Essay: Global Economic Downturn on the Australian Mining

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¶ … Global Economic Downturn on the Australian Mining Industry

Today, the world is experiencing one of the most severe economic downturns in recent history, and the impact on an increasingly globalized marketplace has been severe. Although some industries such as education and health care have historically be "recession-proof," other industries tend to bear the brunt of downturns in the global economic and the Australian mining industry appears to be foremost among these. To determine the impact of the recent global economic downturn on the Australian mining industry and its workers, this paper provides a review of the peer-reviewed, scholarly and business literature, followed by a summary of the research and important findings in the conclusion.

Review and Discussion

Australia currently enjoys a healthy economy that has a per capita GDP that is comparable to the four dominant West European economies (Australia, 2009). The recent global economic downturn, though, spells trouble for the Australian economic in general and the mining industry in particular. According to U.S. government analysts, "Emphasis on reforms, low inflation, a housing market boom, and growing ties with China have been key factors over the course of the economy's 17 solid years of expansion. Robust business and consumer confidence and high export prices for raw materials and agricultural products fueled the economy in recent years, particularly in mining states" (Australia, 2009, p. 2). The Minerals Council of Australia (2009) reports that, "The Australian minerals industry is defined as covering the exploration and mining of minerals (including coal) and the associated minerals processing industry" (the Australian minerals industry and the Australian economy, 2009, p. 1). In fact, the coal, iron ore, and gold mining industries are among the most important components of the Australian economy today (Australia, 2009). In this regard, during fiscal year 2008-2009, the mining industry in Australia accounted for 8 per cent of the nation's gross domestic product, and employed 133,200 workers directly and another 200,000 workers indirectly (the Australian minerals industry and the Australian economy, 2009). The Australian mining industry was responsible for exporting the following amounts of coal and uranium, iron ore, other minerals and related mining services equipment in fiscal year 2008-2009 as shown in Figure 1 below (amounts in billions of dollars).

Figure 1. Production levels for the Australian mining industry: Fiscal year 2008-2009.

Source: Based on tabular data from the Australian minerals industry and the Australian economy, 2009

The Australian mining industry is also among the top five producers of most of the main mineral commodities used around the world, including the following:

1. The world's leading producer of bauxite, alumina, rutile, ilmenite, zircon and tantalum;

2. The second largest producer of uranium, lead, zinc and lithium;

3. The third largest producer of gold, diamonds, iron ore, manganese, nickel and niobium;

4. The fourth largest producer of black coal and silver; and,

5. The fifth largest producer of aluminium, brown coal and copper (Australian minerals industry and the Australian economy, 2009).

Although criticized by some for its practices with indigenous peoples in Australia, the country's mining industry does enjoy a reputation for environmental responsibility and is noted for producing significant economic benefits while impacting less than 0.06% of the land area it mines (Mudrooroo, 1999). According to Mudrooroo, "With environmental practices now adopted in the mining area, the overall environmental impact of mining in Australia is small" (1999, p. 576). Likewise, the Minerals Council of Australia reports that, "Mining sites disturb less than 0.26% of Australia's land mass and in 2007 -- 08 the industry is forecast to spend more than $200 million annually on rehabilitation of disturbed lands" (the Australian minerals industry and the Australian economy, 2009, p. 1).

Some indication of how the recent global economic downturn has affected the Australian mining industry can be gained by examining the stock performance of one of the largest and most influential of the companies competing in the Australian mining industry, Rio Tinto, a conglomerate that was forged from the merger of CRA Ltd. And RTZ, one of the world's largest mining concerns (Tickner, 2001). Although coal, iron ore, and gold mining form the major bulk of the Australian mining industry, today, Rio Tinto is also engaged in other mining operations. According to Rio Tinto's corporate profile, the company mines "bauxite, alumina, and aluminum; copper and diamonds, gold, silver, molybdenum, magnetite, vermiculite, and diamonds; uranium, titanium dioxide, borates, and talc; and iron ore products, including iron ore, pig iron, salt, and gypsum" (Rio Tinto, 2009, p. 3).

