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Malcolm Turnbull

Published 12:52 PM, 20 Aug 2012 Last update 12:52 PM, 20 Aug 2012

Alan Kohler’s column today “The Coalition’s NBN policy is madness” is pure fantasy.

He says that by the time of the next election the NBN will have “about a million” connected to its fibre to the premises network.

Yet the NBN Co’s own corporate plan, released with great fanfare only a few weeks ago, says that by June 30, 2013 there will be 54,000 premises in total connected to FTTP with only 341,000 premises passed. So even if he confused “connected” with “passed”, he is out by a factor of 3.

So where does the 1 million figure come from? Alan should explain it or publish a correction.

Further, it is far from certain that the 54,000 figure target will be met by June 30 next year – after all as at May 2012 the NBN Co had less than 4,000 premises connected to the FTTP network.

As far as Telstra is concerned a move to FTTN does not require major revisions to the deal with NBN Co (other than securing access to the D side copper) and would advantage Telstra because more customers would be switched over to the NBN network sooner and so the payments to Telstra would be accelerated with a consequent higher NPV. As an example BT in the UK passed 7 million households with its FTTN rollout in just the last year.

His argument about a “two tier internet access regime” fundamentally misunderstands the nature of the internet, the whole point of which is to enables the propagation of signals over a range of networks and channels. The internet is a network of networks – fibre, copper (of many varieties), HFC, wireless, satellite – and it is that interoperability which is one of is greatest strengths. The issue for customers is not the particular medium of communication connecting their device to the internet but rather the quality of the experience. If bandwidth is sufficient for their needs, then whether it is on HFC or VDSL or GPON or wireless or a combination of some or all of them is not particularly relevant if it is relevant at all.

It has to be remembered that the speed of connection is determined by the slowest segment of the network between the customer’s device and the server with which they are connecting which in many cases may not even be in Australia.

And as for saying I should ensure the NBN is delivered “on budget” – if only there was a budget! The NBN Co has no budget. It has a project the scope of which was given them by the government and they regularly provide estimates of what it will cost. There is no budget in the sense of a cap or ceiling on what they can spend. It is exactly like asking a builder to build you a house with no contract other than to pay him what it costs.

Malcolm Turnbull

June 15, 2012

It’s the timing of the Olympic Dam expansion that is being reviewed and, despite what the opposition may say, the carbon tax and mining tax are not decisive. Photo: AFP

BHP has always been reconciled with the carbon tax and it is not decisive in development plans.

EVEN taking into account the fact Canberra’s spin cycle is in overdrive ahead of the July 1 start of Labor’s carbon tax, Tony Abbott and Christopher Pyne have been a bit hyperbolic this week.

During a whistle-stop tour of South Australia, Abbott said BHP Billiton’s $30 billion Olympic dam expansion project was ”hanging in the balance”. Axing Labor’s carbon tax and mining tax and reining in ”union militancy” were three major incentives that a Coalition government would deliver, he said, adding that in the meantime the Labor government should guarantee that its mining tax won’t be extended to gold, copper and uranium.

Pyne said BHP was reconsidering the timing of the Olympic Dam expansion because of heightened political risk, adding: ”I directly blame the Gillard government for that.”

The truth is more complex, as usual. It’s the timing of the Olympic Dam expansion that is being reviewed, and the carbon tax and mining tax are not decisive.

BHP chief executive Marius Kloppers, the group’s chairman, Jac Nasser, Rio Tinto chief executive Tom Albanese and Glencore chief executive Ivan Glasenberg have all warned recently that Australia is becoming a more expensive place to invest in, and a more regulation-heavy one.

But as BHP reacts to softer commodity markets by re-sequencing its lengthy line-up of potential resources developments, Australia’s carbon tax and mining tax are not front of mind: hardly surprising really, given that Kloppers is a supporter of carbon pricing and helped negotiate a watered-down mining tax after Julia Gillard pushed Kevin Rudd aside in June 2010.

Kloppers said in September 2010 that BHP accepted that climate change was a reality and added that, because the multilateral push for a carbon pricing regime had been derailed, Australia would be best served by going alone, and going early.

