A recent study available on the
website of the Center for International Economics shows very clearly the major
contribution of minerals to Australia.
Public Perceptions
Public perceptions and relationships
with governments have always been important to the minerals industry because,
after all, the minerals belong to the States and the companies merely obtain a
licence to produce them, albeit after having first had the privilege of taking
the high financial risks in discovering the deposits. The early relationships
with governments were at times turbulent as witnessed by the Eureka Stockade,
the first in-depth debate between government and the miners on mining taxation.
Overall, however, for the first 130 years of mining in Australia the public
understood and appreciated the benefits from mineral developments and applauded
these. There was wholehearted community support and encouragement for the
industry, which in turn led to the establishment of manufacturing and service
industries.
This long-standing stable
environment changed in the early 1970s. The reasons for the change should be
analysed by people more knowledgeable in these matters than I, but it seems
relevant that the emergence of the negative attitudes was not limited to
Australia and not limited to the minerals industry but directed at economic
development generally. The level of prosperity which had by then been reached
in the developed world was probably one of the reasons; it seems to be a human
characteristic not to appreciate what becomes readily available and to take
things for granted. In Australia the great minerals developments in the 1960s
were the main source of the new level of prosperity. The industry's very
success was most likely a cause for the change in attitudes.
Merit in Concerns
Nothing is ever completely black or
white, and there was a great deal of merit in, for example, the concern for the
environment emerging in the early 1970s. It was, however, a gross exaggeration
to portray the minerals industry as incompatible with environmental care. While
there were some poor examples from the past, a number of companies had already
recognised the need to minimise and control effluents and waste and restore and
regenerate mined out areas. On the
positive side, the publicity no doubt encouraged these companies to go further,
and induced others to follow. Today,
Australian mining companies are world leaders in land rehabilitation, helping
to re-generate large areas of degraded farmland.
Failure to Understand
The reaction of most of us in the
industry at the time, including myself, was conditioned by the longstanding
preoccupation with mainly technical matters. We considered what the critics
said, made some adjustments to the way we worked, and concluded that the rest
did not make sense. Nonsense cannot be pursued far in engineering, so we
expected that it would also go away in the public arena. We therefore took
little action to counter the negative views in public and got on with the job
at hand.
We made the mistake of not
understanding that in politics there is no such thing as automatic rejection of
what does not make sense. Great empires have been founded on false ideas. Given
enough pressure by skilful activist groups, what does not make sense has an
excellent chance of becoming public policy.
Some of it has in recent decades.
Informing the Public
Subsequently the industry recognised
that the very best technical performance does not guarantee success if public
opinion and public policy are unfavourable. Much effort has been devoted since then by industry associations
and individual companies to both putting our house in order, and informing the public. Sustainable
development has become a key concept. Companies are increasingly publishing
extensive reports on their environmental, occupational health and safety, and
community support activities in addition to financial and operational reports.
One important lesson learned from this has been that it is essential to be open
and honest, "transparent" in current jargon. The worst thing to do is
to leave the impression that one is trying to hide or gloss over something.
Today the stage has been reached
where it is becoming important to remember that the fundamental responsibility
of private enterprise is to create economic value. It is appropriate and
legitimate to ensure that all the various parties affected by a company's
activities are treated reasonably and fairly, and that any adverse effects are
made good. It is in the companies'
interests to work in a favourable community environment, but it is not the
proper role of private enterprise to become a community welfare agency. The
dividing line can become fuzzy and the pressures are always for more
involvement. Companies need to think
very clearly when defining their policies.
Inevitably, there are activist
groups, the existence and continued influence of which depends on exaggerating
the issues they are pursuing. In extreme cases the last thing such groups want
is finding a way in which their professed concerns can be met. Fortunately, the
public eventually sees through such tactics and the extremists lose their
public support.
Truth a Casualty
Regrettably, truth is not always an
important concept in public debates, as has been well explained by American
climatologist Stephen Schneider:
"We
have to offer up scary scenarios, make simplified, dramatic statements and make
little mention of any doubts we may have.
