long time, the idea of working in remote areas away from family and the many demands of the work discouraged many women from applying for jobs in mining. In recent years however, more women have joined careers in mining for several reasons.

More employers are implementing strategies to make the careers attractive to women. Some of these strategies include creating equal opportunities for women and changing the stereotypical mindset that mining jobs are not for women. Companies are providing family friendly community services to encourage more women to take up jobs at the mines and to enable workers achieve work-life balance. The government and several groups in the industry have also had campaigns to highlight the many lucrative career opportunities available for women in the resource industry. Australian Women in Resource Alliance for instance, aims to see the


number of women in mining careers double in the next few years. Women make an important contribution to the mining industry. The AWRA says the roles women play contributes to the success of many mining, oil and gas industry projects . The alliance aims to boost women’s participation in the industry to 25% by 2020 up from 13.4%. It is estimated that by 2016, about 90,000 new jobs will be created in the resources industry.

Many of these jobs do not require candidates to have background training. However, employees can easily progress in these careers as long as they are willing to work hard and improve their skills. Additionally, the pay is good even for careers that require no professional training. The average salary in the mining industry is about $90,000. A truck driver with no prior experience for example, can earn up to $110,000 per year. Senior positions pay much higher.

BUSINESSMAG • ISSUE JULY 2011

To attract and retain more women in these careers, there is need for employers to engage with tertiary institutions in promoting courses to female students that will enable them find employment in the resources industry. Currently, there are only about 250 female students graduating from mining engineering courses every year. There is a huge gap and more qualified geologists and engineers are needed. The number of female engineers graduating from institutions of higher learning needs to increase by about 100%.

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HEADLINES ViA The Australian

ACCC takes action against

Energy Australia

THE competition watchdog has launched legal proceedings against one of Australia’s largest energy companies, alleging its sales representatives misled homeowners during a door-to-door marketing campaign. The Australian Competition and Consumer Commission has taken action in the Federal Court against EnergyAustralia as well as four marketing companies engaged to do the work on its behalf. “These are the third proceedings that the ACCC has instituted against an energy retail company in the past 12 months for similar conduct, highlighting significant concerns regarding door-to-door selling practices in Australia,’’ Commission chairman Rod Sims said.

In February of this year, EnergyAustralia formerly called Tru Energy said it would stop door-to-door marketing by the end of this month. The watchdog is alleging that sales representatives made “false, misleading or deceptive’’ claims when calling on people at homes in Victoria, NSW and Queensland to discuss their gas and electricity contracts between 2011 and 2012. In February of this year, EnergyAustralia formerly called Tru Energy said it would stop door-to-door marketing by the end of this month.

In March last year, the Federal Court ordered Neighbourhood Energy and the marketing company Australian Green Credits to pay a total of $1 million for illegal door-to-door selling practises, after action was lodged by the ACCC. Other court proceedings, against AGL Sales, AGL South Australia and the marketing company CPM Australia, are ongoing.

BUSINESSMAG • ISSUE JULY 2011

“We take these allegations and compliance with consumer laws very seriously. We will carefully review the allegations and respond to them in due course,’’ Group Executive Manager of Retail Adrian Merrick said.

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Miner it will protect anciente Quinkan rock art says

in Cape York

via news.com.au

ONE of Australia’s biggest mining companies says it has no intention of damaging ancient Quinkan rock art in Cape York, in an area where it wants to explore for minerals. But opponents aren’t convinced. Jacaranda Joint Venture, half of which is owned by Gina Rinehart’s Hancock Prospecting company, has applied for two permits to search the region, including a 307 square kilometre area about 40km southeast of Laura. Hancock Prospecting chief development officer John Klepec says the firm will remove rock art and other significant heritage sites from its application once the locations of these have been confirmed. He says the firm only recently found out there are significant rock art sites in the area. It doesn’t have access to the area or the ability to carry out a heritage survey with local native title claimants just yet, he says. Wilderness Society’s Gavan McFadzean says the proposed changes aren’t enough, and the permit applications should be withdrawn permanently. “Sorry Gina, you can’t just put a fence around a few rock art sites and mine the rest,” he said. “There are literally hundreds of rock art sites and other cultural artefacts dispersed throughout the Laura escarpments. “This is a region where mining is simply inappropriate.”

“The rock art is very, very important to us,” he told AAP. Queensland’s Minister for Aboriginal and Torres Strait Islander and Multicultural Affairs, Glen Elmes, says no decision has been made to grant the permits. “I assure the communities of Cape York that any concerns they may have will be heard and addressed during the consideration of these applications,” Mr Elmes said. The permits will be assessed under the Commonwealth Native Title Act, The Aboriginal Cultural Heritage Act, the Mineral Resources Act and the Environmental Protection Act. The Quinkan rock art is listed by UNESCO as one of the top 10 rock art sites in the world.

BUSINESSMAG • ISSUE JULY 2011

Thomas George, a spokesman for traditional owners and a Quinkan rock art tour guide, says any mining in the area would drive away tourists.

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BUSINESSMAG • ISSUE JULY 2011


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Pat.Muigai

by

Journolist

Hybrids, all electrics, cars that use alternative fuels and smaller cars are all the rage in offering fuel economy. However, the market for spacious cars is still large, which has prompted car manufacturers to find ways to make cars that offer significant energy savings without reducing the car size.

Lightweight Cars for Energy Efficiency The weight reduction focuses on the parts of a car that represent about 75% of the total car weight; the chassis, suspension and body.

BUSINESSMAG • ISSUE JULY 2011

According to a report by the Massachusetts Institute of Technology, creating lightweight cars can be achieved either through using lighter material in manufacture or by making basic design changes to the cars. It adds that by 2035, the average weight of vehicles may be lighter by about 20%. This, the report said, could reduce fuel consumption by 12%20%.

