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  Treasures of the Red Continent: Australia's Natural Resources Boom

Treasures of the Red Continent Australia's Natural Resources Boom

By Alexander Jung

Part 2

Hundreds of thousands of immigrants – most of them from Europe: from England, Ireland, but also from Germany – began the difficult journey down under, often never to return. The population of Victoria increased from 77,000 to 540,000 in just 12 years. Back then, 40 percent of the world's gold extraction came from here -- from places such as Bendigo, Ballarat, Stawell or Ararat.

Many Chinese people were also drawn to southern Australia, lured by the promise of a life in prosperity. Word soon got around in the China of 1857 that Chinese gold diggers had discovered a gold vein and named it "Canton." The story goes that 20,000 people followed the 700 pioneers in just two weeks and founded the town of Ararat.

Travel through the hills of the region and you'll still find holes dug by the Chinese. They rarely dug deep pits – not out of laziness, but because many of them were superstitious: The Chinese didn't want to upset the earth spirits.

Reminders of the old days can still be found all over Victoria. The local bank is called the "Old Gold Bank." The motel is called the "Goldfields Motel." The café "Welcome Stranger" got its name from the 72-kilogram (159 lbs.) gold nugget that was discovered nearby in 1869. Impressive old villas with Victorian ornaments hint at how prosperous this region once was. Legend has it the bar floor in the Shamrock Hotel, in the center of Bendigo, was hosed down every night to collect the gold dust from the shoes of the mineworkers.

Now the gold rush is returning to the historical sites where it first broke out. The price of gold is rising again, and the old sites are experiencing a remarkable renaissance. The mine in Bendigo was out of service for half a century -- now it's being operated again. Even the Magdala mine in Stawell, one of the country's oldest facilities, is back in operation: The company Leviathan Resources is extracting ore there, 1,000 meters (3,281 feet) below the ground.

The truck journey from the depths of Magdala to the surface takes about 40 minutes. Slowly the headlights grow larger, and the humming of the powerful engine louder, until the giant truck finally reaches the light of day, carrying a 50-ton rock cargo. The trucks make about 17,000 such trips every year.

The ore is processed on location. Several mills grind the rock to produce grains with a diameter of just 0.15 millimetres (0.006 inches). Then the gray dust is mixed with water and placed in a centrifuge that separates its various components. Finally chemicals are added to extract the precious metal.

"A 50-ton truckload yields about one matchbox worth of gold," says Jon Dugdale, who manages extraction operations at the mine – about nine ounces, or 275 grams. "That's not much, but it's worth it given that the price for one ounce is $800."

New companies sprouting

A number of enterprising businessmen have done the math. They're founding small mining companies – so-called junior mining companies – and looking for metals and minerals in the same locations where their grandparents might once have done so. But unlike its forefathers, the new generation isn't just interested in gold and silver. Uranium is increasingly attracting the attention of entrepreneurs -- the price of this resource has almost tripled in just two years. And investors are getting increasingly interested in uranium too.

Junior companies with names like "Toro Energy" or "Valhalla Uranium" typically get their starting capital from the stock market. The value of their stocks is often based on highly uncertain prognoses – after all, many newly founded companies haven't extracted a single ounce of gold, silver or uranium. Only a fraction of the junior companies manage to stay independent. Many run out of money eventually. The luckier ones are bought up by the industry giants.

But the spectacular price increases are prompting large corporations to invest more too. They've intensified their extraction operations considerably – the planned expansion of Olympic Dam is the best example. BHP Billiton is spending $500 million just for preparatory studies on the project.

The number of extraction projects in Australia has reached record levels. The amount of capital mining companies have invested in copper and nickel extraction has increased by 88 percent in just one year. The economic research centre Abare has counted a total of 256 ongoing projects – together, they're worth $34 billion. "It's another sign that investors are highly interested in this sector," says Brian Fisher, Abare's director, about the new development.

The big players in the natural resources businesses have a chance to celebrate this dramatic boom every two months, when Melbourne's Mining Club hosts a dinner at the city hall. Every corporation that plays an important role in the world of Australian mining gets a table with its own company logo. The BHP Billiton managers are there of course, and those from the company's major rival Rio Tinto, but so are accountants from KPMG or analysts from the Macquarie Bank. The men wear dark suits, the women dresses: Miners are even more conservative than bankers.

Melbourne, the capital of Victoria, is traditionally considered the capital of the resources industry. It was here that ships carrying immigrants lured by the gold rush used to arrive. This is where the headquarters of BHP Billiton is located. The branch office of the world's second largest mining corporation Rio Tinto is just four streets away. But Melbourne no longer sets the tone in the mining industry – that's the privilege of another place, 3,000 kilometres (1,864 miles) away in northwestern Australia.

