Olympic Dam expansion on hold: good news or bad?

by Glyn Wittwer

A knee-jerk response to the news that BHP Billiton is looking to downsize the $30 billion investment in Olympic Dam is that it is bad news for South Australia. The state is the slowest-growing mainland state. It has suffered from the decline of manufacturing for decades. With the exception of Olympic Dam, the state’s mining sector is small. The high Australian dollar arising from the mining boom elsewhere in the country has bashed the farm and wine sectors in the state.

Is there another side to this seemingly gloomy news?

A look at BHP Billiton’s press releases suggests that this news is less dramatic than it seems. The company recognises that since commodity prices have peaked, construction expenses to expand mining operations need to be curtailed. A $30 billion expansion might seem justifiable if mineral prices remain high. With weaker prices, the investment may struggle to pay its way.

Much of the hype about mining investment booms relates to the creation of short-term jobs. In reality, prices play a big part in economic adjustment to major construction booms. There are many stories from the Pilbara of soaring housing rental costs. There are acute shortages of labour in industries that service the everyday needs of mining towns. People earning salaries outside the mining industry may find the costs of living prohibitive. The wealth of fly-in, fly-out miners who operate in mining communities in the remote regions of Western Australia has spread into the capital. Perth has become notorious for highly priced bars and restaurants.

Perhaps the proposed Olympic venture was never going to have the same impact on South Australia as the numerous investments have had on the west. But with each shortage induced by a boom, there are local price hikes. There are also environmental costs.

The existing Olympic Dam operations suck more than 40 million litres of water daily from the Great Artesian Basin. An enlarged mine would require more water. This was to have come from a desalination plant at Point Lowly, which locals regard as the best beach near Whyalla. Point Lowly sits on a stretch of Spencer Gulf that is less than 20 kilometres wide, not an ideal location for hyper-saline discharge. Communities have raised concerns about the impact of the desalination plant on the fragile gulf environment.

There is another side to the story. Communities on northern Eyre Peninsula would gain access to a new source of fresh water.

South Australians may wonder what will be the alternative to the Olympic Dam expansion. Over the past decade, the number of employed people in the state has increased by 120,000.

Employment in mining remains below one per cent of the workforce. An expanded Olympic project would have provided 4000 direct jobs in the long term.

In a slow-growing state, the news is disappointing. But it is not the end of the world. BHP Billiton is looking at ways of expanding output with a smaller level of investment. The environmental impacts of this will be of interest to concerned community groups.

Associate Professor Glyn Wittwer is a Research Fellow in the Centre of Policy Studies at Monash University.