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The weight reduction focuses on the parts of a car that represent about 75% of the total car weight; the chassis, suspension and body. These parts normally have the highest amount of aluminium. Part of the solution is to reduce some materials and mix others. In future, more cars will be made with mixed materials

With its high yield and tensile strength, aluminium has an elastic module that is lower than iron or steel. Aluminium is lighter than steel by about 65% but costs twice as much. It is mostly used on the engine, transmission and driveline and on the wheels. Magnesium is lighter than both steel and aluminium. However, its performance

is lower and it costs more than twice as high. Magnesium is used on parts that require thin walled die castings. Composite materials such as glass fibre and carbon materials are even lighter at about 20% of the weight of mild steel and three times higher tensile strength. However, composite materials cost between two and 10 times more than steel.


Most of the cars at the time were changed to a unibody design from body-on frame design. Increasingly, car manufacturers are designing car bodies using a ‘space frame’ design, which incorporates aluminium in the car’s structures. The space frame design involves complete redesign on cars to make them lighter. This means the process is more costly may take longer to execute. Lightweight cars are also made using mixed materials. For example, components made of steel can be made lighter by sandwiching materials and using laser welded blanks that lower the weight while maintaining the overall design of the car. Apart from design changes and replacement of heavy materials with lighter ones, further weight reduction can be achieved by reducing the size of subsystems that contribute to the vehicle’s weight. The vehicle’s weight determines the amount of energy it uses to move.

When the engine is ineffective, it leads to fuel wastage amounting to up to 70%. A lighter car consumes less fuel even when some parts are ineffective and this translates to less fuel wastage. With reduced weight, there is less pressure on vehicle’s parts and subsystems. The MIT report adds that resizing the vehicle’s subsystems accordingly translates to about 1.25 kg of savings for every initial mass change of 1kg.

Magnesium is lighter than both steel and aluminium. However, its performance is lower and it costs more than twice as high. Magnesium is used on parts that require thin walled die castings.

composite materials such as glass fibre and carbon materials are even lighter at about 20% of the weight of mild steel and three times higher tensile strength.

BUSINESSMAG • ISSUE JULY 2011

Redesigning the structural configuration of cars is the other strategy for manufacturing lightweight cars. This example is best demonstrated by the changes in the 80s that significantly reduced the average weight of cars.

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ViA DRILLINGINFO.COM

3 Oil and Gas Companies that are Killing It in Social MediaAustralia It’s no secret. Oil and gas companies face an uphill battle when it comes to public perception. Even with President Obama wholeheartedly embracing fracking and touting its benefits in his State of the Union address, the industry is overwhelmingly seen in a negative light. A slew of celebrities are at the forefront of the campaign aimed at convincing Americans that all the industry wants to do is pillage small towns and destroy the environment. According to this narrative, operators are nothing more than fat old white men bent on driving up prices and laughing all the way to the bank. We recently talked about how it is impossible for US companies to control oil prices when they contribute a fraction of its production. And anyone who has worked in this industry for one day knows how much companies contribute to the communities in which they operate. Unfortunately, these facts don’t stop the flood of negative press. But, while some in the industry are resigned to quietly grumble about our ill-fated image, many more are stepping up to the challenge to shift perceptions and show Americans the truth about oil and gas. These brave souls are taking to several different mediums to tell their stories. Phelim McAleer has made waves with his highly-lauded documentary, Fracknation, which has garnered favorable reviews from some very unlikely places. Perhaps the most courageous of them all are those companies that have taken to Facebook, Twitter and LinkedIn. Social media can be a scary place for any company, let alone ones with legions of haters waiting to pounce on their every move. This is probably why social is the final frontier for our industry. Yet, like any other frontier it must be conquered by those who are willing to bravely go where no man has gone before. #1 – Statoil: First of all, let’s do the numbers. Statoil’s LinkedIn company page has 62,803 followers. They also boast 10,796 followers on Twitter, 6,391 Likes on their Facebook page and 112,272 views on their YouTube channel. But, my favorite social channel of Statoil’s is hands down their LinkedIn group.

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#2 – Shell: In some ways, including Shell in this list isn’t even fair. Basketball fans say Wilt Chamberlain has his own record book; you could say the same about Shell’s social media presence. The company has 5 different LinkedIn pages with a total of – get this – 494,176 followers. They also have a LinkedIn group with 16,755 members. Their presence on Twitter ain’t too shabby either clocking in at 115,426 followers. Then there’s “The Facebook” where they have 3,158,621 Likes and YouTube where their channel has racked up 12,209,350 views. Seriously, it just seems like they’re showing off at this point! But, just like Statoil, these numbers are no accident. Shell has a strategy and they relentlessly execute upon it. Their branding is consistent across every social network and they encourage people to join their communities and tell their friends. Good, bad or indifferent, they welcome all views and give everyone a voice in telling their brand’s story.

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#3 – Chesapeake: Led by the intrepid Lanie James, Chesapeake has one of the most innovative social programs in oil and gas. The company boasts 20,362 Likes on their main Facebook page, 18,583 followers on LinkedIn, 7,646 members in the Chesapeake Energy Careers LinkedIn group, 36,952 followers on Twitter and 619,431 views on YouTube. But, while all of those big numbers are impressive, what sets Chesapeake apart is their use of regional Facebook pages targeted toward various shale plays around the country. The company has separate pages set up for the Eagle Ford, Utica, Barnett, Haynesville, Marcellus and Rockies. These pages allow them to communicate directly with the residents in each region. This gives community members a place to have their voices heard. It also gives Chesapeake a place to address concerns and ultimately win fans.


