QLD mining regions (Bowen & Surat Basins & Gladstone): Willing to help anyone with questions

Hi Jack, 

You bring up a good question as many people would look at my strategy in a negative way due to the action that has happened in Emerald lately. 

Firstly, the article was written many months prior to release so the market had not changed so much. However, I was asked to produce a long term strategy. For me personally, whether someone believes it to be right or wrong, Emerald is  a part of my personal long term strategy. This is why I would suggest it to other people if it suits their portfolio. Which leads to your next point, yes, we supply properties in Emerald to our clients, one of which is yourself as you know. However, i do want to point out that we can broker deals anywhere we wanted, and we chose to deal in Emerald as one place strategically.

Emerald is a place where the market fluctuates for periods of time, sometimes good and sometimes not so good. Some facts to consider are:

– Emerald has a population of 17,000 approximately 

– Emerald has approx 50% owner occupiers

– Emerald is a contracting and service hub for the Bowen Basin.

Emeralds future prosperity is closely linked to the coal mining industry, theres no doubting that in my mind. However the fundamentals to Australias potential future coal mining industry are strong. What is wrong about it from my perspective at the moment is the following 4 points.

1. The Australian Dollar is too high. Partly due to the exponential capital being invested at the moment.

2. The unions are struggling to get along with the corporations. Disputes that have been going on for two years now have gone too far for my belief. Im not going to get into a debate about what is right or wrong. However my point of view is that it is no ones right to have a job. Therefor, our jobs and industries are not fail proof. We are putting to much pressure on the business environment in this country.

3. Two new taxes have been introduced, a) MRRT b) carbon tax. It always takes time for people and industries to see how this will, in reality, affect them. Leading up to an election, the large corporations with so much at risk always attempt to have their political sway buy afecting the enviroments and aiming to have people vote for a party which the industries believe will benefit them long into thw future.

4. The cost base of our mining industries are exponential. In fact, just last week BHP made an announcement that it was time to be more conservative with their operating expenditure. When commodity prices go sky high, the miners will do whatever it takes to get the stuff out of the ground as quickly as possible. most of the time, oblivious to costs. 

this is summed up in a statement from BHP. 

"While our resource base in Queensland is very high quality, the heavy cost of taxes, royalties, declining productivity and a strong Australian dollar means that further investment to grow these operations is much less likely," BHP CEO Marius Kloppers said in notes for a speech in Brisbane.

Read more: http://www.brisbanetimes.com.au/business/carbon-economy/bhp-blames-costs-for-stagnant-coal-output-20121017-27qp3.html#ixzz29uSMHVt9

When all of the 4 factors sort themselves out to some extent, we will be back on track. times like these have happened before, and they will resolve themselves, and most likely happen again. 

Back to Emerald. It will also be the hub for many future projects, which will, at some point, go ahead. I would recommend for everyone to due a lot of due diligence into the mine closures at present as there is a lot to be understood about them.

As investors follow each other, i believe we will not see many new properties being built from July next year. This will, as it has in the past, provide time for the market to soak up an increase in rental properties which have been bought, usually at inflated prices, to investors who jump on board with the hype without understanding the market fundamentals or even its short, medium and long term outlook. This will see rents increase when, inevitably, there is limited supply and high demand, and investors will, once again, push the market even higher than the average. 

Finally, my risk mitigation strategy for my client profile in YIP was that they need to have a property, which, at the least, pays for itself. I believe that Emerald will provide this to investors assuming you don't pay too much for your property. 

I hope this clarifies my point of view and understanding. 

Cheers