The End Game for High Project Costs

Appears to be lower costs, according to reports emerging from Australia.

The Aussie mining sector has been hit hard by rising costs of late. To the point where big projects are being delayed or shelved.

But this stymying of development has an upside for the resource sector.

Look at Chevron Australia. Officials from that company said at a conference this week they are now finding more employees for their $52 billion Gorgon LNG plant in Western Australia. Labor that’s badly needed to complete the mega-project.

Other oil and gas firms report that personnel and equipment are becoming more plentiful amid the mining slowdown. And a greater supply of these things is the first step toward costs coming down.

Of course, delayed projects and emigrating staff sounds like bad news for the mining sector. But these are likely natural–and ultimately productive–happenings.

The mining sector, and its investors, will be forced to re-examine their project development pipeline. Many of the projects that passed muster during the boom times will now be discarded.

A smaller number of better, stronger projects will remain standing for development. Reducing the overall level of activity across the industry. And bringing costs for surviving projects back down to reasonable levels.

The petroleum sector went through this process the last few years. Part of the reason oil and gas projects are positioned to capitalize on labor and supplies released from the waning mining sector.

Good news (ultimately) for good projects.

Here’s to smart development,

Dave Forest

dforest@piercepoints.com

 

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