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BUSINESSMAG • ISSUE JULY 2011


High Court hears Fortescue’s objections to mining tax The High Court’s been told the Federal Government’s Minerals Resource Rent Tax breaches the constitution because it is applied differently in each State. Mining magnate Andrew Forrest, the founder and major shareholder of Western Australian iron ore producer Fortescue Metals, wants the High Court to rule the tax invalid. Proceedings did not get off to a good start this morning for the plaintiffs, with chief justice Robert French refusing an application from Western Australia to lodge

Proceedings did not get off to a good start this morning for the plaintiffs, with chief Justice Robert French refusing an application from WA. documents supporting the case.

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David Jackson QC, who is representing Mr Forrest’s companies, has told the court the case is about the structure of the tax.

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Under the tax companies pay 22.5 per cent on profits above $75 million from iron ore and coal production, but can deduct any state royalties from that amount.


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It appears 2013 will be a record year for exploration and discovery. The first quarter is hardly over yet so far, several viable discoveries have already been made in East, West and North Africa, Asia and Brazil.

2013 Showing Positive Signs for Mineral Discoveries Security is understandably a major concern for foreign oil and mining companies operating or exploring in Libya.

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Karoon Gas Australia Limited discovered light oil in Brazil in January 2013. The discovery was made at the company’s Kargaroo-1 exploratory well located in offshore Brazil at the Santos Basin. Other presalt discoveries have been made in the same area previously. The discovery was also unexpected since the company was initially exploring the Bilby-1 and EMU-1 well in the area.

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In Egypt, Italian company Eni announced it had discovered oil in the Western Desert of Egypt at its well named Rosa North. The new discovery at Meleiha Concession encountered an oil pay of about 80 metres in the Alam El Bueib, Bahariya, Ras Qattara and the Khatatba reservoirs. The company has been exploring deep oil reserves in the Egyptian desert since 2010.

It discovered oil the same year and started production soon after in another field stillin the Western Desert region. The Western Desert region of Egypt appears rich in untapped resources. In May 2012, Eni made a sizable discovery at another oil field (Emry), which produces 18,000 oil barrels daily. The new oil fields are expected to produce about 5,000 barrels daily within the first

six months. The company produces more than 50,000 barrels in its six oil fields in the Egyptian desert. Still in North Africa, Algeria’s Sonatrach discovered oil and gasin south east of Libya. Since relaunching its exploration activities in 2012, the company has made four discoveries. The new find is expected to produce 8,200 barrels and 1.7 million cubic metres of gas per day.


Tullow Oil, a UK company made major oil discoveries in Kenya in early 2012. Since then, the company has been working to prove the find’s commercial viability. In February 2013, the company announced that its well in Northern Kenya, the Twiga-South-1 can produce 2,351 barrels every day. The company is in the process of completing the fifth test at the TwigaSouth-1 well following the previous four. In Abu Dhabi, Fairfield Energy and its partner TAQA announced it discovered oil at the North Sea area in February. The North Sea has rich potential for oil and the group had begun drilling in the region in late 2012. TAQA is a major oil stakeholder in the region. Another pre-salt discovery was made late January 2013 by Maersk Oil (Denmark) in Angola. The new find is located at the company’s Caprolo-1 exploration well in Angola’s

deep water fields on the Namibe Basin. The newly discovered reserve has the capacity to produce about 3,000 barrels per day. In September 2012, the company, in partnership with Angola’s Sonangol and Odebrecht (Brazil) discovered oil at Azul-1, which produces 3,000 barrels per day.

As companies in the mining, oil and gas industry expand their exploration, stakeholders look forward to more discoveries of untapped potential.

Magnesium is lighter than both steel and aluminium. However, its performance is lower and it costs more than twice as high. Magnesium is used on parts that require thin walled die castings.

composite materials such as glass fibre and carbon materials are even lighter at about 20% of the weight of mild steel and three times higher tensile strength.

BUSINESSMAG • ISSUE JULY 2011

Security is understandably a major concern for foreign oil and mining companies operating or exploring in Libya. Nonetheless, the government is reported to be keen on developing the country’s potential in natural resources in the future.

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Pat.Muigai

by

Journolist

Creating a Culture of Innovation in the Mining Business

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Innovation in the mining sector is essential to growth, productivity and optimizing assets to achieve more with less.

factors such as the pressure to fill the demand for commodities, to maintain social license for operation and need to raise shareholder value are arguably providing stronger motivation for real innovation.

Dr. Nick Fleming, who is head of sustainability and innovation at Sinclair Knight Merz (SKM), says innovation in the mining business is more than invention and basic research and development, meaning it involves application of new ideas. “New inventions are occurring every day, but there are reasons why there is an increased focus on making innovation a core business competency in many businesses the world over.” He says factors such as the pressure

to fill the demand for commodities, to maintain social license for operation and need to raise shareholder value are arguably providing stronger motivation for real innovation. “There is a shift from capital expenditure to asset optimization and operational efficiency,” he says. Additionally, the demands of complex ore extraction and the ever rising standards of safety are requiring companies to find innovative ways to do business. Location specific factors such as the challenges associated with extracting resources in remote locations and labour shortages also require innovation for solutions.


He says that ultimately, all these factors combine to mean that business as usual is longer a viable strategy. “Efficiency gains are unlikely to maintain business success and more innovative solutions are required.” Future solutions for the mining sectors lie in innovations in the areas of optimization and integration of the resources processing, autonomous mining, data capture and new mining systems. Dr Fleming says consistent innovation is difficult to achieve without involving human resources. Leadership has a role to invest in people and reward the behaviours that promote innovation. For any innovation program to succeed, it is important for leadership to demonstrate commitment to recognizing and rewarding success, including learning from past failures. “In many cases, potential exists for the people to be creative. The raw material, if you like, exists. The question is, is there a genuine desire for innovation?” He says commitment and the staff collaboration are essential to conceiving and developing new ideas. “We have seen the power of what we call the ‘design coaches’ bringing people together to identify and solve problems and how they can identify transformative solutions in relatively short spans of time.

