Mar 15th 2010
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Loading ...Is that ore there is? Australian resource futures
It’s not something we think about a lot, but one day the impacts of mining will outweigh the benefits. So where will we obtain the resources to make all those everyday things we use? Damien Giurco and Leah Mason look at some options for the future.
Imagine a world without metals. It’s almost impossible. Metals derived from minerals are all around us, in everything from skyscrapers to mobile phones, vehicles to power lines. There’s metal in cutlery and computers, pens and batteries, and in the appliances and electronic devices on which we rely every day. Without minerals, we’d have no bicycles, wind farms or solar panels.
But how often do we think about where they come from? What happens when we’ve finished using them? And what will be the impacts if we start to run low?
Economists agree that one reason for Australia’s escape from the worst of the Global Financial Crisis has been the continuing demand for our commodities by China, Japan, Korea and India. Australia has the world’s largest deposits of recoverable brown coal, lead, rutile, zircon, nickel, tantalum, uranium and zinc; and it ranks second in the world for deposits of bauxite, copper, gold, ilmenite and silver, according to figures from the Department of Foreign Affairs and Trade. In addition, we are the world’s largest exporter of alumina, black coal, iron ore, lead and zinc.
In his 2009 Lowy Lecture, BHP Billiton CEO Marius Kloppers asserted, ‘The long-term growth prospects for resources remain incredibly strong’. He predicted that rapidly developing nations – particularly China and India – would continue to rely heavily on Australia for the raw materials of industrialisation. In Access Economics’ 2008 Global Commodity Demand Scenarios report, it was estimated that the Australian resources sector would need to increase production significantly in order to meet projected demand and maintain its market share. In short, the future looks bright.
Most forecasts assume that more production delivers more wealth and is therefore inherently preferable. They tend not to focus on the long-term beneficiaries of this wealth (shareholders, governments, local communities) or on the environmental and social costs that may accompany these profits. As resources become scarcer and ore quality declines, price rises can offset the increasing financial cost of accessing lower-grade ores. But what about the environmental and societal costs? Are there ways to innovate sustainable business models beyond the ‘dig more, sell more’ approach?
Though we are in the midst of a commodities boom, Australia still spends more on imports than it makes from exports. Despite the strong dollar, our current account deficit continues to grow, in absolute terms and as a percentage of GDP. It is therefore strategic to examine future trends in the minerals sector, and particularly how to provide long-term national benefit from the use of these resources. Researchers at the Institute for Sustainable Futures (ISF) at UTS are asking these questions as part of a CSIRO-funded collaborative research cluster into Mineral Futures.
Peak minerals?
‘Peak oil’ has been a topic of significant interest in the media recently, as oil prices have risen and fallen in response to fluctuations in global production. Popularised by M King Hubbert in 1956, the concept of peak oil describes a scenario in which crude oil resources become more difficult to access and less profitable due to decreases in quantity, quality or both.
Hubbert’s prediction was that global oil production would peak around the year 2000 and that there would be a steady decline in the years following. So far, 2005 was the year of highest crude-oil production.
The long-term implications are that we must plan a transition to providing energy services by alternate means; the predicted mid-term implications include price rises and supply constraints.
Peak oil is one thing – but oil is not the only limited resource. What would a peaking of other useful mineral resources mean for Australia?
Australia sells vast quantities of minerals. According to the Australian Bureau of Statistics, export revenues from mining (including oil and gas) were more than $100 billion in 2009, amounting to 40 percent of total exports. But we also buy minerals in large quantities, as comparatively high-cost consumer goods as well as semi-finished and finished products such as formed steel for buildings and vehicles.
Minerals are global commodities whose value is largely determined on the basis of their saleable price per tonne. Processing minerals into semi-finished and finished products adds further economic value and means the metals can be utilised to provide services within the economy. We don’t often think of it this way, but it is the services provided by these minerals that underpin our standard of living.
The ‘peak minerals’ theory proposes the idea that as we exhaust cheaper and more easily accessible minerals and production of these peaks, the remaining resources will have higher economic, social and environmental costs. How Australia responds to this challenge has profound long-term implications for our economy, including the degree to which we rely on mineral and other export sectors to underpin our prosperity, how we manage social and environmental impacts and use the profits generated to sustain long-term wealth, and how we harness new opportunities, beyond extraction, for delivering metal services in a global market.
