GOVE REFINERY: THE END OF THE AFFAIR
Nhulunbuy was a purpose built mining town and is the fourth largest town in the NT. It was sited to enable the mining of a rich bauxite deposit that contained an estimated 250 million tonnes of high grade bauxite.
Development rights were granted in the 1960s. These included long term leases of land for mining and infrastructure. With these rights came obligations to build a refinery, port and town, similar style to the development of iron-ore mining in WA’s Pilbara. Before the days of cheap reliable air travel it was better to build a town than fly-in your workers. Things have changed.
If done today, the development of a new bauxite mine in a place like Gove, or on the Mitchell Plateau in North-West WA, or on the Cape York Peninsula in Far North Queensland it is more likely to be based on a fly-in and fly-out work force for mining and with no refinery.
The announcement of the closure of the Gove refinery allows some reflection on what is good development versus what is bad development.
When it started the proposed Gove mine was a classic green-fields development. There was no existing infrastructure and the project had to start from scratch.
There is always some degree of resistance to new development. In this case, although Aboriginal land rights did not officially exist Gove was such a large economic development project that it catalysed the birth of the land rights movement.
It was worth the fight. Justice Blackburn rejected the doctrine of Aboriginal title in favour of terra nullius but more than twenty years later this famous land-mark case was over-ruled by the High Court in the Mabo and Wik cases.
Politically the Gove land rights case led to the establishment of the Woodward Royal Commission and the recognition of Aboriginal land rights in the NT. In 1975 Labor Prime Minister Gough Whitlam developed the Aboriginal Land Rights Act which was later passed by the Fraser Government in 1976 and that brought a new land deal for NT aborigines.
The mine and refinery were established and became operational in 1972. For 40 years it was the region’s big economic producer. However, the global market for the production of bauxite, alumina and aluminium has changed significantly and the profitability of the Gove refinery suffered and is now a casualty – and has died.
Gove bauxite is top quality and that is not to blame. To blame is the cost of energy and the fact that the centre of gravity for refining alumina and producing aluminium has swung to China.
Let’s do the maths. Gove has good bauxite, at 45 per cent alumina you don’t get much better. It costs about $15-$20 a tonne to mine and it sells for about $40-$45 a tonne FOB, or free on board, meaning the cost to get it to the ship. So at $20 a tonne for eight million tonnes a year, that’s a $160 million a year profit.
While the Gove mining operations make money the Gove refinery operations were losing money. It takes two-three tonnes of bauxite to make one tonne of alumina. The market price for alumina is currently about $320 a tonne FOB. In the recent past it has been much higher, somewhere in excess of $450 a tonne.
Gove is stuck on the bad part of the cost curve. It struggles to produce alumina at less than $450 a tonne.
The overall driver is the world price of the end-product, aluminium. It used to be above $3,000 a tonne. It is currently below $2,000 and from most accounts is not likely to get much higher in the short to medium term.
The low aluminium price means that if you are not producing alumina for less than $400 a tonne you should stop trying. Currently the world’s best alumina producers have access to cheap energy. You can work around slightly lower quality bauxite but the cost of energy is the killer. Cheap energy makes all the difference.
Until recently, the Chinese company Chalco (subsidiary of Chinalco) was a bidder for development rights to the 650 million tonne Aurukun bauxite deposit on Cape York Peninsula in Queensland. Other bidders included Rio Tinto Alcan.
Chalco originally held the development rights but the Queensland Government cancelled the deal after Chalco made it clear that it was not going to build an alumina refinery. Subsequently the new government dropped the original requirement to build a refinery and re-started the bid process.
After much consideration Chalco and Rio Tinto Alcan pulled out of the race. Now is clearly not the time – plus there are now better options in other countries.
Australia and Indonesia are significant producers of good quality bauxite. In 2012 Australia produced about 76 million tonnes (eight million from Gove) and shipped half to China. Indonesia produced about 42 million tonnes.
To protect and build its processing industry, Indonesia has banned the export of unprocessed minerals from January 2014.
Although China prefers to import bauxite to process into alumina its own refineries, China’s alumina imports are growing (five million tonnes in 2012). China seems to work with available options. If the bauxite is good quality, import it. If, like Indonesia, there is a ban on exporting bauxite, invest in an Indonesian alumina refinery and import more alumina.
In addition to established major suppliers such as Australia and Indonesia, China is also starting to import from new sources such as Guinea, Fiji and Vietnam (Brazil and Jamaica also have significant bauxite reserves).
In Vietnam, Vinacomin (the National Coal Minerals Industries Group) has built a new alumina refinery at Tan Rai and it expects to produce up to 300,000 tonnes of alumina in 2013 and ultimately to upgrade production capacity to 600,000 tonnes a year.
Although just starting, Vietnam’s bauxite and alumina industry has considerable potential with bauxite reserves of 2.1 billion tonnes. A similar Chinese investment story is developing in Africa, particularly Guinea.
So time has moved on and mining is now less local and more global. Good air and sea transport means that workers and product can be sourced and deployed in the most efficient manner. Moving workers is easy. Shipping bauxite is not that hard when the cost of making alumina is determined by the cost of energy.
Production is shifting to where the energy is cheapest. There is no cheap energy in Gove. Produce more gas and build a pipeline and a refinery may be viable but you have to be enduringly competitive. Any significant risk and the alternative options will be preferred.
So was Gove good development or bad development? All things considered, it was good development for its time. An opportunity seized at the right time. A great boost to reconciliation in a round-about way. A great economic boost for the NT.
There are many stories of family and community success in Gove that are attributable to the coming of the refinery development. Now the best way forward is to decommission the refinery and stick to bauxite mining for the next 10-20 years.
The next chapter in the economic development of north east Arnhem Land is unknown.
AIDAN KELLY – MATRIX APPROVALS
(phone 04 0084 6063) – (firstname.lastname@example.org)
Aidan Kelly is an development lawyer. A former Darwin resident he now lives in Perth. He works for Matrix Approvals assisting clients to develop resource projects and related infrastructure such as railway lines, power lines and ports. He believes in the shared value of good development.
This article was featured in the NT NEWS on 12 December 2013.