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Certainly, innovative ideas should be integrated into the business processes to prove their value. Fortunately, such ideas can be implemented easily within already established systems. These should be aligned with the existing business processes as closely as possible for faster results to be evident. It is also important to engage meaningfully with other organizations for valuable insights and to check the value of innovations.

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BUSINESSMAG • ISSUE JULY 2011


ED PERRY

by

27/2/2013

7 Steps to Succeed in the Tough Oilfield Services Business Successful Oilfield Services companies deserve our respect and admiration. Their efforts are vital to our having access to the energy that fuels our quality of life. Oilfield Services is a tough industry. Though the industry encourages entrepreneurship, there is so much opportunity—and will be for so many years to come—that many have jumped in, and the industry has become hyper-competitive.

Rising to the Top How do companies succeed? At a high level, the winners follow the strategies that Michael Treacy and Fred Wiersema de-

BUSINESSMAG • ISSUE JULY 2011

scribed in 1995:

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Operational Excellence – Deliver a great balance of quality, price and ease of purchase/use. Product/Service Excellence – Deliver the best product or service. Customer Intimacy – Deliver exactly what the customer wants. But if you dig into the details, each of these strategies comes with its costs. Operational Excellence requires comprehensive intelligence on the marketplace and being nimble to adapt the balance of quality, price and ease of purchase/use to the market. Product/Service Excellence requires extensive intelligence gathering on the future needs of the industry and what competitors are doing. And Customer Intimacy demands highly focused intelligence gathering to know where the niche opportunities are, and guidance on how to be very nimble at adapting as the industry inevitably evolves. There’s a common theme: Success in the Oilfield Services industry requires smart decision making based on the best intelligence. But, what is intelligence? And how do you get the right intelligence to make the right decision? Some people mistake data for intelligence. Though data is important, it’s only useful within the context on how to use it. It also requires analysis to figure out what the data tells you.


From Data to Intelligence

So, how do you turn data into valuable intelligence? Many businesses use a process originally developed by Drexel Godfrey and Don Harris for helping police forces. Their process is summarized on page 34 of a report they wrote in 1971 for the Department of Justice. The steps are: Collection and Evaluation – Gather just the right data for the decision to be made. Filter out what’s not useful. Collation – Organize the data in a way that supports decision making. Analysis – Study the data to determine what’s the right thing to do. Determine the risk involved in the choices available. Reporting – Report to others what is learned, then decide. Dissemination – Direct those that must take action on the decision. Reevaluation – Determine how successful was the decision. Management – Revise the data gathering and analysis based on what is learned from the outcome of the decision. Successful oilfield services companies are often great at steps 4 through 7. But collecting the right data and turning it into intelligence, steps 1 through 3, pose the greatest challenge for several reasons. First, the sheer quantity of data can be overwhelming. Sometimes there’s just too much, and analyzing it becomes a burden. And more often than not, the key data that’s needed is missing. Then, what’s not missing is sometimes too old. In the hyper-competitive services industry, successful companies gather intelligence that’s up-to-the-hour, not up-to-the-week or -month. Therefore, most data sources are still just not up to date enough to support competitive decision making. In addition to issues around quantity and quality, companies face the struggle to making the data useful. Getting data into a format that makes it easy to understand is a huge challenge. Plus, analytical tools are often costly and difficult to use. This creates bottlenecks around analyzing the data to create intelligence. Being competitive requires really smart choices on often very complex decisions. That requires using data that is

Your Answers – Delivered

Drilling Info has many very loyal Oilfield Services customers. Like our customers in E&P, A&D, Land, G&G, Engineering, Finance and Legal, we’re committed to providing them the very best products to support their intelligence gathering and decision making. Many of the recent products we’ve developed in prior years have been aimed at delivering more comprehensive support to our Oilfield Services customers. DI Rigs is just one such example of this. This year, we will develop a series of new products, all aimed at providing our customers in Oilfield Services answers—answers to the most important questions they face in making their businesses successful. We will continue to gather only the right data, clean it up and make it available in ways that make it easy to use and understand. We will then analyze that information to find the valuable nuggets that can support our Oilfield Services client’s decisions.

Ahead of the Curve

Long before joining Drillinginfo, I spent 12 years working with two Oilfield Services companies. A lot has changed since then, but the bottom line is that service companies face many headwinds in today’s environment. However, like any other industry, it is the innovators and early adopters who will reap the greatest benefits and leave their competition in the rear view window. Companies that aren’t afraid to try new things and “fail forward,” as John Maxwell puts it, will always lead their respective industries. The only question that remains is who will be those companies in our field in the coming years?

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We’re starting with data and services to support better delivery of warm leads. We believe that regardless of the business strategy our customers use, providing them good intelligence on sales leads will be valued. We will help provide answers to vexing questions, like what areas are becoming active, who are the major players, what services are needed, who are the competitors and, in time, what are prevailing pricing trends?

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China’s iron ore imports fall for second month CHINA’S demand for iron ore fell for the second consecutive month in February, with imports of the commodity down 14 per cent. The fall follows claims by China’s national planning agency that the biggest seaborne iron ore producers -- Rio Tinto, BHP Billiton and Brazil’s Vale -- had acted to keep prices high by orchestrating perceptions of supply shortages.

BHP to cut debt in

BUSINESSMAG • ISSUE JULY 2011

asset sell-off

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BHP Billiton has more than 10 assets on the chopping block -- believed to include coal interests in Australia and oil and gas holdings offshore -- which would add substantially to the $US4.47 billion raised from the sale of four assets since last August. The asset sales program is being portrayed as a continuation of its strategy of divesting non-core and underperforming assets rather than a Rio Tinto-like need to reduce debt.


