Report: Analysis of the Australian Mining Industry and its Issues

This report provides a comprehensive analysis of the Australian mining industry, focusing on its significance to the national economy. It begins with an overview of the industry's background, highlighting its contribution to GDP and exports. The report delves into the market structure of the mining industry, characterizing it as an oligopoly with high entry barriers. A significant portion of the report examines the resource boom period from 2003 to 2016, detailing its impact on investment, export demand, and employment. The study also addresses the associated issues facing the industry, such as rising extraction costs and declining export demand, and their effects on the economy, including reduced revenue and potential job losses. Finally, the report suggests policy recommendations to mitigate the adverse conditions and improve the mining industry's performance. The report concludes by summarizing the key findings and emphasizing the industry's crucial role in the Australian economy. The report uses various sources to support its findings, including government reports and industry publications.

Running head: Analysis of Australian Mining Industry
Analysis of Australian Mining Industry
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1Analysis of Australian Mining Industry
Executive Summary
The report discussed about the mining industry in Australia along with its importance in the
economy of the country. It has been discussed in the report that how significantly the industry
influences the economy of the country. A detailed discussion has been made regarding the
market structure of the industry and impact of resource boom on it. Apart from that the issues
related to the industry has been discussed and policies that might help the adverse condition of
the industry have been explained.

2Analysis of Australian Mining Industry
Table of Contents
Introduction......................................................................................................................................3
Background......................................................................................................................................3
Market structure...............................................................................................................................6
Resource boom................................................................................................................................6
Associated issues of the mining industry.........................................................................................8
Impact of the issues on the economy...............................................................................................8
Policy suggestions...........................................................................................................................9
Conclusion.......................................................................................................................................9
References......................................................................................................................................11

3Analysis of Australian Mining Industry
Introduction
Australia is comprised of many industries on which it depends for it economic
development. The major industries in Australia are banking industry, agricultural industry, retail
industry, mining industry, dairy industry and real estate industry. All these industries contribute
significantly in the economy of the country, however in this report the emphasis is gjven on the
mining industry, one of the oldest among the industries in Australia. The report discusses the
various aspect of the industry and discusses in detail the issues of the industry with special focus
on the resource boom in the mining industry in Australia during 2003 to 2016. The mining
industry is spread all of the country occupying around 0.1% land which is dedicated only for the
industry. Furthermore, 0.7% land is engaged in mining under lease and 0.02% is influenced
directly by the mining industry. Major products of Australian Mining Industry include zinc,
uranium, coal, copper, natural gas, thermal coal, diamond, gold, silver, petrol, iron ore,
aluminium and nickel. The report further discusses the policies that are effective to improve the
mining industry and mitigate the issues of the industry. Thus, the report pertains to the overall
analysis of the mining industry in Australia.
Background
Mining industry is one of the largest industries in Australia that contributes hugely in the
economy of the country. The industry contributes about 7% of GDP to the economy of Australia
(Globaltenders.com 2019). Thus, the vastness of the industry is evident from the contribution it
makes to the country. The industry emerged in the mid-19th century during the period of Gold
Rush. Mining product of Australia holds crucial position in the export industry of the country. Of
the entire commodity export, mining industry holds around 60% of the volume exported under
commodity category (Export.gov 2019). Remaining produce of the industry is consumed

4Analysis of Australian Mining Industry
domestically in Australia. Export revenue generated by the mining industry in 2018 was
estimated as$248 billion, which is around 72% of the revenue generated by the export sector of
Australia that year (Global Mining Review 2019). From the export of coal the country earned a
total revenue of around $66 billion in 2018 and is highest among all the mining products
exported by the country (Morgan 2017). The growth rate of Australian mining industry has been
quite good in the last decade and is recorded as 6.5%. Apart from that, the mining industry is one
of the largest employer in the country with total employee strength of over 130 thousand. People
from all around the country works in the industry and thus a large number of people in Australia
is dependent on mining industry for employment.
Figure 1: Employment in Australian Mining Industry
Source: (www.statista.com 2019)
It is evident from the data given in the above diagram that mining industry has always
been one of the largest industries that employ a large number of people. Due to its wide spread
nature people from all around Australia are associated with the mining industry. It is already

