Miners cry havoc over oil prices By Nigel Wilson, energy writer 12sep00

SURGING international oil prices are adding millions of dollars a week to mining industry costs.

BHP estimates that in the past three months its diesel fuel costs for its Pilbara iron ore mines have increased 48 per cent. These BHP operations use about 120 million litres of diesel a year.

At Rio Tinto, the country's biggest iron ore producer following the takeover of North and its Robe River joint venture, the cost increase is less but still 30 per cent.

Fuel affects miners in three ways: in moving ore and overburden; in electricity generation for remote sites; and in substantially higher rail and sea transport charges.

Crude oil price are about three times what they were 18 months ago, a rate of increase that is playing havoc with miners' business plans.

But the sharp decline of the Australian dollar against the greenback is helping some companies, though according to industry analysts most would have accepted banking advice to hedge against currency movements last year.

Diesel production is directly related to heating oil and it is the shortage of heating oil that is driving the international crude oil price higher.

The market is predicting a cold winter in the northern hemisphere and a shortage of refinery capacity to meet demand.

Bryan Nye of the Australian Institute of Petroleum said yesterday the crude oil price rise had resulted in the landed price of diesel in Australia increasing to 49.1c a litre, from 37.5c at the beginning of August.

"This has a significant impact on the costs of all sorts of people and, because of the heating oil link, diesel can be expected to continue to rise," he said.

Roy Masters of the Transport Workers Union in NSW said owner/drivers were screaming at the increase and the failure of the Government's diesel tax rebate system, designed to smooth out city and country prices.

Drivers' margins were being squeezed and there was no relief in sight.

Peter Lalor, chief executive of leading gold miner Sons of Gwalia, said diesel was costing the gold mining industry "tens of millions a week" in extra costs.

As well as higher costs for trucking ore and waste material, gold miners in remote areas were facing huge increases for electricity generation.

Mr Lalor said the mining industry generally was also beginning to feel the impact of high shipping charges resulting from rising oil prices since the beginning of the year.

But the Government has set itself resolutely against ending world parity pricing for Australian oil products and dropping excise indexation.

Industry Minister Nick Minchin said to do so would destroy the Australian oil and gas industry and thousands of jobs.

http://theaustralian.com.au/common/story_page/0,4511,1189576%255E643,00.html

-- Martin Thompson (mthom1927@aol.com), September 12, 2000