Adding value to minerals and energy: mining equipment, technology and services Mining Supplies and Innovation: An opportunity for the Country Ian Satchwell 11 April 2014

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 Outline 2

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

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

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

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 % in METS contribution to GDP 6.7% in Est. 9.4% in Many METS are knowledge- and technology-intensive Source: Australian Treasury and Ed Shan / Minerals Council of Australia

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

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

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

…with deep links into the economy Source: Austmine 10

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

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

13 IndirectInduced Direct Local manufacturer or service provider Purchasing expenditure for local goods and services Payments to employees 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 Taking a broad view: indirect and induced benefits Economic output from mining operation Local dealer 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 Adapted from Saipem 2011 In Australia, for every $1 of mining revenue, 40¢ is spent on goods and services: Reserve (Central) Bank

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 Publically announced local contracts July 2011 to March 2012 = A$15.5 billion 3 SectorConstructionOperations Mining86%95% Oil & Gas58%83% SectorConstructionOperations Mining, Oil & Gas74%100% Sources: 1: CME/APPEA Local Content Study : 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

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

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

Case study: Kalgoorlie, Western Australia 17 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

18 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 Case study: Darwin, Northern Territory

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

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 20 Kalgoorlie and Darwin: overcoming obstacles Industrial estates

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 21 Australian approaches to development Source: Qantas GROWING THE PIE

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 Regulatory and institutional processes THREE DECADES OF REFORM 22

People are Australia’s most important asset Focus on attracting, developing and retaining high-quality talent, not just a focus on hard infrastructure Education and training institutions: key infrastructure assets Complementary to traditional infrastructure Public sector and industry collaboration Crucial to dealing with challenges and opportunities of the 21st Century Advanced education integrated with research Knowledge-intensive and knowledge creating Adaptable and capable to deal with uncertainty and to engage with the emerging new global economy 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

International Mining for Development Centre The University of Western Australia WA Trustees Building Level 2, 133 St Georges Terrace Perth WA Australia 6000 Tel: Contact The Energy and Minerals Institute The University of Western Australia M475, 35 Stirling Highway Crawley WA Australia 6009 Tel: The Sustainable Minerals Institute The University of Queensland St Lucia Brisbane QLD Australia 4072 Tel: