1. bree.gov.au Economic Outlook for Australian Resources: Prices, Investments and Volumes Professor Quentin Grafton Executive Director/Chief Economist Bureau of Resources and Energy Economics (BREE) Presentation to AMEC 4 September 2012

2. bree.gov.au Overview 1.The ‘Big Picture’ 2.Price Trends 3.Investment Trends -CAPEX -Exploration -Major Mining projects -Investment Futures 4. Volume Trends

3. bree.gov.au 1. The Big Picture

4. bree.gov.au Terms of Trade Source: BREE; RBA

5. bree.gov.au 2. Price Trends

6. bree.gov.au Commodity Prices (real): Past Trends & Projections Source: BREE

7. bree.gov.au Index of weekly metals prices (1)

8. bree.gov.au Index of weekly metals prices (2)

9. bree.gov.au Key Messages With some exceptions, most resource prices have peaked (2011) and expected to decline relative to these highs. Notwithstanding current market uncertainties (Euro hangover) ‘downs and ups’, price reductions likely to be substantial in longer term due to large supply responses from Australian competitors.

10. bree.gov.au 3. Investment Trends

11. bree.gov.au Factors Affecting Investment Factors common to investment decision across the economy: Macroeconomic conditions (interest rates, exchange rate, etc.) Government policies Factors specific to the mining sector or commodity: probability of discovering an economic mineral deposit or extending the resource base of a known deposit; current and expected future prices; mining and processing technologies; and input costs

12. bree.gov.au CAPEX investment activity in Australia (Real, deflated by CPI) Source: BREE; ABS

13. bree.gov.au Australia: Annual capital expenditure of private enterprises Source: BREE; ABS

14. bree.gov.au Ratio of mining to non-mining CAPEX investment in Australia (Real) Source: BREE; ABS

15. bree.gov.au CAPEX as Percentage of GDP

16. bree.gov.au Exploration

17. bree.gov.au Australia: private exploration expenditure (Nominal $)

18. bree.gov.au Australian private minerals exploration expenditure (Real $)

19. bree.gov.au Major Mining Projects

20. bree.gov.au Value of Advanced Mineral and Energy projects ($2011-2012) Source: BREE

21. bree.gov.au Number of Advanced Mineral & Energy Projects (1996- Apr 2012)

22. bree.gov.au Value of advanced projects by commodity 2002 vs 2012 Source: BREE

23. bree.gov.au Advanced Metals Projects

24. bree.gov.au Value of advanced projects by state 2002 vs 2012 Source: BREE

25. bree.gov.au Value of advanced and less advanced projects Dec 2002 – April 2012

26. bree.gov.au Key Messages Capital expenditures in mining industry totalled about $82 billion in 2011-12 ─ highest ever, 70% higher than in 2010-11 and about six times greater than annual average over past 30 years. Historically high levels of investment (real $) will last for next few years given the time it will take for some very large projects to reach completion. Over the longer term high levels of investment unlikely to be maintained if resource commodity prices continue to fall.

27. bree.gov.au Investment Futures

28. bree.gov.au Prospects: Value of advanced projects if no new projects were announced Source: BREE

29. bree.gov.au Cumulative real value of completed projects Source: BREE

30. bree.gov.au 4. Volume Trends

31. bree.gov.au Commodity Production: Past Trends Source: BREE

32. bree.gov.au Commodity Production: Past Trends & Projections Source: BREE

33. bree.gov.au Bulk Commodities

34. bree.gov.au Key Messages Large volume increases expected with bulk commodities. Substantial increases in volume of some metals (gold, copper, and alumina), but declines or no change in others.

35. bree.gov.au Thank You quentin.grafton@bree.gov.au