June 28, 2010 | Graham

Mining not that profitable afterall

Phil Ruthven is the custodian of some of Australia’s most precious corporate information. His IBIS World group has comparative data on Australian industry which allows sensible comparisons to be made. What it shows is that mining in general is not particularly profitable, and not significantly more profitable than many other Australian industries.

In Ruthven’s view, there is no valid argument for putting a “super profits tax” on mining.

In the BRW of June 10-16 (subscription required) he has a table which shows that the most profitable industry with a return on shareholders funds of over 60% is Wholesale/marketers. Mining comes next, but is closely followed by Hospitality, Retail trade and Communications, all showing return on shareholders’ funds of just over 20%.

However this is a recent development, and for the five years to 2006 mining only had a “weighted ROSF of 6.6%, which was less than half the average of all large companies over that period (13.7%)”

One of the most bizarre benefits claimed for the proposed “super profits tax” is that it will make marginal operations more viable. This is a like claiming that our Olympic team will be better because we have devised a scheme to include less gifted athletes in it.

Australians are richest when our industries earn the highest possible returns on our savings. We need a system which encourages them to neglect low growth alternatives and rewards those that are good at finding high growth opportunities.

A tax system which rewards the less successful penalises us all. A Treasury head and a government who think this is a good idea obviously don’t understand economics. If the government really wants to sustainably fill the hole in the budget, rather than just mugging whatever industry seems to be profitable at any particular moment, it will find ways to encourage high return industries. That approach might not return $9 billion the year after next, but over time it will return much more.

Posted by Graham at 1:57 pm | Comments (11) |


  1. I disagree almost totally with the opinions in this article.
    Exploiting natural depleting resources to maintain current consumption is living off Australia’s real capital. The funds expended to bring a mine on line are investments in short term capital items which eventually become scrap. Even the housing in remote locations eventually becomes derelict when the natural resource is gone.
    John Ralston Saul’s opinion is the opposite of Ruthven’s and makes much more sense.
    We need the capital asset being depleted by mining to be replaced by other capital assets so that when each mine is exhausted we have something worthwhile in its place and in my view that has to be manufacturing industries not service industries which are often no more than “taking in one another’s washing” in any economic sense.

    Comment by John Turner — June 29, 2010 @ 12:46 am

  2. So name me an industry where assets don’t become obsolete John? Non-renewability isn’t a point of difference. You suggest that manufacturing doesn’t deplete assets, but where are all those factories stocked with looms and spinning wheels gone. All wasted? Or just moved on to something more profitable. Little different from the mining towns that move when the idea that gave rise to them has exhausted itself.

    There’s nothing magical about minerals, and leaving them in the ground doesn’t make them worth anything unless you are prepared to extract them. Once you extract them then they are gone. But the wealth and know how will go on to build other mines and other industries. And leaving them to later will generally mean they have a lower value than mining them now.

    I’ve read some John Ralston Saul and he seems to have little real understanding of anything. Pity that he gets so much air-time.

    Comment by Graham — June 29, 2010 @ 4:08 am

  3. Manufacturing doesn’t deplete assets unless there’s a structural change in an economy or a recession/depression.
    Mining is not quite like other industries, a boom in a small economy such as Australia depresses other industries because of (1)competing capital and labour demands and (2)forces a rise in the exchange rate with obvious results for local manufacturers,that’s not derived from theory but from economic history.So,some form of resource rent tax might compensate the ‘Lucky Country’ when its luck runs out.
    Economics isn’t a science,but a collection of competing ideologies,each sectional interest has its own self-serving economic ‘theory’ and unsurprisingly the miners have one as well.
    If the mining companies are making such meagre returns why are they whingeing so loudly?

    Phil Ruthven was once reported as claiming that Australia could support a population of 200 million,I’m sure that report was incorrect.

    Comment by Russell W — June 29, 2010 @ 5:11 am

  4. Australia’s (and the global) mining industry does not pay for damaging watersheds, major river systems, communal irrigation systems, fisheries and fertile soils and the livelihoods of thousands.

    The mining industry does not pay for the slaughter of millions of native animals each year, on Australian soil.

    The mining industry does not pay for poisoning towns with lead and mercury. The world’s 3,000 top companies (which include the mining industry) do not pay for the UN’s estimated $2.2 trillion worth of damage to the environment.

    Sometimes regulators arrange for the mining industry to be prosecuted for crimes against the environment – good for public relations! Yet the status quo continues and it’s business as usual. Greed merchants in the mining industry don’t want to pay for anything whilst bludging off the environment – pillaging and plundering an outraged planet with impunity!