Enormous iron ore reserves – the second largest in the world – have been found here, in the Pilbara region. Unique rock formations developed there some three billion years ago, becoming today's long and narrow mountain chains. The mountains glow red in the sun, like embers. The rock's iron content is as high as 68 percent. Extraction of the region's natural resources has been taking place since the 1960s.

Mountain being turned into pit

Mount Whaleback – a mighty mountain sloped like the back of a whale – is the most impressive sight here, in Australia's western wilderness. Mount Whaleback is five kilometres (3 miles) long, two kilometres (1.2 miles) broad and 250 metres (820 feet) high – but getting smaller. Half of the mountain has already been removed, and the process continues every day. The plan is for there to be a hole here one day, 350 metres (1,148 feet) deep.

Countless roads snake around the mountain. Seen from a distance, they resemble the terrace-like structure of Japanese rice fields. The roads are crowded with excavators that haul rocks onto trucks – some 240 tons per truckload. The driver's cabins are so high up you have to climb 20 steps before you can sit down behind the wheel. The rocks extracted from the ground are broken apart; then the ore is placed in railway containers that connect to form trains as long as 7.5 kilometres (4.7 miles).

A dozen of these virtually endless trains depart from the Pilbara region every day, traveling 426 kilometres (265 miles) north, to Port Hedland on the Australian coast. The port is crowded with freight ships waiting to receive their precious cargo and depart quickly in the direction of Shanghai, Ningbo or Canton. The journey takes about 10 days. The ships travel constantly back and forth – filled to capacity when they leave, and usually empty when they return.

Almost half of all Australian iron ore exports now go to China, where demand for iron ore rises by about 20 percent every year. The corporations can hardly keep up – even though Rio Tinto alone has doubled its iron ore production during the past five years.

The Chinese are coming

Many people are already worried that Australia's mining companies are relying too heavily on China. But that's not something Chris Renwick worries about. He was Rio Tinto's iron ore manager for many years. Australia used to be far more dependent on Japan than it is now on China, he says. Now China has simply taken the place of Japan. "You have to go where there's business to be done," Renwick says pragmatically.

That's just what the Chinese are thinking too – and why they're trying to access their neighbor's natural resources directly. Led by the investment company Citic, Chinese companies are purchasing massive shares – worth billions of dollars – in Australian mining companies.

For example, Citic owns 12 percent of Macarthur Coal, a mining company from Queensland. Macarthur's CEO Ken Talbot says many a prospective investor has come knocking on his door – not just from China, but also from India and Brazil. He says he has no problems doing business with them. They represent the world's most rapidly growing economies, after all, "and so we value having partners in these countries."

But the Chinese are also keenly eyeing Australia's uranium reserves. By 2020, the People's Republic wants to produce four times more nuclear energy than it does today. To this end, it's planning the construction of 28 nuclear power plants. They would bring China's annual uranium needs up to 20,000 tons (from 1,500 tons today).

Last year bidders competed for the purchase of WMC Resources, the company that then owned the Olympic Dam mining facilities. Citic was one of the bidders. But then the Chinese and the other bidders had to yield to BHP Billiton, which acquired WMC Resources.

Now the Chinese are using their diplomatic influence to get access to the much sought-after fuel. A meeting this spring saw Chinese Premier Wen Jiabao and his Australian counterpart John Howard sign an agreement that facilitates uranium exports from Australia. The agreement is controversial and has re-ignited an old debate in Australia about whether uranium should be treated like any other resource -- that is, on whether it can really be sold to a country like China.

New responsibilities

The Howard administration cites special clauses in the agreement that the Chinese have to observe – pledging to use the uranium for civilian purposes only, for example. Many in Australia's Labor Party, the political opposition, aren't satisfied with such restrictions. Parliamentarian Peter Garrett says he can't trust the security guarantees. Garrett is his party's energy expert. He used to be the singer of the Australian rock band Midnight Oil and was already known as an environmentalist then.

Such controversies are a clear sign that the natural resources boom entails a new political role for Australia. When Howard formed his administration some 10 years ago, Australia was still a country on the edge of the political map. Many Australians were quite happy for it to stay that way.

But now, as an important exporter of natural resources, Australia plays a central role as a mediator between East and West. The country acts as a kind of bridge between Washington and Beijing, whether it wants to or not. That means more responsibility, and more trouble. But the Australians are being amply rewarded: Hardly any other country profits as much from globalization.

Australia's most recent export agreement with China has in any case made it even more likely that BHT Billiton will expand its mining facilities at Olympic Dam. Mining operations there could then continue for 60 years, perhaps even a little longer.

How large the projected open pit mine will end up being is still unclear. "The test drillings are ongoing," says the mine's director, Dalla Valle. The geologists are heading south meter by meter – and they have yet to reach the far end of the ore reserves.