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October 17, 2011

South Australia: The next mining boom state?

by Travis Marshall

While Western Australia and Queensland have experienced extraordinary financial windfalls from the mining industry, South Australia has languished despite its enormous untapped resource potential.  But two major policy events this year are likely to set the State on a course of rapid expansion in the mining industry that will fundamentally change its fate for the century to come.  The challenge for the State Government is to ensure the financial benefits are directed into capacity building projects that will breathe life and energy into Adelaide and the regions.

The most highly publicised of these policy events is the recent go-ahead from the Government for BHP Billiton to commence a $30 billion expansion of its Olympic Dam mine creating one of the largest open cut mines in the world.

The second was the endorsement in May of a new management arrangement that will allow the Woomera weapons testing range to be open for mining.  With an estimated resource potential of $1.3 trillion (according to Primary Industries and Resources SA), this area is an untapped frontier that explorers have been desperate to access for years.

The scope of these two policies for the future of South Australia cannot be overstated.  On its own, the Olympic Dam expansion is going to bring in over $8 billion per year within a decade, which will expand the State’s economy by approximately 10% from current levels.  The project is so large that BHP has to build an airport, railway lines, a water desalination plant, port facilities in both Adelaide and Darwin, and grow the township of Roxby Downs to double its current size.  It is also considering building new power plants and is looking into renewable energy options such as solar, wind and geothermal (see article on geothermal energy) to supplement its energy needs.

It will also have to dig for over six years just to get to the depth required to access the ore body which is buried 350 metres below the surface.  But once it hits that depth it will have access to over 10 billion tonnes of ore which includes the world’s fourth largest deposit of copper, the world’s single largest source of uranium, and significant quantities of gold and silver.

It will employ up to 6,000 people for the construction phase, and require 8,000 miners to run the operations once at full capacity.  It is also estimated to create another 15,000 jobs indirectly meaning that it will become the largest single source of employment and wealth in the State’s history.  While it will take over a decade for BHP to make any profit, they are viewing the project on a very long timeline predicting it will operate for over 100 years.

Olympic Dam, which sits on the fringes of the Woomera weapons testing range, is indicative of the potential this otherwise barren landscape has to offer.  The range – which is officially called the Woomera Prohibited Area – served as a test site for rockets, nuclear weapons and a variety of military weaponry since it was established after World War 2.  At over 127,000 square kilometres, this is an enormous tract of land that is comparable to the size of England.  It has been tightly controlled by the Defence Force for six decades with only a handful of mining companies being granted access.

But this is soon to change with a pragmatic ‘coexistence’ framework being endorsed by the Federal Government in May that allows a timesharing arrangement for both mining and weapons testing to take place on the land.  The Federal Energy Minister, Martin Ferguson, estimated that there is at least $35 billion worth of developments, and that the area contains 62 per cent of Australia’s known copper reserves and 78 per cent of uranium reserves.

In short, South Australia has just unlocked one of its most valuable treasures.  As a result, it is soon to experience a sustained period of change that will alter the economic and demographic landscape for the better.  The population will rise, jobs growth will accelerate and there will be a significant redistribution of resources into the mining industry.  The flow of royalties will reach the State and Federal Treasuries and successive governments will argue over how to spend it.

It is also likely to create several risks such as skills shortages, environmental impacts, and social upheaval as the population adapts to these new economic realities.  These challenges should however be confronted head on, and not feared.

But the biggest challenge that South Australia will face, is how to ensure that the windfall of the coming mining boom can be captured and directed into capacity building projects so that its benefits are experienced widely.  Whether this is by initiating large scale infrastructure projects, improving the quality of education, funding research and innovation, or all of the above is something for debate.

One of the aims of The Grand Strategy Project is to uncover the industries of the future where Australia has the potential to become a world leader, and by doing so, identify pathways to their creation.  What is certain is that Australia cannot rely on the mining industry alone for its future prosperity and must seize upon the opportunity to create a sophisticated and diversified economy.  This opportunity is upon us.

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