Each of us has to decide what the right balance is between being
effective and being honest."
The well-known love of the media for
a good story can aggravate this. The current issue of possible climate change
is an example.
Climate Change?
I have been trying to keep an open
mind on climate change, listening to the arguments of both those who say there
is a serious problem and others who say there is not. It is therefore a matter
of real concern that a friend of mine who has been involved at a senior level
in the International Panel on Climate Change confirms that the Panel's
conclusions have been "significantly misreported" in the media. As to
why the Panel does not correct such misreporting, he says that they have tried,
but failed.
Here we have a situation where much
pressure is being put on governments to take certain actions which would have
profound consequences for their citizens, while these citizens are being
misinformed. Worse than that, I am also told that the Kyoto protocol, which is
such a heated issue at present (no pun intended!) will, if implemented, do very
little to resolve the problem if there is one. To stabilise the carbon dioxide
concentrations would require a reduction of about 80% in the present worldwide
emissions (not just by the parties to the Kyoto proposal) which is clearly not
possible. If carbon dioxide emissions cause climate change, the world will to a
large degree have to adapt to it.
This may be well understood by
scientists but it certainly is not understood by the public, who think that
those who decline to ratify the Kyoto protocol are condemning the world to
something dreadful which they could prevent. I did not understand it fully
until quite recently.
The
explanation for not highlighting this important aspect of the issue is that
"it would provide an easy excuse not to do anything". It seems that the Schneider logic of those
in the know being entitled to choose between "being effective and being
honest" is being applied.
Similar less than truthful
techniques are known to be used by groups pursuing other issues. One famous
example is the speech attributed to Chief Seattle of Puget Sound Indian tribes
in 1854, referring in moving words to their ancient harmonious relationship to
the environment. Although subsequently admitted as being not the words of Chief
Seattle but written by a scriptwriter for a TV documentary in 1972, the bogus
speech became the basis of much publicity and a widely distributed
environmental book for children, even after the scriptwriter had informed the
publishers. It was apparently another case of deciding that honesty did not
matter.
It seems that the ideological and
political aims of those promoting various causes can become to them more
important than the truth.
The World a Better Place
We are told every day that what we
eat or drink is poisonous or at least not good for us, the air we breathe is
polluted, new illnesses are attacking us, our jobs are unhealthy or too
stressful, and so on and so on.
Disaster is in sight, and the end of the world is approaching.
If this is so, why is it, then, that
on the average people now live longer and the average age continues to
increase? In Australia, the average age
of men at the time of Federation in 1901 was 56 years; it is now 76 and
continues to increase by one year every five years. Women do even better; from
an average of 58 in 1901 their average lifespan has increased to 81 years
today.
If this continues, by the end of
this century 100-year olds will be as common as 80-year olds today. Together
with the decline in the birthrate in all countries with high living standards
to below the replacement rate, this introduces a real problem - the ageing of
the population and its economic and social consequences, but this is another
topic.
What we are told is clearly greatly
exaggerated. It is easy, and always
will be, to be unhappy with many things that are happening, but on balance the
world is a better place to live in than it ever has been. It just seems a pity
that we can't all channel our energies towards making it an even better and a
more rational, sensible, and truthful place as well.
The Future
Let me now ruminate on what might
happen in the Australian minerals industry in the future.
Looking back over the last fifty
years, I have come to the conclusion that my ability to predict the future is
minimal, and that virtually nothing is impossible. A story I recently came across in one of the airways magazines
illustrates the second point rather neatly.
The rescued crew of a sunken
Japanese trawler was reportedly jailed after authorities disbelieved their
incredible story. The sailors claimed a
cow had fallen from the sky, shattering the ship's hull and causing it to sink
in a matter of minutes.
