In outback Australia, "dongas" show costs of mining boom

KARRATHA, Australia Wed Apr 20, 2011 9:46am EDT

1 of 2. Pic Segolene, a 25-year-old French backpacker, enjoys a beer with her friends at the community centre in Karratha April 18, 2011. Demand for Australian commodities is running white-hot. So too are costs in the country's remote mining towns, to the point where tiny huts or 'dongas' can cost as much as a five-star hotel room and backpackers can earn $2,000 a week cleaning them.

Credit: Reuters/Daniel Munoz

KARRATHA, Australia (Reuters) - Demand for Australian commodities is running white-hot. So too are costs in the country's remote mining towns, to the point where tiny huts or "dongas" can cost as much as a five-star hotel room and backpackers can earn $2,000 a week cleaning them.

Costs are becoming a big headache for Australian miners, including giants Rio Tinto and BHP Billiton, which complain that labor shortages, a strong local currency and rising fuel prices threaten to slow the pace of expansion.

The problem is clearly visible in the remote mining town of Karratha, a gateway to mines in the barren northwest.

"Here the work is very good. You can work 80 hours a week if you want. It's good money," said Pic Segolene, a 25-year-old French backpacker who came to Karratha to earn enough cash to fund the rest of her trip around Australia.

Segolene works about 10 hours a day, earning A$25 ($26) an hour to clean houses in this thin slice of suburbia that serves as an Indian Ocean port and a gateway to the endless and bountiful red deserts of Australia's interior.

Her boyfriend, Eric Gehin, 31, makes A$31 an hour as a gardener. Their plan is to earn enough in two months to pay for the rest of their open-ended trip around the country.

"Definitely we want to stay two months. That's the plan, if it's not too exhausting," said Segolene, who likes to relax the way most people in Karratha do -- drinking beer and barbecuing.

Voracious Asian demand for Australia's commodity riches have lifted the country's terms of trade to near historic heights and fueled a boom in mining investment.

The central bank this week said it would be a major challenge to manage the mining boom while containing inflation.

Karratha has an official population of 18,000, but up to 10,000 more cram into the town, about 1,300 km (780 miles) from the nearest major city, to work for the mining or gas industries.

Workers often have to stay in primitive accommodation known as "dongas," pre-fabricated huts smaller than a shipping container, each with an overworked air conditioner to keep out desert temperatures that can soar to 40 degrees Celsius.

A "donga" can cost up to A$250 a night, about the same price as a room in a five-star hotel in Sydney, overlooking that city's famous harbour, or in downtown Tokyo or London.

MAJOR MINERS ALARMED

"It's ridiculous," said landscaper Vince Duichiera, 31, who is among thousands of workers who fly into Karratha and other mining towns from around Australia for a few weeks at a time rather than settle in these overcrowded, over-priced towns.

He said it was impossible to afford to live in Karratha unless an employer paid for their workers' accommodation: "It's pointless unless someone gives you accommodation."

Major miners like BHP Billiton and Rio Tinto run their operations as hard as they can, but their earnings growth is coming almost exclusively from higher selling prices, not additional output.

Retail-to-mining conglomerate Wesfarmers added its voice to the chorus of concern over costs this week, saying the larger miners had begun poaching experienced mine workers from other companies, threatening to starve new projects of skilled labor.

"It's something we're very mindful of as we're thinking about building a new ammonium nitrate plant, around the construction risk or cost blowout risk," Managing Director Richard Goyder told the Wall Street Journal.

(Editing by Mark Bendeich and Jonathan Thatcher)

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