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BUSINESSMAG • ISSUE JULY 2011


DRILLINGINFO.COM

by

Australia Could

Surpass China in Rare Earths Output

While environmental concerns have hindered the production of rare earths, demand keeps rising. China’s own domestic market for rare earths is huge. According to analysts, China has exhausted its quota of annual export in the face of growing domestic and external demand for the commodities.

The world’s largest importers of rare earth elements are increasingly shifting attention to Australia after the world’s dominant producer, China, started restricting its exports. While the US considers scaling up its rare earths production, other dominant consumers like Japan and Europe are looking to Russia, South Asia, Brazil and Australia to fill in the supply deficit caused by China’s restrictions. Australia has rich reserves of both light and heavy, high grade rare earths, which make up almost half of the world’s reserves at 46%. As such, Australia could easily outpace China in the rare earths business.

BUSINESSMAG • ISSUE JULY 2011

Australia aims to dominate the supply of rare earths in the next few years.

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Rare earth elements refer to 17 elements that rarely exist in pure form. The fact that these elements are embedded in other minerals within the earth’s crust makes their extraction costly and damaging to the environment.

Processing rare earths often produces toxic by-products. The by-products, known as tailings, are sometimes contaminated with radioactive substances. Concerns about environmental pollution in rare earths extraction has resulted in some countries with rich deposits such as the US to opt to import. More than 90% of rare earths imports to the US come from China. Ironically, most applications that use rare earth elements are in green technologies. Rare earths are essential to the manufacture of hybrid cars, most of the energy efficient fluorescent bulbs, catalytic converters and magnetic refrigeration systems. The elements’ low toxicity properties make them suited to the manufacture of safer alternatives of products such as cadmium and lead batteries and dyes containing toxic substances. While environmental concerns have hindered the production of rare earths, demand keeps rising. China’s own domestic market for rare earths is huge. According to analysts, China has exhausted its quota of annual export in the face of growing domestic and external


Japan is one of the leading makers of appliances whose manufacture relies on rare earth elements. These include flat-screen TVs, Smartphones, digital cameras among others. To meet its demand, Japan has turned to Lynas and is also exploring the viability of recycling rare earths. Lynas is set to lead the

production of rare earths in Australia. Its 1.4 million tonnes of rare earths holding located at Mount Weld, Western Australia, which is estimated to be worth about $1.1 billion, is expected to increase its output by 100%. Outside Australia, Lynas has a 11,000 tonnes in holding at its Malaysian plant. Analysts say Lynas could also supply to China in about a decade. The US has already started reopening abandoned rare earths mines. In early 2012, Molycarp Minerals announced its return to production and later on re-

opened its plant at Mountain Pass, California. The company said it aims to increase spending on monitoring compliance with environmental requirements to minimize pollution. The plant is expected to boost the US and global supply by about 10% and reduce dependence on imports from China. Another plant in Missouri owned by Wings Enterprises will be opened in 2014.

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The growing demand for rare earths and the export restrictions by China has prompted countries like Japan to rethink their over-reliance on China for their rare earths supply.

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Western NSW Councils Vote to Collect More Mining Royalties

BUSINESSMAG • ISSUE JULY 2011

“

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Another emerging challenge for the NSW councils that was highlighted was the issue of population decline. Although Broken Hill disagreed with the government figures showing that the population of the region would decline by almost 50% within 20 years, it was a problem that could not be ignored and the councils needed to be prepared for it. The proposed task force would look into this as well and other critical problems.

A motion proposing an increase in mining royalties to NSW councils has been passed. Led by Broken Hill City Council, each New South Wales council was represented by a delegation during a conference of the Western Division of Councils. They passed the motion unanimously. Earlier on, the Broken Hill Council had made a proposal that an independent task force be formed to explore ways in which it could raise more revenue through royalties paid to it by mining companies. The new taskforce would also outline criteria to rate mines and suggest ways to earn revenue from mines that operate in the neighbouring councils while using their facilities. Councillors from Broken Hill Council said this would enable it to maintain its infrastructure and facilities such as roads that mining companies use while operating from outside Broken Hill Council. They added that Broken Hill did not have in place a way to rate these companies yet the council was incurring the cost of maintaining its facilities.


At the conference, the councillors argued that New South Wales councils were not gaining much from the mining activities in the region particularly those that put pressure on the councils’ roads and other facilities. While the councillors admitted that mining was benefiting the residents of the area by providing employment and boosting the area’s population, some of the mines were out of the councils’ rateable income. The councillors proposed that 30% of the royalties should go councils in rural areas to help with building and maintaining infrastructure. They said that the councils, especially the small ones, were facing challenges because of unequal distribution of funds from mining. While some towns such as Cobar are models that demonstrate how communities can benefit more from mining, some of the councils were having difficulty collecting enough revenue and putting it back into the council for development. Another emerging challenge for the NSW councils that was highlighted was the issue of population decline. Although Broken Hill disagreed with the government figures showing that the population of the region would decline by almost 50% within 20 years, it was a problem that could not be ignored and the councils needed to be prepared for it. The proposed task force would look into this as well and other critical problems.

Regarding mining royalties, the task force would probe into the Royalties for Regions, a program that is responsible for redistributing mining royalties to areas where revenue from mining is generated. The councillors said that a larger chunk of these funds are going to regions that are rich with coal.

Mining in NSW contributes over $2billion in royalties and taxes to the government, which uses the funds to develop infrastructure and provide essential services to councils. Part of the revenue goes into tackling climate change and reduction of greenhouse gas emissions from mining activities. The region contributes about $20 billion to the country’s economy from mineral production, most of which comes from coal, briquettes and coke.