Some
time later, it is said, the crew of a Russian Air Force cargo jet admitted to
having "apprehended" a cow which wandered too close to the edge of a
runway at a Siberian airport, loading it aboard their aircraft. Everything was fine until the cow went on a
rampage in the cargo area, high above the Sea of Japan. To save their own hides and the aircraft,
crew members lowered the aft cargo door and shoved the poor heifer out. So much
for the impossible!
Predicting the future is not an
occupation in which you would wish to be paid by results, and predictions of
the future of the minerals industry have not been great successes. To mention
just two instances, the Presidential Commission convened by President Truman in
1950 to assess the demand and availability of minerals for the next 25 years
took advice from the foremost experts at the time. In the event, their
predictions were well out in just about every aspect of their report.
The well publicised Club of Rome
report "Limits to Growth" in 1972, which gave great impetus to the
extremists in the environmental movement, predicted that the reserves of energy
and minerals and metals would be exhausted within a short time, some as early
as in the mid-1980s. The report was seen as having particular authority through
being one of the early computer studies. The authors may have been experts in
computers, but they certainly did not understand the dynamics of mineral
exploration and the nature of mineral reserve estimates. After very substantial consumption in the
intervening years, the known reserves of all metals and minerals are greater
today that they were in 1972, while the prices in real terms are lower.
In principle, the future of the
Australian minerals industry depends on the answers to four questions:
1. Will
there be a continuing world demand for the products?
2. Does
Australia have the mineral endowment to supply a part of this demand?
3. Will it be possible for the industry to explore for minerals
and, if successful, bring the discoveries into production?
4. Will
the Australian minerals producers be competitive in world markets?
Demand
for Minerals
Not long ago it was seriously
suggested that a fundamental change had occurred in world economic and business
activity. It was argued that the great advances in information and
telecommunications technology had created a new economy, and that industries in
the "old economy", including the minerals industry, were becoming
unimportant. The annoying economic cycles and constraints had been abolished.
Spectacular action on the stock exchanges where fantastic fortunes were made
overnight seemingly out of nothing appeared to confirm that the inconvenient
business of making a living by actually producing something was out of date.
The equally spectacular crash of the
dot-coms and the downturn in the world economy in the last year or so have
brought us back to earth. The advances in information technology and
telecommunications are real and have certainly opened up vast new opportunities
to improve the way we live and work. They have created new industries and are
being used by the minerals industry and others to great effect in making these
industries more effective and efficient, but they do not make minerals
production redundant.
The demand for minerals continues to
grow. While many people in the developed countries may well be approaching a
saturation point in their standard of living, the majority of the world's
population - those less well off in the
developed countries and virtually the whole population of the developing world
- have a long way to go before reaching a living standard with which they are
satisfied. The population of much of the developed world has reached a plateau
and has started to decrease, but in developing countries it is still increasing
rapidly. All in all, there is no doubt that there will be a growing demand for
the products of the minerals industry.
Australia's
Mineral Endowment
There is also no doubt that
Australia continues to be highly prospective for the discovery of new mineral
deposits. To turn this potential into additional proven deposits requires
exploration success in greenfields areas, and to ensure the future of the
industry it must be possible to bring the discoveries into production. It is in
this area where the outlook is less certain.
Ability
to Explore and Develop
The present production and further
growth of the industry comes largely from major deposits discovered many years
ago, and their extensions. Large mineral developments have very long lead times
from discovery, let alone the beginning of exploration, to production.
Australia should be now discovering the orebodies which will be the main
producers 20 to 30 years from now. In spite of continuing improvements in
exploration technology, this is not happening.
The reasons are complex and you
should ask someone now active in exploration to explain the problems, but it is
essentially a question of access to prospective land and assurance that any discoveries
can be developed into profitable production.
Restrictions on access to land with
mineral potential in Australia have coincided with increasing globalisation of
the world minerals industry. The markets for Australian mineral products have
always been international, with virtually no obstacles to trade across national
borders. In recent years national barriers to exploration and production have
also virtually disappeared. Many countries, particularly in South America,
Asia, and Africa, have areas of high mineral potential and are now actively
encouraging international participation in their minerals industries.
