Mining Supplies and Innovation: An opportunity for the Country Ian Satchwell 11 April 2014

1. Adding value to minerals and energy: mining equipment, technology and services Mining Supplies and Innovation: An opportunity for the Country Ian Satchwell11 April 2014

2. Outline Investment and production Redefining the Australian mining sector Employment and multipliers Case studies of METS development Some lessons Australian approaches to development The value of people

3. Australia’s engineering and construction challenge – the largest investment wave since the 1800s gold rushes* DARWIN Offshore petroleum basins BROOME NorthernTerritory Queensland Western Australia South Australia BRISBANE New South Wales PERTH SYDNEY ADELAIDE CANBERRA Victoria MELBOURNE HOBART WA & NT projects to 2016: USD220 billion+ Gladstone and North West Economic Triangle Base metals, bauxite-alumina LNG, mining Queensland projects to 2016: USD100 billion+ Pilbara Region LNG, iron ore, infrastructure Bowen, Surat and Galilee Basins Coal, CSG, LNG PORT HEDLAND KARRATHA Mid West Region Iron ore, gold, uranium, nickel, Copper, uranium, mineral sands, petroleum New South Wales Coal, gold, base metals South West Region Alumina, mineral sands, gold Goldfields Region Gold, nickel, iron ore South Australia projects to 2016 USD10 billion+ *Reserve Bank, Australia 3

4. Western Australia case: investment will result in decades of increased production with lower volatility Increased sustaining capital and services Historic and forecast production value* for WA’s key resources Double 2011 value $m Source: ACILTasman analysis * At ten year average prices 4

5. Resource economy in Australia: bigger than traditionally measured Resource employment by industry 2011-12Share of total employment, financial year Gross Value Added – resource economy 2011-12 Share of nominal GVA, financial year(has more than doubled in past 10 years) • 10% of employment • 3.25% directly from extraction and processing • 6.75% from other sectors providing inputs • 18% of GVA • 11.5% directly from extraction and processing • 6.5% from other sectors providing inputs 5 Source: Rayner and Bishop, Reserve Bank of Australia, February 2013

6. GDP contribution of Mining Equipment, Technology and Services (METS) sector has grown faster than mining’s METS output is growing at 15 to 20% a year • 4% of national output in 2002-03 • 8.4% in 2011-12 METS contribution to GDP • 6.7% in 2010-11 • Est. 9.4% in 2012-13 Many METS are knowledge- and technology-intensive Source: Australian Treasury and Ed Shan / Minerals Council of Australia 2012 6

7. METS is now a very important industry sector to Australia Source: Austmine

8. Australian exploration and mining industry is now global – the business dimension of Australia’s strategic interests Europe 53 companies Mongolia 19 companies Canada 33 companies Greater Asia 31 companies China 16 companies United States 42 companies Laos & Cambodia 14 companies Philippines 19 companies Africa 220 companies Indonesia 47 companies Papua New Guinea 25 companies Latin America 94 companies

9. Australian METS firms are now major exporters of equipment, technology and knowledge Source: Austmine 2013

10. …with deep links into the economy Source: Austmine

11. METS development extends well beyond mining regions HEAD OFFICES AND OPERATIONS Western Australia METS firms 46 manufacturing: equipment, supplies, chemicals 34EPCM / engineering / construction 26consulting 27contract mining 10 IT developer/ equipment provider 10technology development/application 15 other professional services 18 other Head offices Branch operations METS = Mining Equipment, Technology and Services. Source: Austmine 2013

12. Employment growth: driven by mining, but more than just mining jobs – Western Australia example Employment growth by industry sector 2010-2020 Australian mining employment multiplier is 3 – 4Africa 7 – 10 Source: CCIWA: Building Western Australia’s Workforce for Tomorrow, June 2010 12

13. Taking a broad view: indirect and induced benefits Economic output from mining operation Indirect Induced • Subsequent backward expenditure for local goods and services along the supply chain • Income of supply chain employees • Taxes paid by suppliers to the Government • Household consumption as direct and indirect employees spend their income within the local economy Local manufacturer or service provider Direct • Purchasing expenditure for local goods and services • Payments to employees • Income of dealer’s employees • Taxes paid by dealer to the Government • Household consumption as direct and indirect employees spend their income within the local economy Local dealer In Australia, for every $1 of mining revenue, 40¢ is spent on goods and services: Reserve (Central) Bank Adapted from Saipem 2011 13

14. Australian Industry Participation in Western Australia resource projects • Proportional spending on the construction phase of oil & gas projects (but not mining) has shifted towards overseas suppliers over the last 30 years • But there continues to be a very high level of Australian industry participation • CME/APPEA Local Content Study (2011)1: • WA State Government Local Content Report – November 20112 • Publically announced local contracts July 2011 to March 2012 = A$15.5 billion3 Sources: 1: CME/APPEA Local Content Study 2011 2: Government of Western Australia, Department of Commerce, Local Content Report 2011 – figures for period 1/1/2011 though 30/9/2011 3: Media Statement, 8 March 2012, Minister for Commence, Hon Simon O’Brien 14

