COLUMN-Asia, Australia risk mining investment as rankings slip: Clyde Russell

Thu Apr 11, 2013 1:46am EDT

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-- Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell

LAUNCESTON, Australia, April 11 (Reuters) - Asia-Pacific countries are the best-placed to supply the region's future commodity demand, but rather than encouraging mining it appears they are making it harder for explorers and producers.

Virtually every key resource-rich nation in the region slipped in annual rankings compiled by the Fraser Institute, a Canadian-based free-market think-tank that surveyed 742 mining companies for its report, released in February.

And it's not just that Asian commodity producers slipped, the results showed that Indonesia was the worst mining jurisdiction, and was joined in the bottom 10 by Vietnam and the Philippines.

Australia, which prides itself on being a welcoming and secure place to do business, also saw the rankings of five of its six states and the Northern Territory decline, although all remained in the top 50 jurisdictions.

And while China and India are both major commodity importers, they are also significant producers and for them the survey was bleak reading.

China's ranking slipped to 72nd out of 96 in 2012-13 from 58th out of 93 the prior year.

India managed to improve on its 89th spot from last year, but at 81st it is still anchored near the bottom.

Both these nations are increasingly dependent on commodity imports and therefore keen to increase local output, but it also would appear they aren't making it easy for explorers to come in and exploit domestic opportunities.

However, in any survey it's important to look at what is being asked, and of whom, in order to gauge what it means.

The Fraser survey appears mainly to cover small to medium mining companies, as it stated that the exploration spending of the 742 companies that responded was $6.2 billion in 2012.

This isn't an insignificant amount, but it is only about 10 times greater than what BHP Billiton, the world's largest mining company, spent on minerals exploration last year.

The survey measures the overall policy attractiveness of the 96 jurisdictions, but appears weighted more toward policies than geological quality.

"Policy factors examined include uncertainty concerning the administration of current regulations and environmental regulations, regulatory duplication, the legal system and taxation regime, uncertainty concerning protected areas and disputed land claims, infrastructure, socioeconomic and community development conditions, trade barriers, political stability, labour regulations, quality of geological database, security, labour and skills supply, corruption, and uncertainty," is how the report puts it.

In other words, is the country or state an easy place to do business or is it risky? What the survey doesn't tell us is the quality of reserves, ease of mining and transport.

If it did, then it's highly unlikely that Indonesia would be at the bottom of the pile, given that it has some of the world's easiest to mine coal near river transport to ocean ports.

However, the survey does show that Indonesia may well pay the price of introducing uncertainty and confusion into its natural resource sector with a myriad of new rules and regulations.

These include requirements for domestic sales, beneficiation prior to export and selling majority stakes to locals within 10 years of commencing mining operations.

While big miners tend to focus on flagship projects, the smaller exploration companies, such as those surveyed, often open up new frontiers and basins and are thus vital for developing a vibrant mining sector.

The survey said much of the reason Indonesia slipped 10 places to last was because of uncertainties and its permissions process.

These are issues the government can fix easily, but it will require a commitment to creating a stable investment regime rather than posturing for domestic political advantage.

Australia's decline may also be because of domestic politics, with a new mining tax on iron ore and coal coupled with a tax on carbon emissions and increased state royalties denting confidence.

High labour costs and the need for approvals from multiple state and federal government departments also work against Australia, with its top-ranked state, Western Australia, dropping three spots to 15th in survey.

It was followed by South Australia (down one place to 20th), Northern Territory (down 11 to 22nd), Victoria (up 20 to 24th), Queensland (down 4 to 32nd), New South Wales (down 12 to 44th) and Tasmania (down 19 to 49th).

Importantly for Australia as a developed nation, similar jurisdictions with similar mineral profiles scored much higher.

Canada's Alberta province ranked 3rd, New Brunswick 4th, Yukon 8th, Quebec 11th, Nova Scotia 12th, Saskatchewan 13th and British Columbia 31st. The worst-ranked Canadian jurisdiction was the remote Nunavut at 37th.

Even some African nations beat several Australian states, with Botswana ranked 17th, Morocco 25th and Namibia 30th.

The top-ranked countries were Finland and Sweden, and while they produce minerals including iron ore, copper and gold, they are hardly mining powerhouses and are unlikely to become such.

What the survey showed is that most of the world's top-quality reserves are now found in countries with poor mining policies.

But for Asia-Pacific countries, it also showed that they are dropping the ball in their own backyard, and assuming Chinese and Indian commodity demand does expand for some time yet, the risk is that other, more distant countries are able to develop their resources more effectively. (Editing by Clarence Fernandez)

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