While no country is free from problems and their attractiveness
for making such investments varies, Australia does have serious competitors for
the scarce resources available for exploration.
Australia's
Competitiveness
In general, Australia's minerals are
at present competitive in world markets. The
low exchange rate of the Australian dollar assists in this, although it
is a double edged sword because it also means that the market value of
Australian companies in, say, US dollar terms, has been reduced.
Maintaining competitiveness is, as
we all know, an ongoing battle. Our competitors in other countries are
continuously improving their productivity and efficiency and we must at least
match them. We can never relax.
Australia is in the forefront of
exploration, mining, and minerals processing technology, through to metals
production and fabrication, and a world leader in innovation. I am told that
over 60% of the world's mines today use computer software created by Australian
companies. Exports of minerals industry related intellectual property in
1998-99 amounted to $1.2 billion, greater than the exports of Australian wine
in that year at $900 million. E-commerce is being applied successfully to
purchasing and international trading of metals.
One
possible concern regarding future competitiveness arises if something like the
Kyoto protocol results in the introduction of what is in effect a tax on energy
in Australia.
A significant proportion of
Australia's production of aluminium, zinc, copper, and nickel is exported as
highly refined metals, consuming large amounts of energy. As I understand the
Kyoto proposal, Australia gets no carbon dioxide credit for producing metals
for use in other countries. Depending on the increase in energy cost in
Australia as a result of applying a tax on carbon, it may well become necessary
to do the refining in one of the developing countries which are not affected by
the Kyoto proposal. The carbon dioxide emissions will be no less, the only
change being that the metals refining industry has moved from Australia to
elsewhere.
Did I hear you say that this is just
too silly and therefore can't happen? Well, let us hope so.
Globalisation
As we all know, one of the features
of globalisation is that companies tend to grow through takeovers or mergers.
Even the largest companies in the world minerals industry are of a modest size
compared to the leaders in other industries, and there is great pressure for
further amalgamation.
This raises concerns and issues of
national sovereignty and even security which cannot be dismissed out of hand.
At the same time the minerals industry has a long history of working across
national boundaries and, with virtually all the markets for our minerals
overseas, it is certainly not in our interests to erect a fence around the
country. With many leading Australian companies in other industries having more
than half of their operations overseas and this proportion likely to grow, we
must come to terms with the world as it is, not as we might like it to be.
This is a large topic on its own and
I can't say much more than this in the time available, other than that in my
view there is little merit in just growing bigger, bigger is not necessarily
better. Growth has to be justified by the larger entity being able to create
more economic value than the separate parts. It also seems to be an oxymoron to
talk about American or British or German or Australian global companies. By
definition, truly global companies have their activities distributed throughout
numerous countries, act in accordance with the laws and rules in these various
countries, but do not "belong" to any of them. Such companies do not
select directors or managers because of their nationality, but look for the
best people regardless of where they come from. They pay international salaries
and can therefore pick and choose.
Alcoa Inc. is a good example. It
operates in many countries, with its main activities in United States, Europe,
Brazil, and Australia. The head office
is in Pittsburgh, Pennsylvania. The
Chairman and Chief Executive was born in Morocco and spent most of his working
life in Brazil, and the President of the Primary Products division is an
Australian. They both live in New York when they are not travelling around the
world, which is much of the time.
The head offices have to be located somewhere. If we value having them in Australia we must
create conditions which make it attractive for them to be here, rather than
somewhere else. Decisions about the growth and development of the businesses
will be, however, made in response to the potential and attractiveness of
opportunities in the various countries, not by the location of the head office.
Conclusion
I have only been able to touch upon a number of issues here today;
these and other topics will no doubt be dealt with in greater depth by future
speakers. May I congratulate the organisers of The Melbourne Mining Club on
their timely initiative and, again, wish the Club every success.
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