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MINING PRODUCTION AND INCOME
This analysis represents a macroeconomic view of the mining industry, and is not an exercise in adding up company accounts. Retained mining income in this context is economic income, and represents a fundamentally different notion to that reflected in Australian Industry (cat. no. 8155.0), which is based on taxation and business accounting concepts.
SOURCES AND METHODS
Gross value added
For the period 1994-95 to 2016-17, estimates for output, intermediate use and gross value added are sourced from balanced annual supply-use tables. Estimates for compensation of employees and taxes less subsidies on production are also sourced from supply-use tables. Estimates for consumption of fixed capital are derived within the capital stock model.
For detail on supply-use tables and their role in compiling national accounts estimates, see chapter 7 of the Australian System of National Accounts Concepts, Sources and Methods (CSM) manual (cat. no. 5216.0). For information on the capital stock model, see chapter 14.
Estimates for 2017-18 are derived via extrapolation from the 2016-17 estimates:
Gross operating surplus and net operating surplus are derived residually via national income accounting identities.
Net property income payable
Interest and dividends receivable and payable by mining companies is sourced from unpublished data collected as part of the quarterly Business Indicators survey, and is available from 2009-10. Data from the annual Australian Industry (cat. no. 8155.0) collection is used to backcast the net interest estimates from this point. Government Finance Statistics data for royalties received by government from the mining industry is the primary data source for the entire time span.
Current transfers payable
These estimates are derived from the Australian Taxation Office’s Taxation Statistics publications, Commonwealth government Budget Papers, and the Government Finance Statistics dataset.
Annual mining production and income statistics for the last 5 years appear below. The full time series is available in the Data Cubes section in the Downloads tab.
Table 1: MINING PRODUCTION AND INCOME, Current prices, $m
Graph 1 shows the value of output of coal, gas, oil, and iron ore, in current price terms, over the period from 1994-95. It shows the value of coal output rising from around 2004-05, subsequently moving to higher levels around the latter half of that decade. Iron ore output has outperformed coal for much of the current decade. In 2017-18, the value of output of these two commodities was almost $130 billion. Gas output has recently begun to accelerate on the back of some large LNG plants moving into production.
Graph 1. OUTPUT OF SELECTED MINING COMMODITIES, Current prices
Graph 2 shows the contribution of these four commodities, plus the remainder of primary output, to total primary output. The rising significance of iron ore is immediately apparent, as is the long term decline of oil. In 2000-01, iron ore represented 8.5% of total primary output for the mining industry, rising to 34.3 % in 2013-14. Over the same period, the share of primary output attributable to oil fell from 21.7% to 6.9%, falling even further to represent just 2.9% of primary output in 2017-18. Coal has always been an important commodity, regularly contributing between one-fifth and one-third of total primary output of the mining industry since 1994-95.
Graph 2. SELECTED MINING COMMODITIES AS A SHARE OF INDUSTRY PRIMARY OUTPUT
The increase in the value of output has been driven by higher volumes of physical production, as well as elevated prices. Prices for coal and iron ore began to rise around 2005-06, driven by stronger demand from China, and augmented by demand from other nations such as India, Japan and South Korea. Prices for coal and gas have not returned to pre-2005 levels, still remaining somewhat elevated. The coal deflator in 2017-18 is almost 6 times its value in 1994-95. Graph 3 shows the price deflators used in compilation of the national accounts for these same four commodities.
Graph 3. PRICE DEFLATORS OF SELECTED MINING COMMODITIES, Base year = 1994-95
As the industry ramped up production to take advantage of higher prices, more intermediate inputs were required. Gross value added rose because even though the industry used more intermediate inputs, the value of output rose at a faster rate. This relationship is illustrated in Graph 4.
Graph 4. MINING INDUSTRY – GROSS VALUE ADDED, TOTAL OUTPUT AND TOTAL INTERMEDIATE USE
Graph 5 shows gross operating surplus (GOS) and compensation of employees (COE), which are the gross returns to capital and labour. Returns to capital are significantly larger than returns to labour. While returns to labour rose during the investment boom, with compensation of employees peaking in level terms 2013-14, it now appears to be gradually softening. Volatility in gross operating surplus partially reflects volatility in commodity prices, with windfall gains arising from unexpected price shocks almost entirely accruing to capital.
Graph 5. MINING INDUSTRY – COMPENSATION OF EMPLOYEES AND GROSS OPERATING SURPLUS
Capital formation is recorded in the national accounts on a change of ownership basis (footnote 1). Some large construction projects, particularly in the liquefied natural gas (LNG) space, took many years to complete. Components of these projects were captured as gross fixed capital formation and therefore brought into the capital stock when ownership was deemed to have changed. In the national accounts, consumption of fixed capital is recorded for all assets in the capital stock, irrespective of whether they are actually in productive use or not.
Graph 6 shows net operating surplus (NOS) and consumption of fixed capital (COFC). The impact of the mining industry’s capital expansion can clearly be seen in the profile of consumption of fixed capital. Consumption of fixed capital exceeded net operating surplus in 2014-15 and 2015-16.
Graph 6. MINING INDUSTRY – NET OPERATING SURPLUS AND CONSUMPTION OF FIXED CAPITAL
Graph 7 shows net operating surplus (NOS) graphed against the net total of distributions paid. Retained mining income is equal to net operating surplus minus distributions, and is equal to the gap between the two series in the graph. More value was distributed in terms of property income and company tax in 2014-15 and 2015-16 than the net return to capital, which drives retained mining income negative. Retained mining income in 2015-16 is also driven negative by falls in commodity prices in that year. Large dividend payments in 2017-18 meant that nearly all of the mining industry’s net operating surplus was distributed in that year.
Graph 7. MINING INDUSTRY – NET OPERATING SURPLUS AND 'DISTRIBUTIONS' OF INCOME
FUNDING THE INVESTMENT BOOM
Assuming no capital transfers or net acquisitions of non-produced non-financial assets, the mining industry’s borrowing requirement can be approximated. Starting with retained mining income, this is done by adding back consumption of fixed capital, then subtracting gross fixed capital formation and change in inventories. These last two items represent economic investment, and the imbalance between saving and investment reflects the industry’s borrowing requirement.
Graph 8 shows that, between 1994-95 and 2010-11, the industry was able to fund its capital formation program largely from retained earnings. Elevated commodity prices between 2005 and 2011 allowed the industry to build up financial reserves as retained income. These reserves were sufficient to fund capital investment between 2005 and 2011, but were insufficient to support the larger investment boom starting around 2012.
Graph 8. MINING INDUSTRY – RETAINED MINING INCOME, CAPITAL FORMATION AND DERIVED 'FINANCING REQUIREMENT'
The Australian Bureau of Statistics welcomes feedback. For more information, please contact Jason Annabel (email@example.com ; (02) 6252 7488).
FOOTNOTE 1: For more information, refer to Feature Article: Mining Investment in ABS Publications, published in Private New Capital Expenditure and Expected Expenditure, Australia, March 2012 (cat. no. 5625.0). <back>
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