When the idea of peak oil was first discussed in the 1950s, rising demand was the biggest driver of declines in crude-oil reserves. Today, we have other constraints, the most obvious being the economic effects of mitigating and adapting to climate change.
As early as 1997, the Intergovernmental Panel on Climate Change noted that because of the size of the minerals industry in Australia, climate-change impacts would have significant effects on our economy.
In the next 40 years, the panel predicts, there will be higher costs for energy, penalties for CO2 emissions and significantly less tolerance for wasteful use of water. We are also seeing an increase in competition between industries with differing land uses (eg, agriculture and mining), such as has occurred in the Liverpool Plains region of NSW.
The concept of peak oil also raises issues of interdependencies among minerals sectors. After all, we need oil to make many of our current mining operations feasible, and to transport ores or concentrates to ports. There are other, more subtle mineral interdependencies: we sell iron ore to steel-makers, who sell us the steel that allows us to dig up and process more iron ore. As the price of digging, processing and transporting raw materials goes up, so does the price we pay for the finished and semi-finished products we buy from others. Consequently, it is important to understand how we can best manage minerals and the goods and the services they provide, now and in the future.
Though the concept of peak oil is often associated with discussions about when we will run out, it was intended to start people thinking about developing alternatives to the energy services currently provided by crude oil. Just as peak oil was a driver of investments in bio-fuels and the development of low-oil alternatives such as hybrid and electric vehicles, concerns about declines in easily processed nickel sulfide ores have prompted technological development to address the higher costs associated with more complex nickel laterite ores.
When extending the peak oil metaphor to minerals, it is important to distinguish that metals – unlike oil – can be reclaimed from finished products and processed for further use through recycling. But the economic and environmental costs of this will vary depending on the content and purity of the metals within the product. This confirms the importance of considering product design, material selection and recyclability – in addition to ores in the ground – when providing services that utilise metals in tomorrow’s economy.
We are exploring a range of scenarios in an attempt to determine what a sustainable future for minerals might look like, and how Australia would realise national benefit. This research asks: How do fluctuating costs, declining quality of ore grades and other economic and social constraints change our ability to generate mineral wealth and to buy mineral services from others? Given the mix of economic, technical, social and environmental drivers shaping the future, where are the new opportunities for Australia?
Overseas examples give some indication of what Australia should consider with respect to these issues. Norway and Chile have significant resource endowments that are being managed carefully so as to maximise long-term benefits.
In 1990, Norway set up a petroleum fund – now called The Government Pension Fund – to manage the revenue from exploitation of its oil. These funds – amounting to NOK 2,549 billion [A$485.2 billion] by September 2009 – are invested offshore to shield the nation’s economy against external shocks and compensate future generations.
Chile – the world’s largest producer of copper – has established a sovereign fund for mining revenues to be used to counteract periods of hardship.
Chile has been innovative, too, in its handling of mineral services, trialling the ‘leasing’ of copper as opposed to selling it as a commodity.
In contrast, Japan and Taiwan are two resource-poor countries that have turned the necessity of reducing waste to landfill and incinerations into state-of-the-art recycling and resource recovery programs – delivered through the ‘Product Stewardship’ strategy of ‘Extended Producer Responsibility’. As producers of consumer goods, they are well placed to reduce their raw material costs by designing their products for disassembly and re-use. Since 2001, Japan has required that TVs, refrigerators, washing machines, air-conditioners and computers be recycled in ‘Producer Takeback’ programs.
Taiwan relaxed its restrictions on importing mixed-metal ‘waste’ in 2009, so as to make the most of its technology and reap the benefit of lower costs for harnessing these undervalued resources.
These examples show potential alternatives for creating wealth from minerals, but don’t tell us how we can take advantage of changes in circumstances or improve our performance in delivering long-term benefits over time. A key question will be: Where does Australia seek to position its minerals sector in the future global economy?
Sustainability, with respect to minerals, is a complex issue that means different things to different stakeholders. How will we manage the impacts on society, business and the environment as we continue to dig up and sell our mineral assets? What business opportunities might arise from leading the development of metals services, at home and internationally? What can we learn from other countries as we’re creating a fund for future generations? What will our minerals industry look like when it forms part of a more sustainable economy?
ISF’s work will include examining the idea of peak minerals as one way of thinking about transitions in mineral services, and exploring a range of possibilities for making regular evaluations of our mineral wealth, mineral services and mining industry.
For more information see resourcefutures.net.au.
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