Resources to Production Ratios
The continuing contribution of mineral resources to Australia's economic performance in the medium and longer term will depend on the discovery and development of new, good quality resources. To assist with an assessment of the future supply capability of identified resources, an indicator of resource life using ratios of Accessible Economic Demonstrated Resources (AEDR) to current mine production are provided in the commodity review chapters. Ratios of ore Reserves to production are a much more conservative indicator of what is likely to be available for mining in the foreseeable future. It is important to note that these duration indicators can change rapidly with significant variations in rates of production and/or major changes to resources.
Table 21 presents a comparison of the AEDR/production ratios from 1998 to 2011. During this 14 year period there has been a persistent long-term decline in the AEDR/production ratio for black coal, iron ore and rutile, which reflect major increases in production and reassessment of resources. The decline in iron ore prior to 2008 has been partly offset by the development of large magnetite iron ore deposits in the Pilbara and mid-west regions of Western Australia. These magnetite resources, which were previously considered to be subeconomic, are becoming increasingly more viable. There was also a reversal in the decline of the AEDR/production ratios for black coal, brown coal and rutile in 2011.
Commodities with a resource life of less than 50 years are manganese ore (about 15 years at current rates of production), diamond and gold (35 years), and zinc (45 years). There is a need for ongoing successful exploration in the short and medium term to ensure sufficient available resources to maintain Australia's levels of exports of these commodities.
Increases in the AEDR/production ratios during 2011 were recorded for black coal, brown coal, diamond, rutile, uranium, lead and silver, with reduced production (rather than increases in resources) accounting for increases in the AEDR/production ratios for uranium.
At the same time, reductions in AEDR/production ratios during 2011 were recorded for copper, iron ore, ilmenite, zircon, and nickel with recoveries in production levels for some commodities being partly responsible for a reduction in AEDR/production ratios.
It is important to note that a long resource life for a particular commodity is not a guarantee that such resources will continue to be exploited in Australia. In an increasingly globalised and competitive commodity market, multinational mining companies are continuously searching for mineral deposits that offer the most attractive returns on investment. Such returns are influenced not only by the quality of the resources (grade and tonnage) but also by the environmental, social and political factors, land access, infrastructure and the location and scale of the existing mining operations owned by the company.
The world financial crisis in 2008 exacerbated these factors and forced many companies to reassess their options for both existing and planned operations in Australia. In the case of black coal and iron ore, the initial impact of the world financial crisis caused some mining operations to scale back production while others delayed plans for expansion and some mines closed at the end of 2008. However, by mid 2009, recovery in mining operations and development plans were well under way for the affected commodities but this trend was less pronounced in 2011.
During 2009 and 2010, some multinational companies closed sulphide and lateritic nickel mines in Western Australia and Tasmania and consolidated their operations at larger low-cost mining operations, although not necessarily in Australia. This is a consequence of the dominance of large multinational mining companies in the world mining industry. A number of these nickel mines resumed production by 2011 and the large Ravensthorpe lateritic nickel mine was refurbished during 2010/11 followed by restart of operations during the second half of 2011.
The AEDR/production ratio for copper dropped by 10% in 2011 as new and re-opened copper mines contributed to production increases in conjunction with only a slight rise in EDR. In contrast, over the previous 13 years the ratio had increased progressively with increasing resources particularly at Olympic Dam.
AEDR/production ratios for zinc, lead and silver have increased slowly over the past 14 years. Mine production and resources of zinc, lead and silver also have increased over this period.
* Average AEDR/production ratio for gold (35 years) is strongly influenced by low-grade copper-gold deposits with ratio of over 65 at current rates of mine production, whereas lode gold deposits have AEDR/production ratio of less than 20 years.
** AEDR/production ratios allows for losses that occur in beneficiating (upgrading) manganese ores.
During 2011, higher gold prices and exploration expenditure coincided with the definition of a further 743 tonnes of EDR. Domestic mine production decreased marginally from 260 to 258 tonnes with the drop in output from gold-dominant operations nearly offset by increased output from by- and co-product producers. The resources to production ratio for gold increased from 30 to 35 years for 2011 reflecting the increases in resources relative to essentially steady production levels. As indicated for 2010 though, the average resource to production ratio masks the industry characteristics in which over 65% of production is derived from lode-gold deposits which account for only 36% of resources (resource to production ratio of 19 years), while copper-gold deposits account for 60% of resources but only contribute 31% of production (resource to production ratio of 67 years).
For heavy mineral sands operations, some producers closed down low-grade ilmenite deposits in 2008 to concentrate on deposits that are more readily amenable to beneficiation, or have higher zircon content. However, sharply lower levels of production of ilmenite, rutile and zircon in 2009 resulting from the flow-on effects of the global financial crisis in late 2008 and early 2009, led to increases in resource life in 2010. In 2011, production of ilmenite continued to decrease with 1.277 Mt, but production of rutile, and zircon increased to 474 000 tonnes of rutile and 762 000 tonnes of zircon compared with 1.313 Mt of ilmenite, 430 000 tonnes of rutile and 540 000 tonnes of zircon in 2010. This resulted in a further decrease in AEDR/production ratios for ilmenite due to a decrease in ilmenite EDR, an increase for rutile due to an increase in rutile EDR, but a decrease for zircon due to a massive increase in zircon production despite an increase in zircon EDR.
For uranium, AEDR/production ratios have increased progressively since 2003. For the period 2003 to 2009 this was due to increases in Australia's uranium resources mostly from ongoing evaluation of the Olympic Dam deposit (Expansion project). From 2009 onwards, increases in this ratio resulted from lower uranium production caused by operational problems at each of the three uranium mines (damage to a haulage shaft at Olympic Dam, flooding of the Ranger 3 pit and operating problems at Beverley). Increases in mining and processing costs have limited the growth of Australia's AEDR over recent years.