Resources and Energy Major Projects

October 2012

bree.gov.au

Resources and Energy Major Projets

October 2012
John Barber, Tom Shael, Nina Hitchins, Adam Bialowas

 Commonwealth of Australia 2012

This work is copyright, the copyright being owned by the Commonwealth of Australia. The Commonwealth of Australia has, however, decided that, consistent with the need for free and open re-use and adaptation, public sector information should be licensed by agencies under the Creative Commons BY standard as the default position. The material in this publication is available for use according to the Creative Commons BY licensing protocol whereby when a work is copied or redistributed, the Commonwealth of Australia (and any other nominated parties) must be credited and the source linked to by the user. It is recommended that users wishing to make copies from BREE publications contact the Chief Economist, Bureau of Resources and Energy Economics (BREE). This is especially important where a publication contains material in respect of which the copyright is held by a party other than the Commonwealth of Australia as the Creative Commons licence may not be acceptable to those copyright owners. The Australian Government acting through BREE has exercised due care and skill in the preparation and compilation of the information and data set out in this publication. Notwithstanding, BREE, its employees and advisers disclaim all liability, including liability for negligence, for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any of the information or data set out in this publication to the maximum extent permitted by law. Barber, J., Shael, T., Hitchins, N., Bialowas, A., 2012. Resources and Energy Major Projects October 2012, Bureau of Resources and Energy Economics, Canberra, November. ISSN 978-1-921812-76-7 (Print) ISSN 978-1-921812-77-4 (Online) Vol. 2, no. 1 Postal address: Bureau of Resources and Energy Economics GPO Box 1564 Canberra ACT 2601 Phone: Fax: Email: Web: +61 2 6276 1000 +61 2 6272 2001 info@bree.gov.au www.bree.gov.au

ii Resources and Energy Major Projects October 2012

Foreword
This biannual BREE publication, previously known as Mining Industry Major Projects, provides a regular update of the key economic variables of the resources and energy sector in Australia: the investment pipeline from exploration through to completed projects. A separate publication, Electricity Generation Major Projects, records the planned and committed capital expenditures in electricity generation. Resources and Energy Major Projects covers the period ending October 2012 and features several improvements and provides more detailed information on the investment pipeline than in the past. Previously projects were reported in only two categories (advanced and less advanced), but are now grouped into four stages: (1) Publicly Announced; (2) Feasibility Stage; (3) Committed and (4) Completed. The additional categories help to track where a project is at from first announcement through planning and approvals to final investment decision and eventual completion. In the current issue BREE finds that there are 87 projects in the committed category worth some $268 billion. Of this amount $195 billion are LNG, gas and petroleum projects. To put this in perspective, and to show the scale of the pipeline in Australia, the total committed expenditure on Australias oil and gas projects is comparable to the total cost of the Apollo Moon Program in 2012 prices. While the number of projects at the Committed Stage of the investment pipeline has declined by 11 since the April 2012 release because of completions, the nominal value of committed projects has increased by around $8 billion. The most notable addition to the Committed Stage is the second train at the APLNG facility at Gladstone that is estimated to cost about $9 billion. The combination of the Publicly Announced and Feasibility stages are equivalent to the Less Advanced category in previous listings. Nevertheless, a direct comparison between previous reports and the current release is not recommended because the current listing includes an indicative cost for each of these projects whether or not costs have been announced by project proponents. By contrast, in previous listings, BREE only provided a cost for a project if it were available from the project proponents. In summary, BREEs latest project listing indicates the Committed Stage of the investment pipeline, directly comparable to BREEs previous listing as advanced projects, is at a historic high in terms of nominal dollars with a very large proportion of this value in oil and gas developments and what might be described at mega projects. 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.

Quentin Grafton Executive Director/Chief Economist Bureau of Resources and Energy Economics

Resources and Energy Major Projects October 2012 iii

Contents
Foreword Executive Summary Background to the Resources and Energy Major Projects Report Exploration Projects at the Publicly Announced Stage Projects at the Feasibility Stage Projects at the Committed Stage Projects at the Completed Stage Capital expenditure Analysis of projects by region iii 1 3 7 10 12 16 25 29 30

iv Resources and Energy Major Projects October 2012

Executive Summary
This release of the Resources and Energy Major Projects report covers the six month period from April 2012 to October 2012. The report provides a comprehensive list of projects, but uses four different categories to classify projects where previously only two categories were used. The new categories, based on the stages of the investment pipeline, include the Publicly Announced stage, Feasibility Stage, Committed Stage and Completed Stage. Unlike past reports, BREE now provides an indicative cost estimate for all projects included on its list. BREE identifies 106 projects at the Publicly Announced Stage with a potential value of over $91 billion, 171 projects at the Feasibility Stage that have a combined value of $292 billion, 87 projects at the Committed Stage worth $268 billion and 24 projects at the Completed Stage worth $12 billion. Although the number of projects at the Committed Stage has decreased since April 2012, the capital value has increased. The increase is primarily a result of the approval of a second train for the Australia Pacific LNG project and cost increases to projects that were already committed. Details of the projects in each category by commodity are listed in Table 1. Projects at the Publicly Announced and Feasibility stages are potential capital investments, all of which will not progress to the Committed Stage depending on market conditions and cost pressures. Table 1: Summary of projects in the investment pipeline
Publicly Announced No. 4 Range* $m 1 0002 250 Feasibility Stage No. 3 63 6 6 25 25 3 11 6 5 18 Value $m 3780 75 766 2 034 482 44 720 44 944 1 586 104 535 3 835 2 100 8 109 Committed No. 0 17 3 9 18 12 3 18 0 1 6 87 Value $m 0 14 360 643 3 548 24 617 26 204 728 194 912 0 98 3268 268 378 Completed No. 2 6 2 4 2 4 1 1 0 0 2 24 Value $m 3185 1 670 979 241 1 150 2 822 303 490 0 0 1 032 11 872

Aluminium, Bauxite, Alumina Coal Copper Gold Infrastructure Iron ore Lead, Zinc, Silver LNG, Gas, Petroleum Nickel Uranium Other Commodities Total

14 12 25015 900+ 8 19 7 8558 605+ 2 2703 520

8 13 50021 250+ 14 21 25035 250+ 5 5 3 13 651 065 2 5005 000 2 8456 845 7501 500 13 26 75035 250+

106 91 010133 185

171 291 891

* Value of Publicly Announced projects given in cost range with projects over $5 billion having no upper bound.

Resources and Energy Major Projects October 2012 1

Australias current surge in mining and energy industry investment has been fuelled by mega projects that cost more than $5 billion. There are 11 mega projects at the Committed Stage that account for 75 per cent ($201 billion) of the committed total ($268 billion) and most of these are LNG projects. To illustrate the size, complexity and importance of the investment in LNG projects, if just one of the large LNG projects currently at the Feasibility Stage were to receive a positive FID in the next twelve months, there would be more invested in LNG, gas and petroleum projects in Australia than the total amount spent by the US Government on the Apollo Moon Program (in 2012 prices). While there is a substantial pipeline of investment in Australias resources and energy sector, it is not evenly distributed between states. Western Australia and Queensland have been the main locations for investment in the past few years. The large proportion of the projects at the Publicly Announced and Feasibility stages located in these two states indicates this trend is likely to continue.