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The delegates however were informed that this would be difficult to implement because the funding ratio through the Royalties for Regions program was based on revenue and was also fixed.

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Domestically, Australia’s expenditure on mineral exploration has improved in recent months. The Australia Bureau of Statistics reports that the country spent $3953 million on exploration in the 2011-2012 financial year up from $2951 in the 2010-2011 financial year. This was an increase of about 34%.

Trends in Mineral Exploration and the Future The issue of skills shortage should be addressed to increase the number of professionals in exploration

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From an international perspective however, Australia falls behind other competitors such as Canada.

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According to MEG (Metals Economic Group), the global share of Australia’s exploration expenditure fell more than 20% in the mid 1990s to about 12% in 2010. Although the expenditure has picked up recently, the real exploration activities are well lower than in the 1990s. The actual mineral exploration activities are normally measured by the number of metres drilled. Currently, most of the minerals produced in Australia are from deposits that were discovered about 20 years ago. Additionally, more of the exploration expenditure goes to existing projects (brownfields), a shift from the previous focus on new projects (greenfields).

In recent years, exploration activities in Australia have been directed more towards bulk commodities such as coal and iron ore. Data from the Bureau of Statistics shows that the increase in exploration expenditure on individual commodities was highest for iron ore, which increased by 73% followed by coal at 61%. Explora-

tion trends have shifted away from gold and base minerals such as copper, cobalt, nickel, zinc and lead. This is reflected in the figures, which show a lower percentage increase. Expenditure on gold exploration increased by 18%. On average, new discovery rates across all the commodities and the grade of the commodities has gener-


With the decline in exploration, quantity and grade of minerals, Australia’s resource reserves may not sustain growth in future. Exploration and new discoveries are key to the future of the mining industry. There is also need for faster processing of exploration applications. Although the economic benefits of exploration are often not immediate, it is through exploration that new projects are discovered.

The issue of skills shortage should be addressed to increase the number of professionals in exploration. Mining offers excellent careers growth and earning opportunities yet many jobs that need

specialist skills go unfilled. Government needs to streamline issuance of leases while facilitating prospectors to access to land for exploration by removing unnecessary restrictions. Such restrictions contribute to the decline in exploration in new sites. The government should also formulate policies that will maintain Australia’s global competitive advantage on its biggest export commodities such as coal. Sustaining this advantage will require expansion in exploration.

With the decline in exploration, quantity and grade of minerals, Australia’s resource reserves may not sustain growth in future. Exploration and new discoveries are key to the future of the mining industry. There is also need for faster processing of exploration applications. Although the economic benefits of exploration are often not immediate, it is through exploration that new projects are discovered

BUSINESSMAG • ISSUE JULY 2011

Australia’s falling behind competitors in exploration has been attributed pro-exploration policies that the other countries have adopted. In Canada for example, the FTS (Flow Through Shares) scheme has strengthened the country’s long term growth in exploration. Since the introduction of this scheme, Canada has experienced exponential growth in equity financings. As a result, up to 60% of all the public mining companies in the world are listed on the Toronto Stock Exchange. Furthermore, the mining analyst community in Canada is one of the largest in the world.

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Nathan Tinkler threatened with

arrest over $28m liquidation hearing

MINING millionaire Nathan Tinkler has been threatened with arrest after he failed to appear in the NSW supreme court this afternoon to answer questions about his liquidated company Mulsanne Resources. Mr Tinkler had been summoned to appear before the NSW supreme court to give an account of his company, Mulsanne Resources, which owes coal junior Blackwood $28.4 million. The $1 company Mulsanne was liquidated late last year after it failed to pay the $28.4m owed to Blackwood, and has since resulted in the summons being issued to director Nathan Tinkler to give an account of why the debt has not been paid. Mr Tinkler failed to appear before the Registrar this afternoon, instead his barrister, Alec Leopold SC, argued that the action by the liquidators was an abuse of process because they were only acting in the interests of Blackwood and not other creditors. Mr Tinkler’s lawyers applied to have the matter adjourned and have their matter heard before a judge next week. However, Robert Newlinds SC, acting for liquidators and Blackwood, called the application a “forensic stunt” that “Mr Tinkler has a reputation for”. “The real basis of this application is that Mr Tinkler has decided not attend,” Mr Newlinds said.

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Asked by Registrar Rebel Kenna whether Mr Tinkler was in attendance lawyers for Mr Tinkler replied: “No”.

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Registrar Kenna granted the adjournment until next Thursday on the proviso the have the application filed and heard before a judge in the NSW supreme court next week. In response, Mr Newlinds said that if Mr Tinkler did not appear next week the liquidators would seek to have a warrant issued for his arrest. “I want to make it 100 per cent clear, that if Mr Tinkler is not here next Thursday we will be applying to have him arrested,” he said.

Registrar Kenna also ordered costs be paid by Mr Tinkler for today’s appearance.


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MARK NIBBELINK

by

2302/2013

In Which I Continue my Global

Warming Skepticism

BUSINESSMAG • ISSUE JULY 2011

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Another emerging challenge for the NSW councils that was highlighted was the issue of population decline. Although Broken Hill disagreed with the government figures showing that the population of the region would decline by almost 50% within 20 years, it was a problem that could not be ignored and the councils needed to be prepared for it. The proposed task force would look into this as well and other critical problems.

A while back I posted some thoughts on the disheartening tendency of many well-meaning folks to embrace global warming as the explanation for many recent natural disasters. What drove me to blog about this were my golfing buddies who automatically assumed that Hurricane Sandy was directly attributable to climate change “caused” by global warming. The post sparked a great conversation that continues to draw attention from readers. Given the heated nature (pun intended) of the topic, I was impressed with the cordial responses from both sides. In the ensuing weeks, not only did my post continue to attract interest, the broader conversation continues. Not surprisingly, the advocates are out in spades.


