It should be increasingly clear to most investors that mining investment will be the major driver of economic growth in the next few years. Indeed, according to federal budget papers, business investment will grow by 12.5 per cent in 2012-13 and 8 per cent in 2013-14, of which most will be mining investment.
Released this past week, for example, was the latest capital expenditure survey by the Australian Bureau of Statistics. Based on business survey responses, mining sector investment is expected to ramp up by about 70 per cent this financial year, accounting for virtually all the growth in economy-wide business investment. Mining investment is expected to rise by a further 60 per cent in 2012-13, reaching almost $120 billion.
This raises the questions: where is all this money actually going? What parts of the mining sector - and which states and regions - will most benefit? And how at risk is this pipeline of mining investment in view of falling commodity prices and Europe's troubles?
The good news is that most of this investment money seems locked in. Mining projects are so large and require such careful planning that it's hard to simply stop building once commitments are in place.
According to a report by the Bureau of Resource and Energy Economics (BREE), about $260 billion is committed to mining investment in the next year or so, spanning 98 separate projects. That suggests this week's capital expenditure survey estimate of $120 billion to be spent by the mining sector next financial year won't disappear any time soon.
Of course, what happens beyond 2012-13 is less certain. But as BREE notes, there's still about $220 billion worth of projects in the feasibility stage - which will add to the investment boom if global economic conditions remain favourable.
So over the next few years at least, where's the money going? Note that two-thirds of planned investment will be in energy projects - natural gas projects especially. In fact, seven massive natural gas projects with a combined value of $164 billion account for almost two-thirds of money committed to mining investment, with Queensland and Western Australia sharing the spoils.
WA, in particular, will be home to the three largest gas projects, off the north-west coast: Gorgon ($43 billion), Ichthys ($33 billion), and Wheatstone ($28 billion). Queensland will be a hive of activity with both the Gladstone ($16 billion) and Queensland Curtis ($20 billion) liquefied natural gas projects cranking up.
Despite their recent prominence due to skyrocketing export prices, the coal and iron ore sectors account for only 17 per cent of planned new mining investment. There are 21 coalmine projects valued at $17.3 billion in the works: 11 in Queensland; 10 in NSW. BHP Billiton Mitsubishi Alliance (BMA) is developing the largest coal project, in Queensland's Bowen Basin.
There are 15 iron ore projects worth $26 billion, 13 of which are in WA. CITIC Pacific's $6.1 billion Sino Iron Project is the largest.
As should be evident, not only is Australia's economic growth heavily reliant on a dozen or so huge mining projects over the next few years, even these projects are concentrated in just a few states and sectors. Moreover, many of WA's LNG projects won't even take place on Australian soil but on huge floating rigs off the north-west coast.
The Ichthys LNG project, for example, will pipe gas from the waters off WA to an onshore processing plant in Darwin via a 900-kilometre underwater pipeline that, when completed, will be the longest in the world.
All this suggests the pressures in our two-speed economy will shift as we move from the boom's first stage - based on rising prices for coal and iron ore - to the second stage, which will be largely driven by remote LNG investment projects.
Due to the need to spend money on new capacity, the boom's second stage is less profitable for mining companies - meaning there will be less tax revenue from them to be redistributed. That is already evident with the federal budget revenue outlook deteriorating over the past year, which also partly explains why the government was so desperate to introduce the mining tax.
What's more, the increase in mining construction means labour market tensions will get worse as the sector's demand for workers intensifies. That should be reassuring news for workers losing their jobs due to the ongoing downsizing in the non-mining sectors, though it may mean a disruptive relocation to the regions of WA and Queensland.
With unemployment still relatively low, however, we don't have that many workers to spare - the mining sector will either have to find staff from shrinking industries or be allowed to bring them in from overseas.
Copyright 2012 Fairfax Media Publications Pty. Limited. All Rights Reserved.
(Originally published June 2, 2012, in Australian Financial Review.)