2 Resources and Energy Major Projects October 2012

Background to the Resources and Energy Major Projects Report

The Australian resources and energy investment climate has changed substantially since BREE released its Mining Industry Major Projects Report in May 2012. The peak price period that has characterised the past five years of the Millennium Mining Boom and supported numerous decisions to start new projects appears to be coming to an end. As a result of a drop off from peak prices some investment decisions have been delayed or re-considered. To better reflect the phases of the boom and the multiple stages of the investment pipeline, BREE has implemented a series of improvements to what is now called the Resources and Energy Major Projects report. Modifications have been made to key concepts that underpin the report, its analytical framework and the way in which data is presented in the associated list of major projects. All project data and analyses that were provided in previous reports are still available, but the information supplied has been enhanced with additional indicative cost estimates that were previously not provided. The scope of the Resources and Energy Major Projects report remains unchanged. Namely, the focus is on mining, energy, infrastructure and mineral processing plants. However, the threshold for inclusion in the BREE listing has been increased to $50 million for all projects, including gold projects that had a previous threshold of $15 million. Projects below this threshold tend to have a shorter planning period and construction time and are of a size that they are no longer viewed as major projects. Projects that were previously included in the $40 to $50 million category, or between $15 and $50 million for gold projects, remain on the current BREE list, but no new projects below the new $50 million threshold will be added. The Resources and Energy Major Projects report has introduced a limit on the time horizon for projects to be included in the list. Only projects that BREE assesses as likely to receive a final investment decision (FID) within 5 years are to be included. Projects with expected FID towards the end of the 5 years will typically have more uncertain completion schedules. To reflect this uncertainty for such projects, BREE provides the estimated project completion date as 2017+.

Project classification
The major improvement to the Resources and Energy Major Projects report is the project classification system. Previously, BREE used a binary classification system to identify a mining, energy or infrastructure project as being either advanced or less advanced. A project that had received a FID from the project proponent was included on the advanced list. Under the revised classification, all projects that have received FID are defined as projects at the Committed Stage.

Resources and Energy Major Projects October 2012 3

The substantive change is in terms of what was previously the less advanced list. This stage of the investment pipeline has been separated into projects at the Publicly Announced Stage and projects that have progressed to the Feasibility Stage. In addition, BREE has created an additional category, defined as the Completed stage, for projects that have finished, or where initial production could commence. Collectively, the four stages of development (Publicly Announced, Feasibility, Committed, and Completed) represent the complete investment pipeline (see Figure 1). Figure 1: The stages of the investment pipeline
PUBLICLY ANNOUNCED

EXPLORATION

FEASIBILITY

COMMITTED

COMPLETED

PRODUCTION

Definitions and explanations of the four stages of the pipeline include: 1. Publicly Announced Stage. Projects at this stage are either at a very early stage of planning or have stalled or paused in their feasibility studies and may have an unclear development path. The former are projects that have completed a substantial portion of their exploration and resource definition activities and are undertaking some form of initial feasibility study to assess engineering requirements and the commercial viability of the proposed mine. To include a project on the major projects list at this stage, preliminary information on project schedule, planned output or cost must be publicly available. These types of projects are, typically, at a very early stage of planning. As a result, not all projects will progress from the Publicly Announced Stage to become operational facilities.

2. Feasibility Stage. This stage of the project development cycle is where the initial feasibility studies have been completed and the results support further development. This stage is characterised by further studies being undertaken to finalise project scope, complete engineering designs, assess environmental impacts and develop commercial plans. In some cases, projects at the Feasibility Stage will have pre-development work at a proposed site prior to FID. BREE classifies such work as part of the Feasibility Stage until an FID is made. Typically, BREE is able to gather information on at least two of the projects cost, schedule and planned output as these have been defined in the completed pre-feasibility study. Projects at the Feasibility Stage are less uncertain than those at the Publicly Announced Stage, but are still not guaranteed to progress further as evaluations of commercial prospects and approvals have not yet been finalised. 3. Committed Stage. Projects at this stage of the development cycle have received a positive FID from the owner and are either under construction or preparing to commence construction. Typically, projects at the Committed Stage have cost estimates, schedules and mine output that are well defined and often publicly released. Nevertheless, plans are subject to change due to schedule delays, scope changes and cost overruns even after construction has commenced.

4 Resources and Energy Major Projects October 2012

4. Completed Stage. Previously, when construction was substantially finished to the point where initial production could commence a project was removed from the major projects list. From this point onwards these projects will remain on the BREE list and will be included at the Completed Stage for a period of up to three years after construction so as to provide an on-going record of the investment pipeline. The new project classification system is broadly comparable to the previous classifications system. The previous less advanced projects would have included projects at the Publicly Announced Stage and Feasibility Stage although previously projects were only included with a cost if this had been provided by the project proponent. Under the new classification system, BREE has provided an indicative cost in the case where the proponents have not provided such costs. The definition and inclusion in the previous advanced project listing remains unchanged and is equivalent to the revised category, Committed Stage. There are earlier stages in developing mining and energy projects, such as exploration activities, that are not included in the investment pipeline. While exploration and other pre-development activities remain important, they are beyond the scope of this report to include on a project basis. Instead, a summary and analysis of total exploration expenditure is provided.

Project estimates
In previous releases of the Resources and Energy Major Projects report, BREE provided project information sourced from the owners as either company reports or their responses to email surveys. Project information that was considered highly uncertain or that could not be directly sourced from a company was not included. As a result of this uncertainty, some projects in the previous less advanced category did not have detailed cost associated with them. To provide additional and more complete information on the investment pipeline, the Resources and Energy Major Projects report October 2012 includes an estimate for the cost, schedule and capacity of each project. Where possible, information from reports and companies is still used, but for some projects in earlier stages of development, and where this information is not provided by project proponents, BREE has estimated the cost, schedule or capacity using parameters based on similar projects and industry averages. These RoughOrder-of-Magnitude estimates have been developed to provide a more comprehensive picture of the total potential investment.

Resources and Energy Major Projects October 2012 5

All cost data in the major projects list should be viewed as indicative rather than definitive as project plans, schedules and costs vary even after a FID has been made. Typically, projects at earlier stages of their development cycle have a higher degree of uncertainty in their plans and cost. To reflect this uncertainty, estimates of the cost of a project at the Publicly Announced Stage are calculated as a range rather than a single point estimate. This is intended to provide an indication only of the size of the investment in the project. For projects where point costs estimates are available from project proponents, these are provided rather than give an indicative cost range. The cost ranges used by BREE in the early stages of the investment pipeline are: 1. 2. 3. 4. 5. 6. 7. 0 $249m $250m $499m $500m $999m $1 000m $1 499m $1 500m $2 499m $2 500m $4 999m $5 000m+

In some cases BREE has also estimated the cost of projects at the Feasibility Stage where reliable public data were unavailable. As there is generally more information available on these projects to inform a parametric cost estimate, a point estimate of indicative costs is provided.

Structure of the major projects list

The major projects list that accompanies this report has been re-structured to coincide with the new framework of the investment pipeline. It is still provided as a Microsoft Excel workbook, but projects are now shown on separate worksheets based on their commodity. Infrastructure projects are shown separately in an infrastructure group. There is a table of contents that links to each commodity at the front of the workbook to assist with finding individual projects. Given that there are four categories used to classify projects, the workbook is no longer colour coded. It should be noted that, because most projects at the Publicly Announced Stage only have a cost range, the indicative cost estimates cannot be directly summed to give a point estimate for the value of total investment at this stage of the investment pipeline.

6 Resources and Energy Major Projects October 2012

Exploration
Commodity exploration expenditure
Minerals exploration plays an important role as a precursor to the projects that make up the mining investment pipeline. Exploration identifies the location and estimates the quantity of the mineral resources that may eventually result in future mining investment. Thus, the level of exploration is a useful indicator of possible mining activity in years to come. The value of minerals exploration, including petroleum, has increased 252 per cent in the past ten years, from around $2 billion in 200102 (in 201213 prices) to $7.4 billion in 201112 (see Figure 2). Figure 2: Australian exploration expenditure 198081 to 201112 (201213 prices)
8 7 6 5 4 3 2 1 2012-13 $b 1980-81 1985-86 petroleum 1990-91 iron ore 1995-96 coal 2000-01 base metals gold 2005-06 other 2010-11

Source: ABS.

