Are mining towns safer than you think?

Are mining towns safer than you think?

Posted on Tuesday, November 06 2012 at 3:55 PM

We’ve heard time and time again that mining towns are ‘risky’, but consulting group RPS believes they’re actually quite safe.

The company
conducted a research study and concluded certain locations are able to provide
excellent rental returns and capital growth without the associated high-risk
profile. This was especially the case for larger towns, where they:

had a
critical mass of population;

diversified local economies or exposure to multiple commodities;

moderate land supply;

a regional service role;

exposure to major LNG (liquefied natural gas) or CSG (coal seam gas) energy
projects; and

recipients of state and federal government funding.

Manager and
senior economist for RPS, Mark Wallace, says investors often overlook mining
towns due to perceived volatility, when in fact all they have to do is conduct
more research.

“RPS found there
were a number of towns across Australia that offered an excellent investment
proposition, with strong returns and below-average risk profiles, including
Karratha in Western Australia, Emerald in Queensland and Singleton in New South
Wales,” he says.

“All these
locations met the criteria and were offering rental returns between 5.7 to 10.4
per cent per annum respectively.

“This was because
these locations had robust population growth and supply of property to ensure
that they had a more normalised real estate market, but were also fuelled by
their ability to mine and supply energy related resources, being either LNG or

“Often the market
gets caught up in the short-term volatility in iron ore and coal spot prices,
thinking those movements reflect the current mining boom. But Australia’s
future is as a major energy supplier and the longevity and certainty of LNG supply
contracts tend to stabilise the economy and provide a buffer from overseas

Karratha property
prices have grown 324 per cent in the past 11 years, while Emerald has
experienced 269 per cent growth and Singleton 171 per cent.

In addition,
rental vacancy rates ranged from just 0.6 per cent through to 4.5 per cent.

Wallace says
investors are unaware capital expenditure by the mining sector over the past
three quarters has exceeded $65 billion, or more than what was spent during the
entire 2006 to 2008 boom.

“While iron ore
and coal played a predominant role in the previous mining boom, the current
capital expenditure pipeline is dominated by both onshore and offshore natural
gas developments.

“Projects such as
Gorgon, Pluto and Wheatstone in Western Australia and coal seam gas
developments in the Bowen and Surat Basins of central Queensland are currently
driving investment. In fact, of the $260 billion of advanced mining projects in
Australia’s current investment pipeline, over $193 billion or 76 per cent is in
energy projects.”

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