Investors who have been burned by the downturn in mining activity and decline in commodity prices have been warned that things are only going to get worse.
“Mining is dead for a long time,” according to BIS Shrapnel’s chief economist and director Frank Gelber, and no one – whether they be economists, politicians, or investors – should be waiting for the next boom.
Mr Gelber said “anyone who expects this to be quick is misleading themselves” and cautioned that recently instated Prime Minister Malcolm Turnbull can’t “wave a magic wand to fix it”.
The continued downturn has drastic implications for investors who still own properties in mining-driven regions, Mr Gelber said.
“The technical term is ‘they’re stuffed’ – for a long time – but you always knew they would be, because if you try to build for peak load, you’re going to have oversupply when the peak load comes off.”
Mr Gelber said investors who have been burnt by a downturn in property prices should act as a lesson to others – “let the buyer beware”.
“They should have been a lot more careful when they went in. They went in with dollars in their eyes and now they’ve got sand in their eyes.”
He advised investors that fortunes in these regions wouldn’t be turning around any time soon, so their options for utilising their investments are limited.
“They’re stuck. So cut your losses and run – because it’s not going to come back again real quick [...] there’s nothing they can do.”
He said the decline in mining investment is really only just beginning – so the outlook is bleak for investors who stick around.
“We all know the mining investment phase is over and we speak as though [the decline] is finished. It’s only just beginning. We’re 12 per cent into a 60 per cent decline in investment. It’s going to take a long time for falling mining investment to bottom and we [still] have to absorb the negative shock to growth,” he said.
Richard Robinson, associate director of economics at BIS Shrapnel, said investors who are in a tight spot in mining towns should focus their frustrations and energy on lobbying.
“I would lobby the government to change the rules on fly-in fly-out, so they force the companies to actually make sure they have more of a local workforce – which they used to have 10, 20 years ago,” he said.
“The fly-in fly-out is not good for the communities, and they know this. All the state governments know this. They’ve let the mining companies get away with murder, because the mining companies actually run this country,” he said.
“To let them have fly-in fly-out to such a degree in the first place has been really bad […] everybody knows this. That they’ve let the mining towns get away with this. Fly-in fly-out for the families themselves [is terrible].”
Mr Robinson said mining towns have the potential to be great, sustainable communities but “as soon as they allow fly-in fly-out, it destroys a lot of things” and only benefits “Qantas and their affiliates”.
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