In the 1/14/2013 edition of the Austin American Statesman a reader opined: It comes at us from all angles. Just this week we have lots of Austin American-Statesman news: 1.) 2012 hottest year on record — a whopping 3.2°F above normal; 2.) Highways near Galveston under threat of high water sooner than expected; 3.) LCRA cuts off rice farmers with Lake Travis at only 41 percent. As the blind man feels around the elephant — all these stories feel like elephant. That elephant is climate change. We may believe i’s too big to talk about. But we’ll have to spend $60 billion to help New York and New Jersey recover and prepare for the next storm. What about that next storm in Galveston/Houston or New Orleans? Is the cost of moving off carbon fuels too high? The cost of not moving to renewable energy is both persistent and much, much higher: Drought, heat, rising oceans, crop failures, tropical diseases, hurricanes and more… Probably killer asteroids, alien invasions, and Ice 9 doom as well. (Remember Vonnegut?) And in the 1/15/2013 edition of the paper we read this: “…More than individual catastrophes, the trend of high temperatures and reduced precipitation is changing the world our parents gave us and may ruin the world our children will inherit… Climate change is a challenge that we can win by reducing our dependence on fossil fuels and investing in renewables…” What is so striking to me is the assumption that what we’re seeing in terms of weather and temperature is unique. And what is so galling is the presumption that petroleum geologists, and by extension anyone who works in the upstream Oil & Gas business, can’t be trusted to honestly look at the facts. I begin to feel like Jack Nicholson’s character in A Few Good Men who screams at Tom Cruise, “You want the truth? You can’t handle the truth!” I’ve started wondering why we are so willing to take leave of our capability to think and instead choose to gleefully force 2+2 to equal 13. And then it hit me. We, as a species, need stereotypes. We gotta have ‘em. Life is too much work if every occurrence, every action, every behavior is rationally examined for cause and effect. Once you start intellectually turning over rocks to see what’s underneath, then all sorts of possibilities suggest themselves to you and life just gets way too complicated! Better to have an easy tribal meme like global warming that the tribal cognoscenti can unite behind than it is to have the really inconvenient truth manifest itself—that our climate is a product of the forces that rule the earth, and that our earth has been moving, warping, colliding, fracturing, heating and cooling ever since it was born out of stars. And the number of variables that are necessary to model it are astoundingly, impossibly large.

BUSINESSMAG • ISSUE JULY 2011

From Russia, With Love Last time I mentioned the Vostok ice core that Russian scientists recovered while drilling in Antartica. It’s very revealing and I’m reproducing it here in a couple of different forms:

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Unless you believe Russian scientists are totally incompetent you have to conclude from the data that: For the past 400,000 years there have been rapid and cyclic rises and falls in the Earth’s temperature, CO2, and methane concentrations. For example, if you look at the data (and not just the graph), there was a 12% increase in global CO2 over 840 years about 269,000 years ago and a 23% increase in CO2 between 14,000 and 18,000 years ago. The periodicity of these cycles is about 80,000-100,000 years. The earth’s temperature started the newest cyclic climb about 15,000 years ago – well before the Age of the Automobile. There’s a strong inverse correlation between atmospheric dust and temperature.

Geology Down Under

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This last point is especially intriguing to me. I just got back from a trip to Australia. While there, I four wheeled through the Yeagarup sand dunes in the Cape D’Entrecasteaux National Park. (On sanctioned trails, of course.) These spectacular dunes are composed of fine white sand and measure at least 13Km by 3Km in areal extent. Here’s the best part: they were formed about 12,000 years ago at a time of maximum cooling. The cooling of the earth withdrew ocean waters into the Arctic ice cap, causing sea levels to fall. Ultimately the Australian shelf withdrew about 10 km seaward from its current margin, exposing the sea bed to warm, drying conditions that eventually blew sand onshore and made these dunes. So even though the dunes’ formation was caused by the exact opposite of global warming, their creation, and the subsequent recapture of the continental shelf by modern oceans, shows that the earth has, in the very recent past, had rapid temperature fluctuations that are in no way related to human industrial activity. Nor were the massive increases in global temperatures that began about 290 million years ago that presaged the great Permian

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BUSINESSMAG • ISSUE JULY 2011


ANN LEONARD

by

13/02/2013

Shale Oil in Australia – A Work in Progress

In attempting to export the shale oil and gas revolution to the Land Down Under, the industry will have to deal with a set of circumstances even more unique than the usual hurdles. Land access, equipment and manpower, infrastructure, fiscal terms and public opposition are just the tip of the iceberg in Australia. Why? Australia is unique. Anyone who’s ever watched Discovery’s Animal Planet knows that. This individuality is largely due to its isolation, as can be attested to by anyone who’s ever endured a 16-hour flight across the Pacific to get there. And Australia is big. “How close were you to Steve Irwin’s (aka The Crocodile Hunter’s) zoo?” a friend asked upon my return from Perth (which is on the opposite side of the country from the famed zoo) in 2006. “As close as LA is to Chicago,” I guessed. I was wrong; it’s as close as LA is to New York.

A Land Set Apart But, how different is Australia for oil and gas operators? Well, probably the first nut they will have to crack is its unique geology.

BUSINESSMAG • ISSUE JULY 2011

“We don’t understand lacustrine formations,” Jeff Meisenhelder, vice president of Schlumberger’s unconventional resources group, bluntly told a recent gathering of oil and gas professionals in Houston. He was one of two speakers at the Australian American Chamber of Commerce’s Fifth Annual Energy Conference to point out that North American shale production is from marine basins, while Australia’s sedimentary basins are terrestrial with source rocks primarily in coal and lacustrine shales. Meisenhelder was also not the only speaker at the event to note that even in North America there is a lot we don’t fully understand about shale oil and gas extraction.