Petroleum (including oil and gas products) exploration has historically represented a substantial portion of the total minerals exploration expenditure in Australia. This peaked at 63 per cent in 200809 after several years of robust growth and has since declined to around 45 per cent in 201112. Petroleum exploration expenditure in 201112 decreased 6 per cent in real terms from the previous year to total $3.3 billion. While it remains at high levels, it has decreased 23 per cent from the record high level of $4.2 billion in 200809.

Resources and Energy Major Projects October 2012 7

As a result of petroleum exploration expenditure decreasing steadily over the last three years, the growth in total exploration expenditure has been generated by robust growth in expenditure on mineral commodity exploration, including iron ore, coal, gold and base metals. Expenditure on exploration activities for these commodities has increased by 60 per cent over the last three years and 360 per cent in the past decade. In 201112, expenditure on mineral commodity exploration totalled $4.1 billion, an increase of 32 per cent from 201011. Growth in iron ore and coal exploration expenditures have been the main drivers of this growth. Iron ore exploration expenditure increased 69 per cent to total $1.2 billion and coal exploration expenditure increased 57 per cent to reach $858 million. Expenditure on gold and base metal exploration both grew for a third consecutive year, albeit at a more moderate rate than iron ore and coal. Gold and base metal exploration expenditure increased 15 per cent and 16 per cent to total $790 million and $819 million, respectively.

Greenfield and brownfield minerals exploration

Greenfield sites are locations that are not currently being mined and are places where exploration activities and new potential mineral deposits are sought. Brownfield sites already have operating mines in the region with supporting infrastructure established and exploration seeks to identify additional resources in the area. Although expenditure on mineral commodity exploration activities has been increasing in recent years, it has not been equally distributed between Greenfield and Brownfield sites. In the past two years, most of the growth in exploration expenditure has been at Brownfield sites (see Figure 3). Brownfield exploration expenditure in 201112 totalled $2.8 billion, an increase of 38 per cent from 201011 (in 201213 prices). Over the same period, Greenfield exploration expenditure increased 17 per cent to $1.3 billion. Figure 3: Exploration expenditure on greenfield and brownfield sites
3000 2500 2000 1500 1000 500 $m 2003-04

2004-05

2005-06

2006-07

2007-08

2008-09 browneld

2009-10

2010-11

2011-12

greeneld

Source: ABS.

8 Resources and Energy Major Projects October 2012

The rapid rise in exploration expenditure coincides with the growth in physical exploration activity. In 201112, the number of metres drilled at Greenfield sites increased by 8 per cent from the previous year to total 3.7 million metres. By comparison, Brownfield metres drilled increased 23 per cent to 7.7 million metres in the same period. The growth rates in the number of metres drilled at each type of location have been substantially different over the past eight years. From 200304 to 201112 the metres drilled at Greenfield sites increased 38 per cent while over the same period metres drilled at Brownfield sites increased 157 per cent (see Figure 4). Figure 4: Exploration - metres drilled
9000 8000 7000 6000 5000 4000 3000 2000 1000 '000 m 2003-04 2004-05 2005-06 2006-07 greeneld 2007-08 2008-09 browneld 2009-10 2010-11 2011-12

Source: ABS.

The average cost per metre drilled at Greenfield and Brownfield sites have converged over the last eight years and are now at similar levels (see Table 2). This is primarily due to the cost of Greenfield exploration rising more rapidly than the cost of Brownfield exploration. While the cost per metre drilled for the two types of exploration have been broadly consistent over the last three years Brownfield exploration, in terms of both metres drilled and expenditure, has been growing at a substantially higher rate. The different growth rates in exploration metres drilled, particularly since the Global Financial Crisis in 200809, indicate the tendency of mining and exploration companies to focus on Brownfield sites. In part, this is because Brownfield sites typically have a lower development cost compared to Greenfield developments. Table 2: Cost per metre drilled, 200304 to 201112 (201213 Australian dollars)
Average Annual Growth 11% 7%

Greenfield site Brownfield site

2003 04 151 206

2004 05 184 198

2005 06 215 228

2006 07 225 253

2007 08 298 286

2008 09 345 300

2009 10 305 287

2010 11 317 321

2011 12 345 361

Resources and Energy Major Projects October 2012 9

Projects at the Publicly Announced Stage

Overview
The Publicly Announced Stage of project development is the first stage in the investment pipeline after exploration activities. It includes projects that have completed a substantial portion of their exploration activities, but have not yet completed an initial form of feasibility study to fully assess the commercial viability of the proposed mine. Projects at this stage face many challenges before they progress to FID. In some cases this progression through to the Feasibility Stage and to the Committed Stage can take several years. During this development and planning phase projects costs and market conditions may prevent the project from going ahead or change the initial publicly announced project proposal.

Analysis of projects at the Publicly Announced Stage

BREE has identified 106 projects at the Publicly Announced Stage with total investment value estimated to be worth between $91 billion and $133 billion (see Table 3). A number of the project costs contributing to this total cost range have been estimated using parametric cost estimation based on publicly available information and should be treated as indicative rather than definitive estimates. The full list of projects at the Publicly Announced Stage is available in the major projects list which accompanies this report. Table 3: Publicly Announced Stage project summary
Number of projects 4 14 8 19 8 14 5 13 5 13 3 106 Indicative cost range $m 1 0002 250 12 25015 900+ 7 8558 605+ 2 2703 520 13 50021 250+ 21 25035 250+ 651 065 26 75032 000+ 2 5005 000 2 8456 845 7501 500 91 010133 185+

Aluminium, Bauxite, Alumina Coal Copper Gold Infrastructure Iron ore Lead, Zinc, Silver LNG, Gas, Petroleum Nickel Other Commodities Uranium Total

10 Resources and Energy Major Projects October 2012

Gold projects are the most numerous at the Publicly Announced Stage with 19 projects identified. As gold mines tend to be smaller operations that require less capital investment to start up, the total value of Publicly Announced gold mines is low compared to other commodities, while the value for gold mines estimated to range from $2.3 billion to $3.5 billion. Vista Golds proposed Mt Todd mine in the Northern Territory and Bullabulling Golds Bullabulling project in Western Australia are the two largest Publicly Announced gold projects by investment size. Current cost estimates value the development of Mt Todd at $676 million and Bullabulling at $333 million with potential output capacities of 260 000 and 200 000 ounces per year, respectively. Iron ore projects are the largest by value in the Publicly Announced Stage with 14 projects worth between $21.3 billion and over $35.2 billion. BHP Billitons Jinidi mine in Western Australia is included in this stage rather than in the Feasibility Stage as its development plans are currently unclear. Fortescue Metals Groups Solomon Hub Stage 2 development, Australasian Resources Balmoral South Stage 2 magnetite project and Atlas Irons Ridley Magnetite are other significant iron ore projects at the Publicly Announced Stage. There are 13 LNG, gas and petroleum projects at the Publicly Announced Stage with an estimated combined value of between $26.8 billion and over $32 billion. Floating LNG projects such as the Bonaparte and Cash Maple Development projects, along with expansions to Woodside Petroleums Pluto facility are among the highest value projects at this stage. Each is estimated to cost more than $5 billion. Most coal projects identified in the investment pipeline have already progressed to the Feasibility Stage. There are 14 projects at the Publicly Announced Stage worth between $12.3 billion and over $15.9 billion. MacMines Austasias Project China Stone in Queensland has the highest potential cost of these, estimated at over $5 billion. Anglo Coal Australias Moranbah South project In Queensland has the second highest cost of coal projects at the Publicly Announced Stage, estimated at between $1.5 billion and $2.5 billion.