    However, just let Joe Citizen drive around, polluting the biosphere with a smoking exhaust pipe and see how far that will get Joe. Funny about the author’s glaring omissions.

    Comment by Blowdryer — June 29, 2010 @ 6:20 am

  5. Blowdryer, you’re making it up. Australian mines operate under the most stringent environmental conditions, and if you poisoned someone you’d be liable. There are plaintiff lawyers who will make sure you are. I bet James Hardie wishes they’d never heard of Wittenoom and blue asbestos! Miners happen to be people like me (I was going to say you and me, but hopefully they don’t just make facts up like you do) and have a vested interest in keeping the environment clean.

    Comment by Graham — June 30, 2010 @ 12:39 am

  6. “I bet James Hardie wishes they’d never heard of Wittenoom and blue asbestos!”

    Actually Graham it’s the other way around – I bet the hapless victims wished they’d never heard of James Hardie (and their cover-ups) because there was a general medical consensus on the dangers in relation to asbestosis and to lung cancer by the late 1950s and by 1964 the causal relationship between asbestos and mesothelioma was medically accepted. But by 1949, James Hardie was already covering up. Do you have a problem distinguishing between good and bad or right and wrong?

    1. 2007: BHP Billiton and the operators of the Ok Tedi copper mine in Papua New Guinea were being sued for more than $US4 billion ($A5.08 billion) damages by 13,000 villagers on the Ok Tedi River for destruction of their traditional lands.

    From 1984, the Ok Tedi mine discharged up to 80,000 tons of waste rock and 120,000 tons of tailings directly into the Ok/Fly River system every day.


    2. 2008: “For more than a year, MiningWatch Canada and the International Human Rights Clinic at the Harvard Law School, together with the Mineral Policy Institute in Australia, have been documenting allegations of abuses, as well as concerns about the lack of adequate information on human rights abuses and on mining-related sources of contamination.” (Barrick and Newmont are the JV partners of the Kalgoorlie Super Pit.)


    3. 2008: “So who are South Africa’s biggest greenhouse gas emitters? Sasol tops the log of the major publically listed companies. Next on the list are the mining giants BHP Billiton and Anglo American respectively. Together, these three companies account for 83% of greenhouse gas emissions from publically listed companies.”


    4. 2008: ‘The Norwegian government has launched an unprecedented attack on mining giant Rio Tinto, selling a £500m holding in the company after accusing it of “grossly unethical conduct” relating to environmental damage. The Norwegian Ministry of Finance released a statement yesterday saying it had “decided to exclude the company Rio Tinto from the Government Pension Fund – global, due to a risk of contributing to severe environmental damage.”

    5. 2008: “The SA State government and Primary Industry officials rightly demanded a please explain from uranium miner, Marathon Resources after hundreds of plastic bags were unearthed at Mt Gee near Arkaroola.”

    6. 2009: A former BHP Billiton contractor says he helped the company bury vast quantities of equipment at its mothballed Ravensthorpe nickel mine in WA – an estimated $1 million worth of equipment.


    7. 2010: “British scientists have revealed evidence that a mining company drilling for gas was responsible for unleashing a mud volcano in Indonesia which has killed 14 people and left tens of thousands homeless.

    “The enormous Lusi volcano in Sidoarjo, East Java, has been spewing out the equivalent of 60 Olympic swimming pools of boiling mud a day since it first erupted in May 2006 from a drilling hole, owned by oil and gas company Lapindo Brantas” (and backed by shareholder, Santos Australia.)


    8. 2007: In the 37th Western Australian Parliament, the Education and Health Standing Committee on the lead poisoning of Esperance, “identified major failings in the Department of Environment’s industry regulation function and shortcomings in other regulatory agencies and the irresponsible and possibly unlawful conduct of the Esperance Port Authority, Magellan Metals and BIS Industrial Logistics.

    “Industry regulation by the Department of Environment is grossly inadequate.”

    And hundreds more and worse, at your request. “Making it up? Stringent environmental conditions?” No Graham – It is you who’s making it up. The mining industry are eco-vandals and self-regulated. The mining industry and their dancing boys have made a mockery of enforcement and every paragraph of every EPA legislated agency in Australia and beyond!

    Comment by Blowdryer — June 30, 2010 @ 10:40 am

  7. Blowdryer, that is pathetic. A list of links proves nothing. Your point about James Hardie doesn’t rebut mine. They wouldn’t have been guilty unless they did know that asbestos caused mesothelioma. My point incorporates what you are saying.

