By Robb M. Stewart
MELBOURNE--Cost blowouts at flagship gas-export terminals and a
China-backed iron ore project have helped push resources spending
in Australia to a record high, even as the number of developments
being built fell amid a murky outlook for commodities demand and
tighter access to credit.
There were 87 advanced mining and energy projects worth a
combined 268.4 billion Australian dollars (US$280.3 billion) by the
end of October, up A$8.1 billion on the last estimate made six
months ago by the government's Bureau of Resources and Energy
Economics, or Bree.
The increase in value was almost entirely accounted for by a A$4
billion budget overrun at BG Group PLC's (BG.LN) Queensland Curtis
LNG facility at Gladstone in Queensland state, a A$2 billion
overspend at the neighboring GLNG plant operated by Santos Ltd.
(STO.AU) and a A$2 billion cost blowout at the Sino Iron mine being
built in Western Australia state by Citic Pacific Ltd.
(0267.HK).
The pipeline had shrunk by 11 major projects since the last Bree
report, as developments reaching completion weren't replaced by new
investments after a sharp fall in prices of industrial commodities
like iron ore and coal.
Australia's Resources Minister Martin Ferguson welcomed the
record level of committed investment, but cautioned the resources
sector was entering a challenging phase.
"In the face of lower commodity prices, the delivery of this
pipeline of projects is contingent on keeping production costs
down, providing access to skilled labor and increasing our
productivity and efficiency," Mr. Ferguson said in a statement.
Booming demand for Australia's natural resources has driven
economic growth in recent years, shielding the country from the
worst of the global economic crisis and helping it avoid recession.
But rising operating costs and a slump this year in commodity
prices has forced companies to retrench and put at risk the federal
government's goal of returning a budget surplus ahead of an
election next year.
Major mining companies have been laying off workers, postponing
ambitious developments, closing offices and idling equipment in an
effort to shield balance sheets from higher costs, a strong local
currency and weaker prices. Smaller companies, meanwhile, are
struggling to raise money to develop new mines.
"Looking forward, any substantial net increase to the dollar
value of projects at the committed stage of the investment program
will require either cost increases of larger, existing projects
and/or a new final investment decision on a large project within
the near future," said Quentin Grafton, Bree's executive
director.
Write to Robb M. Stewart at robb.stewart@wsj.com
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