Resources and Energy Major Projects October 2012 11

Projects at the Feasibility Stage

Overview
Projects at the Feasibility Stage have completed initial feasibility studies into their commercial viability and have an announced development path ahead of them. The Feasibility Stage represents the maximum possible investment that could be made in the Australian resources and energy sector within the next few years. There are currently more projects at the Feasibility Stage than any other in terms of both number and investment value. Not all of these will progress to the Committed Stage as their progression depends on market conditions and cost competitiveness. For instance, an analysis of the projects at the Feasibility Stage suggests that the total capacity of iron ore projects at all stages of the investment pipeline is over 700 Mt with the majority of these planning to commence operations within the next 5 years. By comparison, in its March 2012 Resources and Energy Quarterly, BREE projected that Australias iron ore exports would total around 800 Mt by 2017 while current exports are some 480 Mt. This indicates that not all iron ore projects in the BREE investment pipeline will progress to FID and completion in the short to medium term. Similarly, it is unlikely that all metallurgical and thermal coal projects in the BREE investment pipeline will be developed in the foreseeable future. The uncertainty over the number of projects that are likely to receive a positive FID in the next five years indicates the value of the projects at the Feasibility Stage is only the potential for investment and not all of this will become committed. Consequently, the dollar value of projects at the Feasibility Stage is not directly comparable to the dollar value of the more certain projects at the Committed Stage.

Analysis of projects at the Feasibility Stage

There are 171 projects at the Feasibility Stage with an estimated investment value of around $292 billion (see Table 4). Coal projects are the most prevalent at this stage of the pipeline with 63 projects worth $75.8 billion. Many of these are located in Queensland and include GVKHancock Coals Alpha Coal Mine (30 Mt), Adanis Carmichael Coal Project (60 Mt) and Waratah Coals China First Coal Project (40 Mt).

12 Resources and Energy Major Projects October 2012

NSW

Qld

WA

NT

SA

Vic

Tas

Other

Total

No.

Value $m No. 1 1 1 4 5 20 1 3 4 5 2 4 47 113 475 8 6 419 5 4 687 2 1 830 1 270 532 2 203 2 2 493 3 1 008 532 3 750 1 1 60 000 2 4 600 70 133 1 1 912 236 1 12 000 35 637 1 267 2 3 590 8 710 2 650 176 274 1 447 6 6 25 25 3 11 6 18 5 200 63 75 766 2 034 482 44 720 44 944 1 586 104 535 3 835 8 109 2 100 13 912 171 291 891 No. No. No. No. No. No. 3

Aluminium, Bauxite, Alumina Coal 66 587 893 306 25 670 2 500 1 250 26 600 15 2 148 3 2

No. 2

Value $m 1 780

Value $m 2 000

Value $m

Value $m

Value $m

Value $m

Value $m

Value $m 3 780

18

8 979

44

Copper

420

Gold

Infrastructure 1 1 3 1 4

9 690

13

Iron ore

2 900

Lead, Zinc, Silver

100

LNG, Gas, Petroleum Nickel

1 335

Table 4: Summary of projects at the Feasibility Stage

Other Commodities Uranium

1 145

Resources and Energy Major Projects October 2012 13

Total

30

24 569

75 128 094

LNG, Gas and Petroleum projects have the highest investment value of projects at the Feasibility Stage with an estimated value of around $104.5 billion. Browse LNG in Western Australia and Arrow LNG in Queensland are the largest contributors to this investment total with indicative cost estimates of $36 billion and $24 billion, respectively. As detailed in BREEs report Australian Bulk Commodity Exports and Infrastructure Outlook to 2025, infrastructure has an important role to play in supporting the future growth of Australias resource commodity exports. Australia is expected to become increasingly reliant on infrastructure projects that are at the Feasibility Stage of which there are 25 worth $44.7 billion. This includes projects that will provide port, rail and gas transmission capacity. Proposed coal infrastructure in Queensland and New South Wales, particularly Dudgeon Point, Kooragang Island Terminal 4 and the expansion of the Hunter Valley rail network, are the largest contributors to the value of infrastructure projects at the Feasibility Stage. In the Pilbara, the Anketell Point Port and the Cape Lambert port expansion are also notable infrastructure projects at the Feasibility Stage that could support increasing export volumes of iron ore. Previously included projects that would have been part of the Feasibility Stage are BHP Billitons Outer Harbour and Abbot Point Terminals 49 projects. These two projects, however, have been deleted from the investment pipeline as they are not expected to reach an FID within the next five years. The delayed Oakajee Port development and BHP Billitons Abbot Point Terminal 2 have been moved from the Feasibility Stage to the Public Announced Stage because these projects may proceed to FID within the next five years. There are notably few aluminium, alumina and bauxite projects at the Feasibility Stage. While Australia is a substantial exporter of these commodities, market conditions have not supported further expansions in recent years. There are 18 projects at the Feasibility Stage worth $8.1 billion relating to other commodities, which includes mineral sands, rare earth minerals and phosphates. While these are, typically, not on the same scale as mega coal or iron ore projects they are expected to play an increasingly important role in mining investment into the future. Arafura Resources Nolans Project (rare earths, $1.9 billion) in the Northern Territory, Paradise Phosphate in Queensland ($1.8 billion) and Alkane Resources Dubbo Zirconia Project ($1.1 billion) are notable examples of high value projects in this category. Due to previous restrictions on exploration and production, there have been few uranium projects that have progressed to, or from, the Feasibility Stage in recent years. Recent regulatory changes in Western Australia, New South Wales and Queensland have improved the prospects of uranium projects progressing along the investment pipeline. In particular, Toro Energys Wiluna project in Western Australia received state government approval in October 2012 and could become the first uranium project in Western Australia to progress to the Committed Stage.

14 Resources and Energy Major Projects October 2012

In the last version of the Major Projects report, released in May 2012, it was reported that there were 295 less advanced (see Figure 5). The equivalent combination of projects at the Publicly Announced and Feasibility stages is 277 in the current release. The decrease in the number of projects is attributable to the removal of projects that have not progressed as scheduled and because information could not be sourced that confirmed a clear intention to progress to development. As already noted, not all of the projects at the two stages of development will move to FID, or be implemented as scheduled and the dollar value in these two categories is not directly comparable to the value of projects at the Committed Stage. Figure 5: Number of uncommitted projects
350 300 250 200 150 100 50 number of projects Oct-03 Oct-04 Oct-05 less advanced Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12

publicly announced

feasibility stage

Resources and Energy Major Projects October 2012 15

Projects at the Committed Stage

Overview
Projects at the Committed Stage of development have received an FID and have either started, or are about to start, construction. While these projects are more certain than projects at the Publicly Announced and Feasibility Stages, they are not immune to cost increases and schedule variations. Recent examples of committed projects that have experienced cost increases include BG groups Queensland Curtis LNG project ($4 billion increase), CITIC Pacific Minings Sino Iron Project ($2 billion increase) and Santos Gladstone LNG project ($2 billion increase). Project scope changes can also occur that include the cancellation of a project or a halt to further construction as occurred in August 2012 when BHP Billiton cancelled its previously committed Peak Downs coal expansion project. There are currently 87 projects identified at the Committed Stage, a reduction from 98 in the April 2012 Major Projects report (see Table 5 and Figure 6). These committed projects have an estimated total investment value of $268.4 billion which is a slight increase from the previous listing in April 2012.

16 Resources and Energy Major Projects October 2012

NSW Value $m No. No. No. No. No. No. No. Value $m Value $m Value $m Value $m Value $m Value $m Value $m

Qld

WA

NT

SA

Vic

Tas

Other

Total

No.

Value $m

No.

