Are some mining towns too hot?

Hi Fishmeet,I live in Moranbah and things are starting to slow. There has been an influx of investors over the past 6 months and the prices as you are well aware have skyrocketed. There are alot of long term residents (20yrs +) taking the money and leaving town. This is putting more houses on the rental market and unless you have a family member that gets rental subsidy the average blo Joe can't afford $2000 a week .Investors are buying and building in underneath to make a 3 or 4 b/r a 7 b/r for the workers. I know personally of  people who have had to leave town because they don't work in the mines and rents have inceased over $1000 a week once leases come up and its more than what they earn so they have no choice but to leave town. (more rentals on the market) I heard yesterday one of the contractors who have 120 rentals in Moranbah will not be renewing any leases due to high rents. Insisting they stay in camps.There is also people starting to petition against the rents and wanting the government to step in to make it affordable. There is now a problem with staffing for the town jobs, if the families continue to leave and no new families are repaced then the wives go with them and they are the ones that staff the retail shops. ANZ is closing at 2 pm due to staff shortages and it is similar all over town. The dentist is closing due to the rent on the shop. Boalywood the shoe shop that has been in Moranbah for 20yrs + is closing as is the clothes shop next door.Signs read we need staff you tell us when you can work! The other problem is the childcare as they too are short staffed and running only 1/4 capacity due to staff so no childcare and mums cant work. It is definately a change of the times and a transition period, just not sure its for the best. Will people want to bring up children in a town full of contractors????

Yes, rents have been increasing, but it is especially true and apparent for mining towns. I think the ones who will profit are the real estate investors and property owners.

Since you've been monitoring the prices there, have you invested there yourself?

Hi Tony,

Not sure I agree 100% with this comment.

There are cases where mining companies have signalled they are 'going in' or indeed have just 'gone in' and they soon find their feasibilities were not up to scratch. Eg BHP and Ravensthorpe.

A better option, for mine, is a town where the company and its reserves are established and there are plans to increase production, upgrade facilities etc. For me this is a 'safer' bet than something in  the start up phase.

Timing your entry into a mining town is the critical issue. Additional due diligence is required of that there is no doubt.

http://www.propertyoz.com.au/Article/NewsDetail.aspx?p=16&id=5451

This may be of interest to those interested in mining area…..

I was at a property investing seminar the other day and one of the attendees said that BHP are looking at putting a whole heap of dongas in Moranbah. I dont know how substantiated the comment is, but just thought I would let you know of the “rumour”.

To understand mining you need to understand China, it’s likely growth rate and where that growth will be focused. I don’t see resources taking up such a large piece of the picture primarily because China has over focused on infrastructure builds, especially housing, that has resulted in much misspent GDP. Mal-investment is currently a major economic problem now and going forward for China. There is a consensus developing that China will grow much slower than many think and that a redirection in GDP growth to a more consumerist model will see a substantial fall away from resource consumption rates of the past few decades.

About 70% of the boom is construction of mines while the remaining 30% is actual mining itself. Given that prices for ore are almost certain to fall along with volumes that puts boom towns at the extreme end of the risk curve. The problem with investing in boom sectors is knowing when to get out due to the fact that while their rise and associated yields are spectacular so are the falls once the boom is over.

from Michael Pettis
http://www.mpettis.com/2012/03/10/the-world-bank-proposes-tough-medicine-for-china/

And how much will growth slow? The World Bank report apparently doesn’t say, but the consensus has been slowly moving down towards 5-6% annual growth over the next few years. That’s better than the crazy numbers of 8-9% most analysts were predicting even two years ago (and some still are), but it is still too high. GDP growth rates will slow a lot more than that. I still maintain that average growth in this decade will barely break 3%. It will take, however, at least another two or three years before a number this low falls within the consensus range.