15. Case studies of METS clusters in Australia Northern Territory Queensland Western Australia BRISBANE South Australia New South Wales PERTH SYDNEY ADELAIDE CANBERRA Victoria MELBOURNE HOBART WHAT WE HAVE LEARNED • DARWIN PILBARA REGION North West Shelf LNG • KALGOORLIE 15

16. Case study: North West Shelf Project and technology-intensive service industry development APPLICATION OF LEADING TECHNOLOGIES PREVIOUSLY NOT AVAILABLE IN AUSTRALIA • Development of a new technology and knowledge intensive industry sector • Services to WA and overseas markets • Development of petroleum services hub • Transfer to other projects • Technical innovation in Australia • Technology transfer from overseas • Attraction of investment

17. Case study: Kalgoorlie, Western Australia • Mining town since 1900s – • Gold, nickel sulphide and nickel laterite – long life operations and evolving industry • 600 km east of Perth • Region’s population 45,000 • Mining services developed initially because of remoteness • Strong regional METS clusters (sectoral and geographic) • ~200 manufacturing & services sites • Now a net ‘exporter’ of mining equipment and services to other locations 17

18. Case study: Darwin, Northern Territory • Australia’s most northern and isolated city • Major service centre for mining, oil and gas, defence and marine sectors • Population 110,000 • Mining services developed initially because of remoteness • Now has a competitive advantage in mining and petroleum services • Strong regional METS clusters (sectoral and geographic) • ~300 manufacturing & services sites • Collaborative business culture • Exporter of METS to other locations, including Indonesia 18

19. Kalgoorlie and Darwin: Factors of success • Long-life customer mining/petroleum operations ; diverse markets (Darwin – sector diversity; Kalgoorlie – geographic diversity) • Good business and community infrastructure: serviced industrial land, roads, energy, water, community • Skilled resident workforce; sustainable demographic profile; attractive town amenity • Education and training institutions: public and private secondary schools, and vocational training and education; universities / school of mines (Kalgoorlie) • Strong entrepreneurship culture, support networks, business services • Financial institutions that understand mining and services • Supportive, light-handed government interventions, eg: industry participation policies; partnerships with business to connect customers and suppliers; small business support 19

20. Kalgoorlie and Darwin: overcoming obstacles • Collaborations to overcome small scale and lack of capacity • Right size contracts and alliances to help build local firms • some operations have adopted ‘inside-out’ strategies to help employees become independent services suppliers • Revise e-procurement and payment processes for small firms • companies offer access to global supply chains for good performers • Government-business partnerships to build supplier-customer linkages, eg • Australian Industry Participation National Framework • Industry Capability Network; Project Connect • Infrastructure to support business • Government investment and facilitation of business infrastructure through PPPs Industrial estates

21. Australian approaches to development GROWING THE PIE • Economic reform and infrastructure partnerships • Investment attraction, efficient approvals, certain fiscal regime • Win-win-win approaches: partnerships, delivery of returns for all • Using mining to facilitate broad-based economic growth • Importance of technology, knowledge and skills • Generating strong social licence to operate Source: Qantas <New slide>

22. Regulatory and institutional processes Market-based reforms to energy, water and transport Flexible and diverse labour market Demand-responsive education and training Liberalisation of trade and investment Taxation reform Robust policy processes – eg Productivity Commission, Infrastructure Australia, green & white papers, think tanks Transparent and open approval processes THREE DECADES OF REFORM <New slide>

23. People are Australia’s most important assetFocus on attracting, developing and retaining high-quality talent, not just a focus on hard infrastructure Education and training institutions: key infrastructure assets • Crucial to dealing with challenges and opportunities of the 21st Century • Advanced education integrated with research Complementary to traditional infrastructure • Knowledge-intensive and knowledge creating • Adaptable and capable to deal with uncertainty and to engage with the emerging new global economy Public sector and industry collaboration • e.g. Technical colleges; SKM Learning Centre, GE Energy Learning Centre; University research and teaching centres (Rio Tinto, BHP, Chevron, Shell) • Knowledge spillovers: trained workers move between projects and firms, taking skill set and culture with them Integrated policy on industry, education and training

24. Contact International Mining for Development Centre The University of Western Australia WA Trustees Building Level 2, 133 St Georges Terrace Perth WA Australia 6000 Tel: +61 8 9263 9811 Email: admin@im4dc.org www.im4dc.org The Energy and Minerals Institute The University of Western Australia M475, 35 Stirling Highway Crawley WA Australia 6009 Tel: +61 8 6488 4608 Email: emi@uwa.edu.au www.emi.uwa.edu.au The Sustainable Minerals Institute The University of Queensland St Lucia Brisbane QLD Australia 4072 Tel: +61 7 3346 4003 Email: reception@smi.uq.edu.au www.smi.uq.edu.au