Aluminium, Bauxite, Alumina Coal 10 170 550 180 6 390 12 1 3 60 800 11 96 132 1 33 000 2 4 300 310 1 360 1 680 26 204 7 14 774 1 200 5 976 1 450 3 9 18 12 3 17 14 360 643 3 548 24 617 26 204 728 18 194 912 2 1 5

4 190

10

Copper

93

Gold

1 942

Infrastructure

3 252

Iron ore

Lead, Zinc, Silver

58

LNG, Gas, Petroleum Nickel 5 1 78 400 40 141 084 4 34 080 2 298 2 98 4 300 2 998 1 270

Table 5: Summary of projects at the Committed Stage

Other Commodities Uranium

6 1 1 680

3 268 98 87 268 378

Resources and Energy Major Projects October 2012 17

Total

16

9 535

22

Figure 6: Number and nominal value of projects at the Committed Stage

120 100 80 60 40 20 number of projects 300 250 200 150 100 50 $b

De

number (left axis)

value (right axis)

The investment boom in Australias mining and energy sector is primarily driven by investment in mega projects which each have an investment value of over $5 billion. The 11 mega projects at the Committed Stage account for 76 per cent, or $201 billion of the total value of committed projects ($268 billion) (see Figure 7). Most of these mega projects are investments in LNG facilities such as the Gorgon, Ichthys and Wheatstone projects, but also include iron ore mining and infrastructure projects such as CITIC Pacific Minings Sino Iron Project, BHP Billitons Jimblebar and Rio Tintos Cape Lambert Port and Rail (see Figure 8). Figure 7: Project value
projects <$1b $16b (6%) projects $1b$2.5b $41b (15%)

projects $2.5b$5b $8b (3%)

18 Resources and Energy Major Projects October 2012

t-2 00 7 Oc t-2 00 8 Oc t-2 00 9 Oc t-2 01 0 Oc t-2 01 1 Oc t-2 01 2

4 t-2 00 5

02

19 95

19 97

19 99

20 01

20

00

t-2

c-

t-2

t-2

Oc

Oc

Oc

Oc

Oc

00 6

00

projects $5b+ $201b (76%)

Figure 8: Mega projects at the Committed Stage

50

40

30

20

10

$b
LN G Gl ad sto Qu ne ee LN ns G lan d Cu rti sL Au NG st ra lia Pa ci cL NG W he at st on eL NG Ich th ys LN G eb Pr oj nk ns eF bl rg on Go pa LN G ar n B in io ec Iro Pr el ud n Si no t

Ra

th

SN

NW

Projects progressing to the Committed Stage

Both the number and value of projects progressing to the Committed Stage have decreased in the last 6 month period. There have been 10 projects, worth $13.2 billion, that have received a positive FID in the six months since April 2012 and progressed to the Committed Stage of development (see Table 6). By comparison, in the six months from November 2011 to April 2012, 21 projects were committed to with a combined value of $45 billion that included the Ichthys LNG project in the Northern Territory which alone accounted for $33 billion of this total in the April 2012 listing.

Ca

pe

La

be rt

or

Ex

Jim

Resources and Energy Major Projects October 2012 19

Table 6: Projects progressed to the Committed Stage since April 2012

Project APLNG Train 2 Yandicoogina Appin Area 9 coal mine Burrup Ammonium Nitrate Plant McArthur River (Phase 3) zinc/lead mine Cloncurry copper project Woodlawn Retreatment Project Four Mile uranium mine Andy Well gold mine Meekatharra Gold Project Total Company Origin / ConocoPhillips / Sinopec Rio Tinto/Hammersley BHP Billiton Orica / Yarra / Apache Xstrata Xstrata TriAusMin Quasar Resources / Alliance Resources Doray Minerals Reed Resources State Qld WA NSW WA Qld Qld NSW SA WA WA Value ($m) 9 000 1 700 840 775 360 300 93 90 55 36 13 249

The main contributor to the additions since April 2012 is the approval of the second train at the Australia Pacific LNG plant at Gladstone, Queensland. This will add an additional 4.5 Mt of LNG production at a cost of around $9 billion. The prices of gold, copper and lead have provided more favourable investment conditions to support projects for these metals than other commodities. In the past six months, two copper projects, Xstratas Cloncurry project in Queensland and TriAusMins Woodlawn Retreatment Project in New South Wales, progressed to the Committed Stage. Xstrata also committed to its McArthur River Phase 3 project in the Northern Territory that will expand its lead and zinc production from the mine. Two gold projects also progressed to the Committed Stage. These are Doray Minerals Andy Well project and Reed Resources Meekatharra Gold Project. Both are located in Western Australia. The Burrup Ammonium Nitrate Plant located at the Burrup Peninsula in Western Australia progressed to the Committed Stage following a positive FID by its joint venture partners (Orica, Yara and Apache). The plant is estimated to cost around $775 million and will provide up to 330 kt of industrial grade ammonium nitrate. Despite a declining uranium spot price over the past six months, the Quasar ResourcesAlliance Resources joint venture gave a positive FID to the Four Mile uranium project located in South Australia. This is the second approved uranium project since changes to Federal Government regulations allowed more than three operating uranium mines in Australia. It will supply up to 2 300 tonnes of uranium oxide when fully complete and has an initial investment of $98 million.

20 Resources and Energy Major Projects October 2012

Lower spot iron ore and coal prices relative to the first quarter 2012 have not encouraged further expansions to iron ore and coal operations. This is evident in the low rate of progress of projects to the Committed Stage with only Rio Tintos Yandicoogina iron ore mine expansion in Western Australia and BHP Billitons Appin Area 9 coal mine in New South Wales receiving a positive FID over the past 6 months.

Analysis of projects at the Committed Stage

LNG, gas and petroleum projects account for over 70 per cent of the value of projects at the Committed Stage (see Figure 9). There are 18 of these projects with a total investment value of $195 billion. To illustrate the size, complexity and importance of these investments, if just one of the large LNG projects currently at the Feasibility Stage were to receive a positive FID in the next twelve months, there would be more planned investment in LNG, gas and petroleum projects in Australia than the total amount spent by the US Government on the Apollo Moon Program, which in 2012 Australian dollar prices is about $200 billion1. Figure 9: Projects at Committed Stage, by commodity
250

200

150

100

50

$b LNG, gas, petroleum infrastructure iron ore coal other

There have been numerous reports of cost increases for LNG projects at both the Feasibility and Committed Stages in the past six months. Controlling cost pressures and also market conditions will be crucial determinants to further expansion of the Australian LNG sector. Australias LNG industry is not alone in experiencing these pressures, but as a high cost country Australia is particularly vulnerable to further cost increases in terms of its impact on future investment.

Calculated by BREE based on A Budgetary Analysis of NASAs New Vision for Space, Congressional Budget Office, September 2004.

Resources and Energy Major Projects October 2012 21

Box 1. LNG project cost pressures

A substantial portion of Australias investment pipeline is comprised of LNG projects at both the Feasibility and Committed Stages. There are six LNG facilities already under construction worth $166 billion with the potential for over $100 billion to be invested on new developments and expansions to add additional trains at existing facilities. This next wave of investment is far from guaranteed and future investments will be reliant on the ability of project managers to control construction costs. As a result of cost pressures, prospective LNG projects may require project proponents to consider lower cost development alternatives if they are to progress to a FID and construction. Two of Australias six LNG projects have announced project cost increases since the start of 2012 and another is expected to announce the results of cost review by years end. Factors driving these cost increases, such as skilled labour shortages, a high Australian dollar and transport to remote locations, as well as changes in scope, are common to all current and prospective projects. Thus, it is not unreasonable to expect that LNG projects currently at the Feasibility Stage may be subject to additional costs in the future. Five of the six LNG projects currently under construction, and also the recently completed Pluto LNG project in Western Australia, have had substantial cost increases since they were at the equivalent of the Publicly Announced Stage in previous releases of the Major Projects list (see Figure 10).

