Western Australia’s new mining boom to underwrite investment in 2010

Western Australia is a major target for investors due to the ongoing strength of the mining industry and non-residential construction activities, the latest Access Economics Investment Monitor has reported.

Additionally, the December Investment Monitor shows total project investment is set to expand over 2010 due to the strength of the resource and mining sectors.

Overall, Access Economics reports about $278.2 billion of definite projects, which are classified as either under construction or committed to start construction soon, equating to an increase of $4.9 billion from the September quarter.

However, this figure represents a $69.1 billion increase in the value of total projects, with major investments such as the Gorgon LNG scheme. Access director David Rumbens said in a statement the outlook is similarly strong for the next 12 months.

“Overall, the quantum of total project investment has weathered the storm well through 2009 and now has the opportunity to expand again with a more favourable economy in 2010.”

“In particular, in support of the resources sector, commodity prices have gained a lot of ground over recent months thanks to a strong economic recovery out of Asia. More broadly in Australia, business and consumer confidence is now strong.”

Rumbens also pointed out 145 projects worth $161 billion which are currently set to commence in 2010, and also noted “two-thirds of these projects by value are mining projects”.

“That said, it would still be a patchwork boom rather than an even handed one. The high Australian dollar and relatively weak global demand is still wreaking havoc in some sectors, notably non-resource manufacturing. International tourism is still fraught while ‘wait and see’ may still hold for awhile yet when it comes to new office blocks and shopping malls.”

Rumbens also noted out non-residential construction as a main source of investment due to increases in Government spending. The health and education sector is driving this construction investment, he claimed.

“Meanwhile, Sydney University is spending $480 million redeveloping facilities, and the SA Government is building six new ‘super schools’. NSW’s Government is upgrading some 800 science labs, while the ACT is building the new Gungahlin College at a cost of $67 million.”

“Health projects are led by the new $1.8 billion Fiona Stanley Hospital at Murdoch in WA and the 750-bed Gold Coast University Hospital at Parklands. Queensland is spending $1.1 billion on the new Children’s Hospital, while Victoria’s $1.1 billion redevelopment of the Royal Children’s Hospital is ongoing.”

State-wise, Rumbens said Western Australia remains the centre for growth in investment, with the state holding more than double the value of definite investment projects at 30.8%.

Western Australia entered the downturn with more momentum than anywhere else in Australia. Although the pipeline of housing, engineering and commercial construction in the State is being wound back, it remains at substantial levels.

“Indeed, of the engineering construction work yet to be completed in Australia in 2008-09, almost one half was in Western Australia, including more than 70% of the heavy industry (mainly mining) work. In addition, a number of large investment projects are still under consideration in the State, with the recovery in global economic conditions improving the prospects that these projects will also be approved.”

Queensland holds a 19% share of the total value of investment projects, followed by New South Wales at 9.7% and Victoria at 9%. However, Rumbens pointed out Queensland’s weakness in relation to the rest of the country.

“Queensland’s economy is lagging the national recovery with both housing and commercial construction suffering from weaker demand and a lack of finance. However, thanks to the big spending State Government and the continuing interest in resource development, engineering construction work remains strong.”

“Much of the recent resource-related investment was carried over from the boom years and, despite healthier commodity prices, resource-related commencements may still slow from here… Queensland’s non-residential building work however has weakened significantly.”

But Rumbens also pointed out Victoria’s relative strength, saying it is performing well compared to weak demand. While engineering work did not see a massive surge, he said work levels have remained solid due to spend on infrastructure.