    The rest of your post is just links to news articles, some of which don’t even deal with Australian mines. Just because someone makes an allegation doesn’t make it true. So unless the allegations you cite are borne out they amount to nothing on their own.

    And to the extent they amount to anything they don’t prove your point anymore than pointing out that car drivers sometimes break the rules without being punished doesn’t prove that all, or even most, drivers break the rules and aren’t punished.

    Fail for logic and fail for relevance.

    Comment by Graham — July 3, 2010 @ 11:06 am

  8. ‘The rest of your post is just links to news articles, some of which don’t even deal with Australian mines.’

    Why that’s hilarious Graham. If someone shares your opinion they must be credible no matter what, and anyone or anything in disagreement with your ideology, you, dismiss?

    And it appears that you are also ill-informed on the shenanigans of James Hardie but I won’t waste my time in further attempting to enlighten you.

    “News articles” you say? I note that you resort to substantiating your claims by providing links to the ABC, the Australian, the IPA and wait for it……the Herald Sun – oh dear! Pot/kettle?

    And all the links I provided actually refer to mining companies mining on Australian soil despite your denial. And may I suggest that you avail yourself of the parliamentary manual to which I referred: “Inquiry into the Cause and Extent of Lead Pollution in the Esperance Area.”

    I have the hard copy – all 520 pages and the Enquiry was conducted by a bi-partisan committee – with Liberal MP Dr Kim Hames at the helm. The overwhelming evidence in the manual on how mining operates in this nation should jolt you into reality though on reflection……I don’t think anything would.

    Comment by Blowdryer — July 4, 2010 @ 10:11 am

  9. Blowdryer, could you please point me to where I have cited “ABC, the Australian, the IPA and wait for it……the Herald Sun – oh dear! Pot/kettle”. My only citation in this post is the BRW.

    Your links are in a number of cases to mines overseas, or to people making allegations. An allegation doesn’t amount to proof. That there was an inquiry in Esperance contradicts your basic argument that mining companies are allowed to do whatever they want. And you won’t buy into the James Hardie issue anymore because you don’t have an argument.

    As your nick suggests, you’re just hot air.

    Comment by Graham — July 6, 2010 @ 9:34 am

  10. Graham

    I did not say that your references to news articles were restricted to this post. One need look no further than your most recent blogs.

    Furthermore, the links to ‘mines overseas’ happen to be the same multi-national miners who are digging up Australia’s resources, trashing our health and our environment. Their pernicious virus spreads far and wide for they, like you (chief industry cheerleader) believe that ‘might is right.’ One example:


    Barrick Gold and Newmont Mining admitted dumping some 14 tonnes of mercury over the community of Kalgoorlie over two years. In defence of the rogue miner, WA’s Department of Environment and Conservation (DEC) said “Australia has no standard for mercury emissions and as a result, the company has not breached any laws.” There has been no slap on the wrist and no prosecution.

    “That there was an inquiry in Esperance contradicts your basic argument that mining companies are allowed to do whatever they want.”

    A fallacious and desperate denial of truth Graham because on Page 339 of the Enquiry’s report on Magellan Metal’s lead poisoning of Esperance, the bi-partisan Committee quoted a submission from one Chris Boland:

    “If it had not been for the dead birds (9,500) and vigilant and persistent people like Michelle Crisp and others, we would still have lead and nickel (BHP Billiton et al) dust blown all over our community with no checks and balances.”

    Committee’s Response:

    “The Committee agrees with the view expressed above. There were major failings in DEC’s industry regulation ……(see my Post No. 6). Magellan Metals and BIS Logistics exposed workers and the community to unacceptable and avoidable health and environmental risks.”

    Therefore Graham you may continue walking on all fours with eyes wide shut but tell your buddies in the mining industry that greed is no longer for sale and that society will no longer kowtow to their ridicule, lies and obfuscation.

    In addition, society will no longer tolerate the wholesale slaughter of native animals by the mining industry. Uncapped drill holes are killing millions of Australia’s reptiles every year. The 6,500 reptiles slaughtered by Newcrest Mining over six weeks and the EPA’s admission of regulatory tardiness is yet another example.

    You say my claims are hot air? I say Neanderthal man walks among us, some more Neanderthal and chimp like than others.

    James Hardie:

    Comment by Blowdryer — July 7, 2010 @ 2:46 am

  11. Wow, ihr habt ein brisantes Thema echt richtig gut in Worte verpackt

    Comment by Carsten Gaitzsch — October 26, 2010 @ 2:45 pm

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.