5Analysis of Australian Mining Industry
understood that the industry is a crucial part of the Australia economy and on the condition of the
industry performance of the Australian economy depends. The industry has gone through many
success and failures over the years but the most noticeable one is the resource boom that started
in 2003 and lasted until 2013. In the period of resource boom investment in the mining sector
increased remarkably. The mining industry expanded exponentially during this period and is
mainly due to the growth of existing mining companies and discovery of new mines.
Figure 2: Monthly
growth of mining industry and ASX 200
Source: (Pwc.com.au 2017)
However, after the resource boom industry faced adverse situations. The industry
struggled in the first quarter of 2015 but it recovered from that phase in the second quarter. The
improvement that occurred in the industry was due to the better performance of the products like
coal, iron ore and gold. It is estimated that the mining industry generated about net profit of $1.6
billion in 2017 (CFMEU Mining and Energy 2018). Australia exports mining products and
import equipment that are used in mining industry. The countries in which Australia export

6Analysis of Australian Mining Industry
mining products are China and Southeast Asian countries. Exports in these countries had
supported the industry during the period of resource boom. Considering the amount of mining
exports it can be sad that the industry depend hugely on the demand of other countries. The
major companies of this industry are BHP Billion, Rio Tinto, Evolution mining, Barrick
Australian Pacific and UGM Australia.
Market structure
Mining industry is associated with high fixed cost and requires large amount of
investment. Thus, it is not possible for every willing firm to enter the industry. It requires
employees with specific skill sets. Hence, the product of the industry is not common and cannot
be produced by anybody. Thus the industry has few number of companies that dominate the
entire market It has exit and entry barriers that means any firm willing to enter or exit the
industry will face difficulties and loss. The companies that dominate have market power and can
charge high price by colluding and thereby earn supernormal profit. Thus, it can be said that the
market structure of the economy is oligopoly (Head and Spencer 2017). The cost of extraction
and equipment are very high in this industry and thus it is difficult for a small firm to compete in
such market as the existing firms would pose threat by indulging into price. The high sunk also is
threat for exiting companies as they would face large loss if the make exit from the market
(Gullstrand and Persson 2015). Thus, the cost of the industry is significantly high for a new and
small firm. Thus, it is not possible for small firms to enter the industry. However, the market
structure can act as monopoly market if the players in the market collude with each other and
charge high price for the products to earn super normal profit. Therefore in the market of the
mining industry operates also generates social welfare and consumer surplus.

7Analysis of Australian Mining Industry
Resource boom
Resource boom in the Australian mining industry occurred in 2005 and it ended in 2013.
It is regarded as the most significant period for the industry. It is argued that it is more effective
than the resource boom during the gold rush that had occurred during 1850s. The impact of the
2003 resource boom was significant as during this period the investment in the industry increase
by huge amount (Fleming and Measham 2015). The export and domestic demand for the mining
products increased and the price of the products increased many times. From many products the
price increased by more than 100%. The products that had more export demand the price of
those increased the most. The major importers of Australian mining products during resource
boom were China and Southeast Asian countries (McLennan, Becken and Moyle 2017). The
products that face the major demand boom are thermal coal, natural gas, metallurgical
commodities and iron ore. Price of thermal coal increased from $50 a tonne to $180 a tonne. The
rise in price of iron ore was the highest with 750% rise that pushed the price of the commodity
from $20 a tonne to $170 a tonne. The amount of investment that the industry gathered during
the period was recorded as 8.5% of the GDP of the country (Abc.net.au 2016). Due to this
development in the mining industry both the revenue and the employment of the industry
increased. Thus, significant growth in the industry increased also benefitted the employees
working in it and their income has risen too by considerably large amount. The resource boom is
the reason caused huge inflow of capital in the Australian economy. The effect of the resource
boom helped the country to deal with the adverse effect of the financial crisis occurred during the
2008-2009 and successfully avoided the condition. The increased demand of the employees
working in the mining industry has increased the revenue of the other sectors and thereby income
of the other individuals working in other sectors. Thus with the induced effect the overall output

8Analysis of Australian Mining Industry
of the economy increased and the Australian economy grew at a faster rate. During the resource
boom period the per capita income in Australia increased by 13% (rba.gov.au, 2014). However,
in this period the inflation rate increased in the country. Other important sectors that directly
gained from the development of the mining industry are electricity, construction, water and gas
industries and distribution services.
Associated issues of the mining industry
The Australian mining industry has faced many ups and downs during its course of
operation in the economy. It is already been discussed that during the resource boom of 2003-
2013 the industry has experienced extraordinary development but after boom period is over the
mining industry faced several adversities. The extraction cost of mining products has increased
as the yield of the existing mines has decreased due to increase in depth of the mines. The
companies are also struggling to find new mines that added burden on the production of the
mining industry. Also, the export demand for the mining products has decreased and as the large
share of mining industry depends on the export, the industry suffered a lot due to this. The
demand that previously generated by China has cooled down by large percentage. The lowered
revenue and has put stagnation in the sector and thus people are less interested to work in the
industry due to uncertain future. Thus, the industry is not getting enough skilled worker and
production suffers further. Therefore, if the adverse condition persists in the mining industry then
in near future price of the products will fall and profitability of the sector will reduce (Basu et al.
2015). This dwindling condition of the mining industry will have negative effect on the economy
of Australia since the industry is a vital part of the country and affect the economic growth of the
country.