And by the way when it does, metal prices should fall sharply. Copper prices have done reasonably well in the past few months as Chinese buyers have restocked, as we suggested might happen to our clients last fall. With the recent easing we may see more strength in copper over the next month or so, but I have little doubt that within two or three years copper prices are going to be a whole lot lower than they are today. Chinese investment demand simply cannot hold up much longer. (emphasis is mine)

Pettis has extensive knowledge and experience in China along with information conduits into some of the highest echelons of Chinese government. He is widely recognised as a practical, objective, non political economic commentator with regard to China so I tend to give considerable weight to what he has to say. However, taking Pettis’ comments in context with global economic events only adds veracity to his conclusions. His posts are well worth the read. http://www.mpettis.com/

Adding to Australia’s woes will be a lessening dependence on imported ore from Chinese steel mills.
http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Metals/8062951

He also said the development of iron ore mines — both in China and overseas — has gained momentum in the past few years, adding that the relatively slow development of China’s domestic iron ore mines had been speeded up and was now growing at an annual rate of about 20%, gradually reducing China’s dependence on imported iron ore and this had resulted in significant changes in international iron ore supply and demand.

By 2015 the Pilbera region alone will have an export capacity of 800 million mt/yr. That doesn’t stack well against Chinese demand at its peak …

China imported a total of 686.06 million mt of iron ore in 2011, up 10.9% year on year, according to figures from China Customs

Couple this with considerable capacity building investment in other countries I can only conclude that we are in for a sustained commodity glut lasting possibly decades. Collectively all this puts this graph in to context.

Source http://www.macrobusiness.com.au/2012/02/parko-meet-petard/

The lesson from this graph is that when commodities peak fairly quickly as they have done in recent times then we can expect them to decline as fast if not faster. This peak is one of the fastest and highest to date. It doesn’t bode well for the reset when it happens.

Could this be the start of the reset?
http://www.macrobusiness.com.au/2012/03/trade-deficit-stuns-everybody-but-mb/

There has been a massive slump in the nation’s trade performance, with the trade balance plunging almost $2 billion from a strong surplus to a large deficit in the space of a month.

The value of iron ore exports in January were down $2,154m from their peak levels reached in October 2011 ($6,275m). The fall in iron ore exports now sees coal as Australia’s largest single export commodity by value, accounting for 23.7% of total merchandise exports in January versus iron ore’s 21.4% share:

I tend to think anyone riding the resource boom in housing has limited time left to bank their gains.

The Freckle

The source for that data is the Australian Bureau of Statistics.

I don’t consider them permabears by any stretch of the imagination. There are delusional people at both ends of the spectrum between positive and negative, however, realists are often tagged one way or the other which is usually opposite to the challengers position.

It’s hard to dispute facts but then there’s those who only see in black and white. Anyone who thinks house prices will take off again sometime soon isn’t living in the real world nor understands what drives housing economics let alone national economies.

The realistic objective property investor is the one who will survive and do well over the next decade.

The Freckle

Hey fishmeet, BMA (BHP) is required to build 160 new homes in Moranbah by June 2013. This will obviously have an impact on rental returns in the area. A lot of people I have spoken to who own property in Moranbah are getting out now or have already gotten out. They have made awesome capital growth from their properties and enjoyed the immense +CF over the years but I'm afraid you may have missed the boat. You will still get a decent rental return but who will buy your house later on down the track?

Wow that was all very sobering. I have been reading and researching the mining 'boom' in Qld for the last 2 years. I am currently looking at Emerald. Anyone have any first hand experience in Emerald. I have talked to the banks and they are very keen to 'throw money' at Emerald. I figure the bank does more detailed DD then myself and from a much more fiscal perspective. Seems to me there is a huge amount of new development in preparation for the mining ahead. From what I have been reading on blogs etc, hotspotting and financial predictions there seems to be decades left in mining. As someone has already pointed out, in Qld mining is for energy more then construction, or am I simplifying too greatly. I will be purchasing in the next 2-3 months and would welcome anyone's experience