As can be readily discerned from the company's historic stock performance shown in Figure 2 below, the recent global economic downturn has had an enormous financial impact on this mining company.

Figure 2. Rio Tinto historic stock performance: 1990 to date

Source: Based on bar graph in Yahoo! Finance at symbol=RTP;range=my

There are mixed opinions concerning this recent decline in Rio Tinto's stock performance, with some analysts suggesting that now is the time to buy this stock, while others caution that the worst is not over and China (one of Australia's largest export partners at 14.2 per cent, Australia, 2009), is expected to cease doing business with this company altogether in the future (Rio Tinto discussions, 2009). These observations, of course, must be taken with a very large grain of salt since these industry observers may have vested interests in seeing Australia's mining stocks increase (or decrease) in value. Nevertheless, any disruption or decline in trade with China would have profoundly severe effects on the Australian mining industry since it is currently dominated by China's increased purchases across the entire sector (Australian mining industry diminished by almost 5% in 2008, 2009).

Rio Tinto, together with the rest of the Australian mining industry, is also facing increasing competition from abroad, including mining concerns in Brazil, China and Russia (Condie, 2007). According to analysts from Coober Pedy Regional Times, "The Australian mining industry is estimated to have diminished by almost 5% in real terms in 2008. Forecasts for Australia's mining industry are discouraging, with the industry estimated to have contracted by almost 5% in real terms in 2008. Meanwhile, we forecast an average annual reduction of almost 2% in real terms for the remainder of the forecast period" (Australian mining industry diminished by almost 5% in 2008, 2009, p. 2). These analysts suggest that the global economic downturn is primarily responsible for this hit, but there are other factors involved as well. For instance, "The main reason for this disappointing outlook is the global slump in commodity prices. However, Australia has also been particularly hard hit by restructuring at the world's largest miners, BHP Billiton and Rio Tinto" (Australian mining industry dimished, 2009, p. 3). Unfortunately, things are going to get worse before they get better for the Australian mining industry as well. In this regard, the analysts at the Coober Pedy Regional Times add that, "By 2013, the report forecasts that Australia's mining industry will represent only 3.08% of GDP, compared with 4.26% in 2007" (Australian mining industry diminished, 2009, p. 3).

The global economic downturn will ultimately have an inordinately severe effect on the country's miners as well who have enjoyed earning significant amounts of overtime wages in the past. For instance, generally speaking, Australia, together with Japan and the United States, has historically been characterized by some of the longest hours of work in the industrialized world today, with one-in-five of its workers toiling away an average of 50 hours per week or even more (Messenger, 2004). According to Messenger, though, miners in Australia work longer hours than employees in any other industry in the entire world: "The Australian mining industry recorded the largest increase in hours of work of any industry in the country between 1989 and 1997. Hours of work in the Australian mining industry are the longest of any industry in the country: an average of 51.7 hours per week" (p. 159).

This increase in the number of hours worked is due in large part to a move to 12-hour shifts and multiple shifts in the Australian mining industry, a change that was aggressively sought by mine operators as a way of extending their hours of operation in order to keep mines operating in continuous production and to reduce their unit costs of production (Messenger, 2004). The mining industry in Australia has realized significant economies of scale in operating in this fashion notwithstanding the overtime costs associated with this approach (Messenger, 2004). As demand for Australia's mining products diminishes among its major export trading partners, it is reasonable to assert that hours of work for the country's miners will also be slashed in response. Moreover, such a decline in demand for Australia's mining products would also have an adverse impact on the country's current enviable unemployment rate of just 4.5 per cent (Australia, 2009). On a favorable note, though, decreases in the number of hours worked may eventually help reduce the inordinately high level of risk that characterizes the Australian mining industry today (Mol, 2002).


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