Treasures of the Red Continent Australia's Natural Resources Boom

The current natural resources boom is good news for Australia which has a plentiful supply of precious metals. Never before have mining corporations extracted so much iron ore, copper, gold or uranium and exported it worldwide, especially to China. But is Australia becoming dangerously dependent?

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An iron ore mine in South Australia.
AFP

An iron ore mine in South Australia.

In the summer, temperatures in Roxby Downs climb as high as 40 degrees Celsius (104 degres Fahrenheit). It's one of the driest regions of southern Australia. Only eucalyptus bushes and termite hills flourish among the red dunes. And when sand storms clog the air conditioning vents, life in the outback becomes a searing nightmare.

Australians call the region "Never-never" -- no one would ever want to live here.

And yet this inhospitable strip of land 560 kilometres (348 miles) north of Adelaide is experiencing a real estate boom the likes of which has seldom been seen on the continent.

Even the price of basic wooden houses -- still available for €200,000 ($256,000) a year ago -- has risen by a third. Sometimes when a piece of real estate is advertized on the Internet, it takes only a few minutes to sell. And demand continues to rise.

"Olympic Dam," a nearby raw materials mine, is what has turned the town into such a magnet. It mainly produces copper but also uranium, gold and silver. Young families are flocking to Roxby Down, lured by well-paid jobs that are guaranteed for years and even decades. "You can make a lot of money in this place," says April Jefferson from the local real estate agency. "That's why people are moving here."

Olympic Dam has already become the largest underground mine in Australia. If everything works out as planned, the operator, BHP Billiton, will expand the mine to include an open pit. The corporation wants to invest $5 billion in the facility.

BHP would then double the amount of copper extracted here, bringing it up to about 500,000 tons a year – an amount worth €3.75 billion ($ 4.79 billion) on today's market. It would also triple the amount of uranium extracted at Olympic Dam. This last resource, the fuel used in nuclear power plants, used to be no more than "a nice side product" of the mining facility, says Olympic Dam's director Dean Dalla Valle. But now that the world is searching for alternatives to oil and natural gas, uranium has become more important – and so has the region around Roxby Downs.

Many are already calling this region the "Saudi Arabia of the South." And that's not even exaggerated: The Gulf state controls more than 20 percent of the world's oil reserves, but more than a third of all known uranium reserves are located in Olympic Dam. It's the world's largest uranium deposit.

Treasures from the deep

Out here in the outback -- indeed, almost everywhere on the Australian continent -- the ground is barren on the surface but venture a little deeper and it turns out to be blessed with everything precious the earth has to offer, and Australia is supplying the entire world with these treasures.

Australia expore more coal and iron ore -- still the key raw materials for industrial society -- than any other country. Nowhere else in the world are comparable amounts of bauxite and titanium ore extracted. Australian corporations are the worldwide leaders when it comes to the extraction of industrial diamonds too. And no other country has more reserves of nickel, cadmium or lead.

Mining company BHP Billiton's iron ore depot in Port Headland, Australia.
AP

Mining company BHP Billiton's iron ore depot in Port Headland, Australia.

No doubt about it: Australia is the big winner in the resources boom that economies the world over are currently experiencing. The Australian mining industry has already exported more than $370 billion worth of metals, fuels and minerals during the past 20 years. But now that industry is witnessing the best days in its history.

Business is great for the corporations, and profits from the export of natural resources will probably rise by another 36 percent. BHP Billiton is the world's largest mining corporation, based in Melbourne. It alone has made a $4.4 billion profit during the first half of 2006 – an increase of almost 50 percent. BHP Chief Executive Chip Goodyear believes the run on resources will continue for as long as the Chinese economy continues to grow by about 8 percent a year – a development he thinks will continue "in the foreseeable future."

For Australia, China is more than a next door neighbor. China's economic expansion has a direct impact on the Australian economy. The People's Republic has become Australia's second most important trade partner after Japan. China and Australia are linked by an almost symbiotic relationship.

Australia provides the resources China needs so urgently for its economic miracle. In return, China provides Australia with all the cheap cooking pots, washing machines and cars it manufactures from the metal. "We would be crazy not to develop this relationship," says Australian Prime Minister John Howard.

Raw materials boom harbors risks

The entire continent benefits: The Australian economy has been growing continuously for 15 years. The unemployment rate is enviably low at about 5 percent. The amount of public debt is negligible, and the budget is balanced. The figures are remarkable through and through, indeed almost too perfect: They entail a number of risks for Australia.

For example, qualified workers are now in short supply. Many Australian corporations have to defer or even cancel business agreements. The lack of mechanics, architects or geologists is slowing the country's economic growth. It's also making everyday life difficult: Getting the plumber to come by your house can take as long as half a year in Perth, the booming city on Australia's west coast.

Meanwhile, the price of housing has risen to astronomical levels, and not just in the mining town Roxby Downs. Economists warn that the real estate bubble could burst any time -- especially in the major cities, where most Australians live.

What is more, the value of the Australian dollar has increased considerably ever since the booming resources industry channelled billions into the country. The profits may be good news for those exporting resources, but they also make life difficult for other export industries.

That's why many are concerned the economy is becoming dangerously one-sided and over-dependent on natural resources, which already account for a third of Australia's exports. "The economy has become fat and lazy," warns Chris Richardson from Access Economics, a research institute in Canberra. So what if the prices of iron ore, coal, copper and gold begin to slip? Will an economic collapse be inevitable if China's economic expansion begins to stall?

It wouldn't be the first time that Australians find out how unstable the value of natural resources can be. They've been used to the rise and fall of the resource trade for generations.

Natural resources have been part of the culture and historical development of the continent ever since it was settled: What started with the colorful rock paintings of the Aborigines continued with the mid-19th century gold rush and then the current uranium boom. Roads and railways were built wherever metals and minerals were found. Factories were set up and cities developed – disappearing again when the supply of resources began to wane or prices dropped. The discovery of new resource sites continues to transform the map of Australia today: The past 40 years have seen the creation of 26 cities, 17 ports and more than 2,000 kilometres (1,243 miles) of railway tracks.

The extraction of natural resources began in the southeastern part of the country, in New South Wales, where British settlers discovered enormous coal reserves. But it was the 19th century gold rush -- triggered by the discovery of gold in the southern region of Victoria in 1851 – that made Australia's natural wealth world-famous.

  • Part 1: Australia's Natural Resources Boom
  • Part 2
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