The BHP view at that time was that carbon pricing was inevitable, but that it needed to be simple, transparent and predictable, revenue neutral and broadly based, but also designed to protect trade-exposed industries.

He has subsequently criticised the structure of the Australian carbon-pricing regime, saying for example that the imposition of a carbon tax on the coal industry makes it more costly, and therefore less attractive as an investment destination than it was compared with coal-producing countries, including Indonesia, that have not yet introduced carbon pricing.

Nasser has called for a slower introduction of carbon pricing here and he has also said he thinks Labor’s Fair Work Act should be redrawn to reduce ”disproportionate union influence”.

And yes, getting the go-ahead for a mine development in this country is a regulatory marathon. It took more than five years to negotiate it in Olympic Dam’s case and more than 8300 people, 38 government departments and service providers, 55 non-government organisations and 60 industry groups had a role in the development of the project’s environmental impact statement.

We can do better than that.

It’s worth noting that BHP’s consistent message has been that it understands that careful and open planning and consultation is needed to build a lasting consensus around a development of the size of Olympic Dam, the world’s biggest uranium deposit and fourth-largest copper deposit.

BHP has also not stepped back its overall support for carbon pricing. In fact, it’s been loading a price for carbon into its investment decisions for years. The structure of the tax here is not its ideal, but BHP believes it can live with it.

The key forces behind BHP’s rethink about major expansions, including Olympic Dam, are commodity demand and commodity prices.

Both have softened as the northern hemisphere sovereign debt crisis and the economic slowdown it has induced depresses China’s growth, and as the hangover from last year’s over-zealous attack on inflation in China endures.

The price of copper, Olympic Dam’s main product, leapt by 257 per cent between December 2008 and mid-February last year for example, but has since slid by 27 per cent.

Kloppers and Nasser have been pretty clear on this, with Nasser flatly answering ”no” to a question in mid-May about whether BHP was going to stick to a previously announced five-year $US80 billion capital expenditure budget, and Kloppers stating that iron ore demand will grow strongly but less rapidly in the next decade than it has in the past 10 years. He also predicted that after 2025 it will move into a ”protracted period of low to negative growth”.

BHP has 22 major project developments and expansions under way, and they will soak up the group’s spending power in the 2012 and 2013 financial years. Thereafter, BHP would have ”flexibility” on project sequencing, Kloppers said last month, and it will be running the slide rule over new prospects very carefully.

The sums on projects here, including Olympic Dam, will include the cost of the mining tax and the carbon tax, and BHP will also be comparing labour productivity.

Commodity prices are the big variable, however – if they stay off the boil, projects like Olympic Dam will proceed more slowly regardless of what party is in power in Canberra.

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Kevin Naughton

June 6, 2012

GLOBAL financial services giant JPMorgan is the latest company to throw doubts over BHP Billiton’s Olympic Dam copper and gold expansion project.

JPMorgan’s recently recruited and well-connected mining analyst Lyndon Fagan has suggested to investors that the $20-25 billion expansion project could be on the back burner for at least three to four years.

Fagan, a former Royal Bank of Scotland analyst, joined JP Morgan last month as an executive director to cover BHP Billiton, Rio Tinto, Fortescue Metals Group as well as Alumina and OZ Minerals for the investment house which holds more than $2.3 trillion in assets.

The Australian newspaper reported today that Fagan’s latest assessment of BHP’s position ranked the expansion proposal as the least attractive of its major projects.

“Olympic Dam may not happen,” Fagan’s report said.

“Of all the major projects in the growth pipeline for BHP and Rio Tinto, the Olympic Dam expansion has the least attractive risk-return trade-off.”

The Australian says Fagan would “not be surprised if BHP delayed the first stage of Olympic Dam by three to four years to strengthen its balance sheet and focus on returns to shareholders.

“If this decision was communicated to the market, we would view this discipline as a net positive,” he said.

The Fagan report follows similar concerns expressed by Platypus Asset Management portfolio manager Prasad Patkar.

“For the amount of capital that they have to outlay, they will need a very high and stable copper and uranium price for a very long time for the board to have the comfort to be able to sign off on a project of this scale,” Patkar told Bloomberg last month.

