Mining Towns

Mining towns can be high risk.  Not only are they affected by the national/local economy but mines are also affected by international events, exchange rate fluctuations etc.

Don't think that just because the company controlling the mine is big that it won't close the mine eg BHP – Ravensthorpe

Mining workforces are mobile, often employed by contractors rather than the mine.

If investment in mining is part of your portfolio, that will reduce your risk rather than if it is the whole.

I've done well in a small mining town – PPOR purchased 2000 sold 2006 – doubled, industrial property purchased 2004 appraised at slightly more than double now (in a town which 2 years ago lost 400 plus jobs)

Less risk – look for the regional town/city that services the mining region.

Look at rocky and emerald rather then a town that is soleley reliant on the mines,

or research research and get into towns that have a mine going to happen in a few years.

A few years back I bought 3 properties in small mining towns in WA. 

In one of the towns, everything that could possibly go wrong did. 

1. The mine closed down. 
2. The 'property manager' recommended by the real estate agents turned out to be a crook whose idea of good property management was to collect rent from 50 houses but not pass it on to the owners. 
3. The guys that looked after maintenance left town. 
4. My property was vacant for pretty much the entire time I owned it and was broken into multiple times. 
5. It was uninsurable. 
6. The mining company decided to dump their entire stock of housing on the market at any price they could get for it.
7. I sold it a little while back and had to put money in to allow the sale to go through!  OUCH!!!  However, I still pinch myself with relief that I no longer own this nightmare property.

The other 2 properties, in another town, have fared much better.  They have still been challenging, but nothing like the first one.  I have long term tenants in one of the properties who want to buy it and therefore treat it like their own.  The other property is lower quality and the level of tenant has reflected that. 

Both those properties have theoretically increased in value significantly, however there are currently no sales comps because the agent (from a town 200km away) who was servicing the area suddenly disappeared and it took a while for another agent to succumb to the pressure to take on this place.

Personally, I would not invest in a tiny mining town again.  There are so many challenges to overcome and everything is difficult because tradies and supplies have to travel a long way.  Plus, mining companies seem to pull in and out of these towns on the slightest whim.

Having said that, there are also some upsides so I have had some fun along the way. 

• The people are WAY different to your average Jo. 
• Tenants understand that a mining town house will not be the same as a city house. It is NOT uncommon for tenants to organise repairs themselves then just casually tell you in passing. 
• The locals are very friendly and helpful.  Once you befriend the right person, you'll get random texts saying things like "hey I notice your house looks pretty quiet, do you want me to go and check if your tenant has done a runner?" 
• The cops and the people in the shire will actually tell you stuff you need to know. 
• The towns themselves are pretty funky and quite fun to visit for maintenance trips.  Having dinner in the local pub after a hard day of work is…..memorable.  If a groovy modern song starts up on the jukebox, one of the locals will go and hit it, and everyone else will cheer.  You will be the only one who wished to hear that song, so naturally you will stay very quiet.

Hi Cath,

Thanks for your post it was an interesting read.  I appreciate it when people post about the challenges they faced with an investment.  It sounds like you've kept a really healthy attitude through those times.  Well done!  I wish you luck in your future investments.

Andrew

HI

I have a propery in Bowen Qld and was told  that many projects would be kicking off from 2007 including Chalco. This has turned out to be incorrect.

I try and keep in touch with the locals and they all talk about the many projects about to start.

Does anyone know the real story with bowen and whether there is any likely movement this year. I have a property which is costing me a fortune to maintain and have been told that the rental vacancy is high and that the fruit picking season is bad this year. This means rental vacancies will continue to be bad.

A local also told me that they there is a new mining camp being built along with the 700 man camp already in existence. This is not good considering there are over 100 vacant properties in bowen at the moment. I would greatly appreciate any insight into whether this the case and whether I should be pulling out of Bowen asap.HAve a baby onthe way and can't afford a high risk investment.

I would also welcome any feedback if you can recommend a real estate agent as mine thinks property management is about shuffling paper only.

Thanks in advance.

Mjc

what town have you brought in?

Hi Christine,

There’s already been some excellent feedback on this topic already – especially Cath Wood who provided an interesting perspective of the pitfalls of mining town investments.

As Crj pointed out, Mining Town property investments are inherently more risk than Capital City property as investors are exposed to both commodity price risk and changes in macroeconomic cycles. Despite this, investing in an over priced Capital City Property is much much riskier than investing in a modestly priced positive cashflow Mining Town Property. The point I’m trying to make is that it’s all relative and comes down to making smart investment decisions – for all property types.

The fundamental property investment principles remains the same in any type of property investment. Buy cheap, sell high. Look for a high yield, aim for cash flow positive if possible and hope for capital gains. Mining Towns properties on average are generally not fantastic capital gain performers but usually offer excellent yields. Investors should expect positive cash flow versus fantastic capital gain potential (unless you timed it at the very beginning of a mining boom for that town, in which case you may have spectacular capital gains).

Given that the economics of Mining Towns are directly correlated to economic cycle and commodity markets, it’s critical that an investor conducts further research on the Mine, Mining Company and even Analyst outlook of the commodity itself. Some thought should be spared to consider technical due diligence issues such as understanding the nearby mine’s deposit and reserves, mine life, what the brokers are saying about the Mining Company.

If possible, attempt to lease the property to the mining company who can offer guaranteed rent for their fly in fly out employees over fixed term contracts (3-5 years) with a clause that allows for rental review on an annual basis given that the rental market changes quite dramatically in mining towns.

Ideally, you would want to invest in a mining town that is exposed to several long-term mines run by blue chip companies (the BHP, Rio, Vale, Macarthur, Newcrest and even FMG of the world). Avoid single mine towns that are exposed to small-caps or unproven deposits.

Despite the risks, some astute investors have made spectacular returns from investing in mining town property. For inspiration, take the Maloney family as an example. http://www.smartcompany.com.au/wealth/20101018-mining-services-rich-lister-kevin-maloney-eyes-340-million-payday.html

Kevin Maloney founded The Mac Services Group, a once private company that specialised in mining town accommodation to the major mining companies. The Family made over $300m last year after selling their 50% equity stake in the company to a foreign conglomerate. They made a fortune out of Mining Town Investments because they made smart investment decisions and negotiated fantastic contracts (guaranteed rental contracts with blue chip mining companies).

Good luck and let me know if you have any questions.

Cheers,
Jase

Pinkboy,

Could’ve hedged your spending in MAC camps by buying shares in the company. The share price performed fantastically in the 24 months leading up to their takeover. Could’ve made all your money back and more.

Just a thought.

Jase

Hi Cath,

I loved reading your story.  Indeed, we all learn from each other.  So thank you.

Here's another one.  Five years ago I wanted to invest in a big mining town.  A block of 5×1 units, all making a killing.  Ask BIG bank for a loan, they came back with, "Ok, approved but only for 15 years loan term."    Why?!

This big bank, like all big banks, have fund managers and resident industry experts who not only research the resources but HOW LONG these resources will last.  Remember Kevin Rudd?  Remember when he said these resources will not last forever?  Well, the man was telling the truth.

Back five years ago, the bank told me they estimate that this major mining town has mines to last 20 years; therefore, the loan term is only for 15 years.  Because they don't want to be left holding the bag.  In 15 years the value of the property will plummet as the live of the mine gets close to extinction. I bailed out of the deal.   I didn't want to be left with the bag either.

Sometimes, going with a big bank with massive research team behind them is a good thing.

Take care.

Angelina

see past comments;

MOURA, BLACKWATER, MORANBAH;

https://www.propertyinvesting.com/forums/property-investing/general-property/4331782