Figure 10: Australian LNG projects Publicly Announced vs current costs

50 45 40 35 30 25 20 15 10 5 2012-13$b Pluto Gorgon QCLNG Ichthys Gladstone Wheatstone
Oct-06 Oct-06 Apr-08 Oct-06 Apr-08 Oct-10

publicly announced stage (various dates)

committed / completed stage (Oct 2012)

Source: ABARES, BREE. Notes: 1. Publicly Announced Stage data based on projects in the less advanced category in previous ABARES reports. 2. Some cost changes can be attributed to scope/planning changes such as additional capacity and LNG trains.

22 Resources and Energy Major Projects October 2012

Australia is not alone in experiencing rising LNG project construction costs. Indeed, many LNG and large gas/oil projects around the world are facing substantial cost pressures. For instance, the ExxonMobil led joint venture for the PNG LNG project announced a $3.4 billion cost increase to the project (from US$15.7 billion to US$19 billion) in November 2012. This has been attributed to foreign exchange impacts as well as schedule delays due to land access issues and the weather. The recently completed Angola LNG project had its cost increase from around $4 billion at the time it received a FID to $10 billion at completion. Phase 1 of the Kashagan oil project in Kazakhstan, the largest energy project under construction in the world, has also had a 20 per cent increase in cost, in part due to a series of schedule delays.

As a result of a rapid expansion of the iron ore sector in recent years, there are 12 iron ore projects with a combined value of $26.2 billion at the Committed Stage. Together, these projects could produce an additional 239 Mt of iron ore exports per year. This would represent a 50 per cent increase on iron ore exports from 201112. Fortescue Metals Groups Solomon Hub (60 Mt) and Chichester Hub (40 Mt) expansions are the two largest projects by output capacity, followed by BHP Billitons Jimblebar mine (35 Mt) and CITIC Pacific Minings Sino Iron Project (28 Mt). The Sino Project will be one of the Pilbara regions largest magnetite producers. The importance of infrastructure projects to support increased export volumes is shown by the number and value of port, rail network and gas pipeline projects at the Committed Stage. There are 18 projects worth $24.6 billion that are currently under construction across Australia that will support growth in iron ore, coal and gas production and exports. Rio Tinto and Robe Rivers Cape Lambert Port expansion in Western Australia is the largest of these by value at $5.1 billion dollars, followed by the BHP Billiton-Mitsubishi Alliances (BMA) Hay Point Coal Terminal (Phase 3) and Stage 1 of the Wiggins Island Coal Export Terminal both of which are valued at $2.4 billion. There are 17 coal projects at the Committed Stage, valued at $14.4 billion (both coking and thermal coal). Rio Tinto-Mitsuis Kestrel and BMAs Caval Ridge projects are coal projects with the highest value at around $1.9 billion each. Caval Ridge was previously combined with an expansion to the Peak Downs mine in Queensland. However, in part due to due to deteriorating spot prices, the previously committed Peak Downs expansion project has been cancelled by BMA and reclassified as part of the Feasibility Stage of the investment pipeline. Lower commodity prices and increasing costs of production, especially energy costs in relation to aluminium production, have reduced the likelihood of further expansions of such projects unless there is a shift to cheaper energy sources. There are no nickel or aluminium, alumina and bauxite projects at the Committed Stage following the completion of Rio Tinto Alcans Yarwun Aluminium Refinery Expansion and Boyne Island Smelter Sustainment projects in Queensland.

Resources and Energy Major Projects October 2012 23

Montara/Skua oil Ichthys LNG Darwin GEMCO Phase 2 expansion manganese

Prelude floating LNG

Figure 11: Locations of projects at the Committed Stage

24 Resources and Energy Major Projects October 2012

Turrum gas Kipper (stage 1) gas Hobart

Cape Lambert iron ore infrastructure George Fisher Argyle diamonds WAIO inner harbour lead, zinc & silver Balnaves oil iron ore infrastructure Rocklands copper Dampier Port Expansion Port 55 155 Mtpa iron ore infrastructure Grosvenor underground coal iron ore infrastructure Ammonium nitrate Caval Ridge/ Millennium expansion coal McArthur River (phase 3) Peak Downs Fletcher-Finucan oil emulsion plant lead, zinc & silver expansion coal Eagle Downs coal Gorgon LNG Horizon 1 (Phase A) iron ore Tanami gold Hay Point Phase 3 coal infrastructure Rail 55 155 Mtpa Spar gas Cloncurry copper iron ore infrastructure Broadmeadow coal Coniston oil GSE 140 coal infrastructure Solomon Hub iron ore Queensland Curtis Island Project LNG Wheatstone LNG Daunia coal Chichester hub 95 iron ore Australia Pacific LNG Macedon gas Lake Vermont coal Jimblebar iron ore Marandoo iron ore Wiggins Island rail project Greater Western Flank oil & gas Kestrel coal Orebody 24 iron ore Wiggins Island coal terminal Ensham underground coal Sino Iron Project iron ore Yandicoogina iron ore Gladstone LNG Brockman 4 iron ore Hope Downs 4 iron ore Blackwater System Power Upgrade Rocklands to Kabra rail duplication Goldfields pipeline expansion gas pipeline Western Turner Syncline iron ore coal infrastructure Moomba to Sydney coal infrastructure Andy Well gas pipeline Nammuldi expansion iron ore gold Brisbane Tropicana Joint Venture Project gold Ravensworth North coal Meekatharra Boggabri opencut coal HBJ gold Hunter Valley Corridor Capacity Strategy (Contracted) Four Mile uranium gold coal infrastructure Potosi Ulan West coal lead, zinc Kooragang Island coal terminal expansion & silver Perth Mt Marion lithium Cadia East gold Newcastle export terminal coal infrastructure CSBP expansion ammonium nitrate Woodlawn Austar underground (Stage 3) coal Sydney Adelaide Retreatment NCIG export terminal Stages 2 & 3 coal terminal copper Canberra Metropolitan longwall coal NRE No.1 Colliery coal Melbourne Appin Area 9 coal

Burrup ammonium nitrate NWS North Rankin B oil & gas

LEGEND

project committed value

$099m $100499m $500999m $1000m+

gas pipeline rail line capital city

Projects at the Completed Stage

Overview
Projects that have completed construction so as to be able to commence production within the last six months are included at the Completed Stage of the investment pipeline. In the six months to October 2012, 24 projects were completed with a combined value of $11.9 billion (see Table 7). The value of completed projects is about half of what it was in April 2012. The decline is attributable to the completion of Woodside Petroleums Pluto LNG plant that commenced production in April 2012 and was valued at $14.9 billion. Although less than the April 2012 value, the value of Committed Projects in this release is above the ten-year average of $8.1 billion (see Figure 12). Table 7: Projects at the completed stage
New Capacity n/a 1.5 n/a Capacity Unit Resource Gas Mt Thermal Coal Aluminium

Project Bass Gas (Yolla Mid Life Enhancement) Bengalla expansion (stage 1) Boyne Island Smelters Major Sustaining Projects Burton Cosmo Deeps Curragh Mine DeGrussa Duketon (Garden Well) Ernest Henry underground Goonyella to Abbot Pt (rail) (X50) Hunter Valley Operations Expansion Karara Project Koolyanobbing Lady Loretta Moranbah Ammonium Nitrate Project Mount Arthur (RX1) Murchison

Company Origin /AWE / Calenergy Gas Wesfarmers / Rio Tinto Rio Tinto Alcan

State TAS NSW Qld

Cost $m 490 141 685

Peabody Energy Crocodile Gold Wesfarmers Sandfire Resources Regis Resources Xstrata QR National Rio Tinto / Mitsubishi