9Analysis of Australian Mining Industry
Impact of the issues on the economy
Mining industry is one of the important industry in Australia and contributes significantly
in the economy of the country. Thus, any adversity in the mining industry would affect the
Australian economy. Mining industry supports the employment, construction and export sector.
Thus, the decline in the mining industry would affect the sectors associated or depends on it.
With the fall in revenue of the industry the income of the employees will fall and the demand of
the overall economy will decline as the disposable income of the individuals’ decreases. Thus,
the economic output of the country falls and economic growth declines. With contraction in the
mining industry the employment rate of the country will also fall. Hence, with these adverse
effect on the industrial sector of the country the economy will suffer from slowdown in
economic growth (Bishop and Cassidy 2017). Thus, the government of Australia should take
effective polices that remove the adverse effect of the mining industry by improving the
condition of the economy.
Policy suggestions
The adverse condition of the mining industry that is affecting the economy of the country
can be mitigated by effective policies. The policies that are suitable are easing of licensing
policies, relaxation of laws restricting discovery of new mines, import of new mining
technologies and equipment (Farjana et al. 2018). The implementation of these polices will
increase the number of mines and thereby production of the industry. New technology adoption
will increase the yield of the old mines and easy license policy will increase the number of
companies in the industry and thereby competitive ness of the industry increases (Horberry,
Burgess-Limerick and Steiner 2018). Thus, with improvement in the mining industry the revenue

10Analysis of Australian Mining Industry
of the industry will rise and thereby employment and economic output will increase and the
economy of the country will experience positive growth.
Conclusion
From the above discussion on the mining industry of Australia it is certain that the
industry is an important part of the economy of the country. The industry employs a large
number of people and is one of the major shareholders of the export commodities and earn about
3/4th of the revenue earned by the country exporting commodities. It is also one of the major
contributor of GDP of Australia. Thus, any change in the industry will impact the economy of
Australia. During the resource boom along with the mining industry the country also flourished.
However, in the recent times the industry is facing adversities that are impacting the country in
the negative ways. Thus, to solve the problem the government should take polices that increases
the productivity of the industry and thereby increase the competiveness of the international
market.

11Analysis of Australian Mining Industry
References
Abc.net.au (2016). The mining boom that changed Australia. [online] Abc.net.au. Available at:
https://www.abc.net.au/radionational/programs/rearvision/the-mining-boom-that-changed-
australia/7319586.
Basu, P.K., Hicks, J., Krivokapic-Skoko, B. and Sherley, C., 2015. Mining operations and
corporate social responsibility: A case study of a large gold mine in regional Australia. The
Extractive Industries and Society, 2(3), pp.531-539.
Bishop, J. and Cassidy, N., 2017. Insights into low wage growth in Australia. RBA Bulletin,
March, pp.13-20.
CFMEU Mining and Energy 2018, BHP making loads of money, CFMEU Mining and Energy.
viewed 29 May 2019, <https://me.cfmeu.org.au/news/bhp-making-loads-money>.
Farjana, S.H., Huda, N., Mahmud, M.P. and Saidur, R., 2018. Solar industrial process heating
systems in operation–current SHIP plants and future prospects in Australia. Renewable and
Sustainable Energy Reviews, 91, pp.409-419.
Fleming, D.A. and Measham, T.G., 2015. Income inequality across Australian regions during the
mining boom: 2001–11. Australian Geographer, 46(2), pp.203-216.
Globaltenders.com (2019). Australia Economy Australian Economy, business opportunities in
Australia government Australia business opportunities import and export opportunities. [online]
Globaltenders.com. Available at: https://www.globaltenders.com/economy-of-australia.php/.
Gullstrand, J. and Persson, M., 2015. How to combine high sunk costs of exporting and low
export survival. Review of World Economics, 151(1), pp.23-51.