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Other factors discussed at the one-day event included Australia’s vast empty spaces, small and aging onshore rig fleet and lack of fracking services. And on a notoriously hot and dry continent, the universal issue of water is going to be even more taxing. Nonetheless, there is “unprecedented interest” in the country’s shale gas potential, as Willem Westra van Holte, the Northern Territory Minister for Mines and Energy, noted. That interest is summed up in two words: potential and demand.


Two Sides of the Same Coin Potential is fairly obvious. Australia has huge sedimentary basins, virtually all of which are “horribly unexplored,” as David Wrench, president of Strike Energy, put it. The country is very gas prone, as illustrated by its status as the world’s second leading exporter of LNG. Hundreds of billions of dollars are being spent in ongoing LNG development projects off the coasts of Western Australia and Northern Territory. Also, to a somewhat lesser extent, there is activity along Eastern Australia’s Queensland coast. Development has been spurred there by coal seam gas (known elsewhere in the world as coal bed methane) production in the Surat and Bowen basins. According to David Byers, chief executive of the Australian Petroleum Production and Exploration Association (APPEA), Australia has three LNG facilities in operation, seven under construction and more than a few under consideration. Sometime between 2020 and 2025, the country is expected to surpass first-place Qatar as the world’s top LNG exporter. So what does this have to with shale? Well that takes us to the second part of the equation; demand. Apparently in Australia’s rush to find a market for its huge gas reserves, in a few years the country will be facing shortfalls not only in feeding the LNG developments, but also supplying its domestic market. With the EIA World Shale Gas Study estimating Australia has 396 Tcf of shale gas, several speakers noted shale gas is going to be essential for Australia’s LNG future. Shale gas potential has been identified in a number of Australia’s basins, but as Meisenhelder noted, the bottom line remains whether operators can get it out of the ground. With its extensive thick coals, shale and tight sands, the Cooper Basin is currently Australia’s most active unconventional exploration region. However, the Canning and Perth basins in Western Australia and Beetaloo Basin in the Northern Territory are also deemed to have vast unconventional potential and are in the early stages of exploration.

BUSINESSMAG • ISSUE JULY 2011

Get the Word Out So what does Australia need to do to promote its unconventional potential? Speakers agreed on several points, but the need to start collecting as much data as possible stood out. Hundreds of wells were drilled in the early shale days in the US, as exemplified by the 200 wells it took George Mitchell to figure out the Barnett Shale. Of course, Australia is going to have to get there faster, hoping to pick up and take off from where the US is today. That said, Australia cannot support the huge footprint shale development currently takes. “You won’t see it in Australia,” Meisenhelder said, “but then you won’t see it in the US in 10 years either.” Regarding the social contract, one speaker after another stressed that all concerns must be taken seriously and must be addressed. “It’s a good thing we are getting started early,” Meisenhelder said, “because there are a lot of challenges.”

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The company’s unstable nickel business is set for a boost after it discovered a large high grade nickel deposit at Leinster in Western Australia.

BHP’s Discovery of High Grade Nickel Deposit to Reshape Profitably

The discovery has caused quite a stir in the resources industry, with analysts estimating its value at $4 billion. Although the company confirmed the discovery, it did not divulge the value of the nickel, saying it was in its early stages of delineation. Analysts also say that without reliable information on the grade, position and the width of mineralization of the find, it was difficult to estimate its size.

BUSINESSMAG • ISSUE JULY 2011

BHP has named the find ‘Venus’ and said that although was still early to speculate, the discovery had high potential to turn around the company’s nickel business.

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The find is a welcome addition to the company’s mining inventory, which it says, will reshape profitability and breathe new life into its nickel business.

The company has attributed the expected boost to its nickel business to the find’s favourable attributes including the fact that it is high grade and it is located close to an existing mine facility. The nickel deposit was discovered at a location near the company’s Perseverance mine, about 375 km north of Kalgoorlie.

During the prospecting for the mineral, BHP drilled 21 holes along a stretch of about 300 km. The presence of high grade nickel sulphide was confirmed in 20 of the 21 sites that were drilled. The news comes at a time when BHP’s nickel business is operating in a difficult environment characterized by low nickel prices and a strong Australian dollar.


BHP’s nickel business in Colombia, Cerro Matoso, however has remained profitable. The operation became part of BHP after the company merged with Billiton in 2001. Overall, analysts estimate BHP’s consolidated nickel assets at about $US3.5 billion-$US4.5 billion. The production of pig iron nickel in China has put pressure on nickel prices, making players anxious about the future of the business. Faced with this uncertainty, BHP now gives higher future investment priority to its more profitable businesses. BHP has in the past had to justify its decision to remain in the nickel business in the face of the challenges facing it considering the fact that its nickel business forms a relatively small part of the company’s earnings. It costs the company to maintain and manage its assets in the nickel business while the profits have remained low. The company however has been hesitant to abandon its nickel business at a time when prices of nickel are low. It has in-

stead focused on investing more on its profitable businesses. According to analysts, BHP could raise capital by offering out part of the company to shareholders especially now that there is renewed optimism because of the nickel discovery. In 2012, the company merged its nickel and aluminium assets and based the operations in Perth. Ultimately, the company’s strategy to simplify its portfolio to focus more on bigger projects especially in iron ore in Australia and Chile and its oil and gas projects in the US. The incoming CEO said this strategy is in line with his vision for the company.

the company however has been hesitant to abandon its nickel business at a time when prices of nickel are low.

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These factors dealt a severe blow to the company’s profit in 2012. At the close of the year, the company made loss amounting to $205 million.

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Mining Guide - April 2013  

April Copy of MOG

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