Qld NT Qld WA WA Qld Qld NSW

2.5 100 000 1.5 77, 36 000 200 000 50, 70 000 50 000 6 10 000 2 500 126, 40 330 4 24 000

Mt oz Mt kt, oz oz kt, oz ktpa Mt kt kt kt kt Mt oz

Coking Coal Gold Coking Coal Copper, Gold Gold Copper, Gold Black coal Thermal and Coking Coal Magnetite Hematite Zinc, Lead Ammonium Nitrate Thermal Coal Gold

300* 30 286 390 109 589 1 100 255 2 390 320 303 935 388 15

Gindalbie Metals/ WA Ansteel Cliffs Natural Resources WA Xstrata Incitec Pivot BHP Billiton Kentor Gold Qld Qld NSW WA

Resources and Energy Major Projects October 2012 25

Project Narrabri Coal Project (stage 2) Nullagine Gold project Roma to Brisbane pipeline Southern Iron Wilcherry Hill (stage 1) Woornack, Rownack and Pirro Project Yarwun Alumina Refinery Expansion Total

Company Whitehaven Millennium Minerals Australian Pipeline Group Arrium Ironclad Mining/ Trafford Resources Iluka Resources Rio Tinto Alcan

State Qld WA Qld SA SA Vic Qld

New Capacity 4.5 82 000 10 4 000 2 000 170, 110, 80 2 000

Capacity Unit Resource Mt Thermal Coal oz PJ pa kt kt kt kt Gold Gas Hematite Magnetite Rutile, Zircon, Ilmenite Alumina

Cost $m 300 87 50 86 26 97 2 500 11 872

*Estimated due to unavailable data.

Figure 12: Value of completed projects

25

20

15

10

5 2012-13 $b Oct-2003

Oct-2004

Oct-2005

Oct-2006

Oct-2007

Oct-2008

Oct-2009

Oct-2010

Oct-2011

Oct-2012

26 Resources and Energy Major Projects October 2012

Analysis of projects progressing to the Completed Stage

Rio Tinto Alcans Yarwun Alumina Refinery expansion project was the largest project completed, by value, in the six months to October 2012. It will increase the existing capacity of the refinery by an additional 2 Mt a year to a total of 3.4 Mt per year. Rio Tinto Alcan also completed the Boyne Island Smelters Major Sustaining Projects, valued at $685 million over the past 6 months. Six coal projects were completed in the period, the most of any commodity, with a combined value of $1.7 billion. This category included projects such as BHP Billitons Mount Arthur (RX1) project ($388 million), stage 2 of Whitehaven Coals Narrabri Coal Project ($300 million) and Wesfarmers Curragh Mine project ($286 million). These completed projects will provide up to 20 Mt of metallurgical and thermal coal for export. Gindalbie Metals Karara Project in the Mid-West region of Western Australia was the second largest project completed in the past six months, by value. The $2.4 billion iron ore project officially opened on 18 September 2012 and shipped its first load of Direct Shipping Ore (DSO) in October 2012. Its first production of magnetite concentrate occurred on 15 November 2012. Other iron ore projects completed in the period include Cliffs Natural Resources Koolyanobbing project in Western Australia ($320 million), Arriums Southern Iron project ($86 million) and stage 1 of Ironclad Mining and Trafford Resources Wilcherry Hill project ($26 million). A number of other metals projects have been completed since April 2012. Four gold mines with a combined value of $241 million were completed, along with two copper mines worth $979 million (Sandfire Resources Degrussa mine and Xstratas Ernest Henry underground project) and one zinc-lead mine valued at $303 million (Xstratas Lady Loretta mine). Projects that relate to other commodities that have been completed in the last six months include Incitec Pivots Moranbah Ammonium Nitrate Plant in Queensland ($935 million) and Iluka Resources Woornack, Rownack and Pirro mineral sands project in Victoria ($97 million).

Resources and Energy Major Projects October 2012 27

Figure 13: Pipeline of investment in Australias resources and energy sector, selected projects EXPLORATION PUBLICLY ANNOUNCED $91$133+ billion
Bonaparte Floating LNG Cash Maple LNG Pluto (trains 2 & 3) LNG Jinidi Iron ore Solomon Hub (stage II) Iron ore Moranbah South Coal Norwood Coal Olympic Dam Copper & Gold Oakajee Port & Rail Pilbara Independent Rail

FEASIBILITY STAGE
Browse LNG Arrow LNG Roy Hill Iron ore West Pilbara Iron ore Jack Hills (stage II) Iron ore Alpha Coal China First Coal Carmichael Coal

$292 billion

Dudgeon Point Port Kooragang Island T4 Port

COMMITTED
Gorgon LNG Ichthys LNG Wheatstone LNG Sino Iron Project Iron ore Jimblebar Iron ore Kestrel Coal

$268 billion
Hope Downs 4 Iron ore Caval Ridge Coal Cape Lambert Expansion Port Hay Point Terminal Port

COMPLETED
Yarwun Re nery Alumina Karara Iron ore Moranbah Plant Ammonium Nitrate Goonyella to Abbot Point Rail Bass Gas

$12 billion
Earnest Henry Copper & Gold Lady Loretta Zinc & Lead Mount Arthur Coal Narrabri Coal Burton Coal

PRODUCTION

28 Resources and Energy Major Projects October 2012

Capital expenditure
Capital expenditure in mining and energy industries represents the cash flow requirements of companies for purchasing equipment, plant and assets that are directly used in the extraction of raw materials and concentrating of ores. This is different to the cost of projects that BREE reports as the value of Australian mining investment, which measures the total committed value of projects that will, typically, be spent over several years. Capital expenditure represents the portion of total committed value that is spent in a given period, usually in one year. The growth in commodity prices over the past decade has generated a substantial increase in both total committed value of mining projects and their annual capital expenditure. Annual mining capital expenditure increased at an average annual rate of around 23 per cent from 200102 to 201112. This has been supported by substantial increases in both the number and average value of mining and energy projects at the Committed Stage in Australia. In 201112, mining capital expenditure reached a record level of $82.1 billion, an increase of 68 per cent from the previous year (see Figure 14). Figure 14: Australia mining capital expenditure
120

100

80

60

40

20 2012-13 $b 1980-81

1985-86

1990-91

1995-96

2000-01

2005-06

2010-11

Source:

ABS

Based on ABS survey data released in August 2012, mining capital expenditure is expected to grow substantially again in 201213. Expenditure is forecast to grow by around 45 per cent to a total $119 billion in 201213.

Resources and Energy Major Projects October 2012 29

Analysis of projects by region

Overview
Table 8 shows that the pipeline of investment in Australias mining and energy industries, it is not evenly distributed across the jurisdictions with the bulk of the planned expenditure in Western Australia and Queensland. Table 8: Regional investment pipeline
Publicly Announced Value No. A$m 14 2 1805 430 28 43 5 7 4 2 3 106 23 20431 629+ 42 47666 726+ 1 8012 301 7 6649 414+ 1 1852 185 0500 12 50015 000+ 91 010133 185+ Feasibility Stage Value No. A$m 30 24 569 75 47 8 5 2 2 3 171 128 094 113 475 6 419 4 687 532 203 16 412 291 891 Committed Value No. A$m 16 9 535 22 40 4 2 2 0 1 87 78 400 141 084 34 080 298 4 300 0 680 268 378 Completed Value No. A$m 3 784 10 6 1 2 1 1 0 24 7 048 3 311 30 112 97 490 0 11 872

NSW Qld WA NT SA Vic Tas Other* Total

*Offshore projects not allocated to a state.