Deutsche Bank and Citi have also forecast a delay to the project.

Analysts have interpreted the comments of chief executive Marius Kloppers last month in Miami where he told major investors there would be no substantial spending on new projects until at least June next year.

Similar comments by BHP chairman Jacques Nasser in China have sent a chill through the corridors of the South Australian government after last week’s State Budget factored in the expansion in its jobs growth forecasts.

The government’s Mineral Resources Minister Tom Koutsantonis initially took a hard line on extending government approvals for the project, but has since said he would “consider” any requests.

Under the current Indenture agreement legislated by the parliament last year, BHP has until mid-December to start work on the expansion.

Peter Ker May 28, 2012

WHEN his knee started giving him grief, Terry Burgess knew it was time to cut down on his running.

After years spent jogging between work and home – kitted out with a fluro vest and a flashing headlamp for extra visibility – the OZ Minerals boss recently turned to the Pilates mat to improve his flexibilty and strengthen his knee. ”It’s really good, but it’s hard,” he said. ”Half the people in our office are going to these sessions, I just need to get some more of the men to come along.” Yoga-inspired feats of balance and flexibility might not be the way most mining bosses spend their lunch break, but Burgess is a man who has never cared much for the macho mining stereotype.

He refuses to own a car, preferring to commute to his home – deep within the electorate that made Adam Bandt the first Greens MP to sit in the House of Representatives – by public transport or on foot. He’s set gender and indigenous participation targets across his company, and branded it as a ”modern” mining company through ads that glorify the urbane, cafe lifestyle workers can enjoy through fly-in, fly-out jobs.

He laments the industry’s failure to rid itself of its rough and tumble image, and unlike some mining bosses, he has a considerable environmental conscience. ”I’ve travelled enough places to see a lot of things we do are not right. You fly into Los Angeles and you go through that yellow cloud. You go into Hong Kong and you can’t see across the harbour for most the year,” he said. ”Those are the sorts of things you just know are wrong, like the brown coal burning – it has got to be wrong. ”There’s a lot of evidence I think that mankind is not benefiting the environment in its activities.”

While that might sound like personal views and eccentricities, Burgess insists they are also good business. ”We employ a lot of good people who are young and they come into the industry and they don’t accept these things that are wrong. They say they are not going to work for a company that does the wrong thing,” he said. ”They could be voting Green and having the same views as environmentalists, but they work for mining companies and they can make a difference. ”It all makes good business sense because if you’ve got a workforce who are happy working there, and it mirrors the normal society, then people are going to stay and if people stay, you don’t have to keep retraining and you don’t have to recruit.” Burgess points to workforce turnover rates at OZ that have more than halved from 30 per cent to 12 per cent.

 Unfortunately, turnover rates are not the only thing at OZ to have halved. Burgess will front shareholders at the company’s AGM today knowing the share price is 44 per cent lower than at last year’s AGM. While similar falls have hit other miners, there’s little explanation for OZ suffering such a decline given prices for copper have only fallen a tad, while prices for its secondary commodity (gold) have strengthened over the past year. Burgess blames general market pessimism for some of the decline, but concedes that investor impatience with OZ’s acquisition process has also been a factor.

 The company has been lugging around a billion-dollar war chest for much of the past three years and despite last year’s purchase of Rudy Gomez’s Carrapateena deposit, $750 million of remains unspent. Gomez remembers a polite and measured negotiator who largely left his acquisition staff to conduct the process, yet wasn’t afraid to step in during pivotal moments. ”I was making a presentation to his group at the Port Augusta Motel about the metallurgy at Carrapateena and he understood it more than some of his guys did. He answered one of the questions for me,” Gomez recalled this week. ”He is on the ball, you can’t put anything over him.”

While such a tribute might give some OZ shareholders confidence that the acquisition process is in good hands, Burgess admits others are frustrated by the long wait. ”Some shareholders have expressed an impatience, but I think equally they wouldn’t want us to do the wrong thing,” he said. ”If we suddenly got impatient and said we’ve got to do a deal simply because we haven’t done one yet, then that’s the time we will make mistakes. ”In the end it’s better not to do something, than do something that is going to destroy value.”

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