Western Australia
Western Australia has both the largest number and highest value of projects at the Committed Stage with 40 projects valued at a total of $141.1 billion. Five of the eleven mega projects at the Committed Stage are located in Western Australia including the largest, Chevrons Gorgon LNG project at Barrow Island. At $43 billion, the Gorgon LNG is the biggest resources or energy ever initiated in Australia and will cost around 5 times more than the Snowy Hydro Scheme (in 2012 prices). Western Australia also has a number of gas and LNG projects at earlier stages of development that will continue to support investment in the state if they receive a positive FID. For instance, Browse LNG and the prospect of additional trains at Gorgon and Woodsides recently commissioned Pluto LNG plant could collectively generate more than $50 billion of further investment for the state. Investment in iron ore projects represents a substantial portion of the investment pipeline in Western Australia. There are already 12 iron ore projects at the Committed Stage worth $26.2 billion and there are projects at the Feasibility Stage that have the potential to result in the investment of up to$45.1 billion. Many of the iron ore projects yet to receive a FID are located in regions outside of the Pilbara and include the Mid-West and Esperance-Goldfields regions.

30 Resources and Energy Major Projects October 2012

There are currently $14.8 billion invested in infrastructure projects at the Committed Stage and over $8.7 billion at the Feasibility Stage. Additional expansion of the iron ore sector will be the main driver of any additional investment in infrastructure in Western Australia. Recent postponements such as BHP Billitons Outer Harbour project at Port Hedland and the Oakajee Port in Geraldton suggest that these infrastructure developments may proceed at a slower pace into the future. Western Australia has a range of metals and other minerals projects in its investment pipeline. There are 23 of Australias 38 gold projects in the investment pipeline located in Western Australia, with a value of over $2.4 billion. Although gold projects tend to be smaller in value, in aggregate they remain a valuable source of investment for the state. Similarly, uranium projects are, typically, smaller in value than large iron ore projects. Five of the nine uranium projects identified in the investment pipeline are located in Western Australia with a potential value of over $1.8 billion.

Queensland
Queensland has the second highest number of projects at the Committed Stage with 22 projects that have a total value of $78.4 billion. Like Western Australia, this is primarily a result of mega LNG projects which account for 78 per cent, or $60.8 billion, of this total. Queenslands three committed LNG projects will use the states large resources of coal seam gas as LNG feedstock to establish a new export industry, with most of the LNG to be exported to Asia-Pacific markets. Queensland still has additional LNG projects under development at the Feasibility Stage including Shell-Petro Chinas Arrow LNG project and the smaller Fishermans Landing LNG project. There are an 10 coal projects at the Committed Stage in Queensland. These have a total value of $10.2 billion and are a mix of thermal and coking coal mines. The future of investment in Queenslands coal sector is focused more on thermal coal mines with 26 of the states 39 coal projects at the Feasibility Stage, along with 7 of the 12 coal projects at the Publicly Announced Stage, related to thermal coal. Most notable among these are the mega projects located in the Galilee Basin such as GVK-Hancock Coals Alpha coal mine, Adanis Carmichael Coal Project and Waratah Coals China First Coal Project. Together, these projects have a planned capacity of 130 Mt. If all of these projects progress to the Committed Stage it would establish the Galilee Basin as a thermal coal producing region comparable in output to the Hunter region in New South Wales. Such an expansion will be reliant on continuing growth in world demand for thermal coal in electricity generation, particularly in emerging economies such as India. Infrastructure investment in Queensland is primarily focused on supporting the growth in coal and gas projects. There are currently five infrastructure projects at the Committed Stage worth $6.4 billion and 13 projects at the Feasibility Stage with a combined value of $25.7 billion.

Resources and Energy Major Projects October 2012 31

Although smaller in value than the large coal and LNG projects, there are numerous metals and other minerals mines progressing through the investment pipeline in Queensland. The Mt Isa region has projects with a potential value of over $5 billion at various stages of development, including seven copper projects, two lead-zinc-silver mine projects, one phosphate mine and one uranium mine. Development of additional uranium projects in the region is possible following the recent revision of state Government regulations. Rio Tinto Alcans $1.4 billion South of Embley and Cape Aluminas $380 million Pisolite Hills projects are both at the Feasibility Stage and could increase bauxite production by up to 20 Mt per year in the Weipa region if they receive a positive FID.

The Northern Territory

The Northern Territory has the third highest value of projects at the Committed Stage worth $34.1 billion. Much of this planned capital expenditure is due to the large value of the Ichthys LNG project which, at $33 billion, represents 97 per cent of the territorys committed investment in resources and energy projects. Gas projects are the main contributor to the value of the Northern Territorys potential investment pipeline, with around $4.6 billion of projects at the Feasibility Stage. Metal projects represent the remainder of the Northern Territory mining investment pipeline. Newmonts Tanami gold project is currently at the Committed Stage and is valued at $450 million. There are also an additional three gold projects at the Publicly Announced Stage with a combined value of over $750 million. Stage 3 of the McArthur River lead-zinc mine progressed to the Committed Stage in September following a positive FID from Xstrata. The project is valued at $360 million and will increase the mines zinc and lead production by 207 kt and 51 kt respectively. The Bigrlyi uranium project remains at the Feasibility Stage while the Ranger 3 Deeps uranium project by ERA is still an exploration activity.

New South Wales

There are 16 projects at the Committed Stage in New South Wales worth $9.5 billion. The coal sector is the states main source of mining investment with 11 of the 16 committed projects either coal mine projects or infrastructure projects planned to support coal transportation. Together, these projects account for $7.4 billion, or 77 per cent, of the states mining investment at the Committed Stage. Newcrests $1.9 billion Cadia East gold project accounts for the majority of the remaining committed investment.

32 Resources and Energy Major Projects October 2012

New South Wales has 30 projects at the Feasibility Stage and 14 at the Publicly Announced Stage in its investment pipeline. Coal is the main sector for this investment with 19 projects at the Feasibility Stage which have a combined value of $8.8 billion. Unlike Queensland, there are no mega coal projects currently planned in New South Wales. Among the largest projects, by value, in the state are Rio Tinto-Mitsubishis Mount Pleasant Project ($1.3 billion) the Cobbora Holding Companys Cobbora mine ($1.3 billion) and Whitehavens Maules Creek Project. These projects could provide up to 33 Mt of additional thermal coal capacity to the Hunter region.

South Australia
South Australia has only two projects at the Committed Stage with a combined value of $298 million. These are Arriums Whyalla Port expansion ($200 million) and the Quasar ResourcesAlliance Resources joint venture Four Mile uranium project. South Australia has several projects under development in the earlier stages of the investment pipeline. These include the recently postponed expansion to BHP Billitons Olympic Dam. The November 2012 announcement of an extension to the indenture agreement between BHP Billiton and the South Australian Government to develop the project, along with a commitment from BHP Billiton to spend $650 million over the next four years on project planning and development, indicates it will remain part of the investment pipeline for the foreseeable future.

Victoria
Victoria has two projects at the Committed Stage worth $4.3 billion, these are both gas projects located in Bass Strait. There are also two projects in Victoria at the Feasibility Stage. These are both mineral sands projects which have a combined value of $532 million. The major projects investment pipeline of Victoria includes only a few projects because many of the states mining projects are below the $50 million threshold.

Tasmania
Like Victoria, Tasmania has few mining projects that cost over $50 million. At the Feasibility Stage there are two projects with a combined total value of $203 million in Tasmania. These are Proto Resources and Investments Barnes Hill nickel-cobalt project and King Island Scheelites Dolphin Tungsten Project. At the Publicly Announced stage, Tasmania has two tin projects that have a combined value of less than $500 million which include Venture Minerals Mount Lindsay and Metals Xs Renison expansion projects.

Resources and Energy Major Projects October 2012 33