Extract from 'On Mining and Minerals'

Sir Arvi Parbo

The following text is a substantial part of a speech which Sir Arvi Parbo AC gave to the Melbourne Mining Club on 9 August 2001.

Although he covered many issues, some of which are included below, of greatest interest to the Lavoisier Group is his commentary on the Kyoto Protocol.

Nothing is ever completely black or white, and there was a great deal of merit in, for example, the concern for the environment emerging in the early 1970s. It was, however, a gross exaggeration to portray the minerals industry as incompatible with environmental care. While there were some poor examples from the past, a number of companies had already recognised the need to minimise and control effluents and waste and restore and regenerate mined out areas. On the positive side, the publicity no doubt encouraged these companies to go further, and induced others to follow. Today, Australian mining companies are world leaders in land rehabilitation, helping to re-generate large areas of degraded farmland.

Failure to Understand

The reaction of most of us in the industry at the time, including myself, was conditioned by the longstanding preoccupation with mainly technical matters. We considered what the critics said, made some adjustments to the way we worked, and concluded that the rest did not make sense. Nonsense cannot be pursued far in engineering, so we expected that it would also go away in the public arena. We therefore took little action to counter the negative views in public and got on with the job at hand.

We made the mistake of not understanding that in politics there is no such thing as automatic rejection of what does not make sense. Great empires have been founded on false ideas. Given enough pressure by skilful activist groups, what does not make sense has an excellent chance of becoming public policy. Some of it has in recent decades.

Informing the Public

Subsequently the industry recognised that the very best technical performance does not guarantee success if public opinion and public policy are unfavourable. Much effort has been devoted since then by industry associations and individual companies to both putting our house in order, and informing the public. Sustainable development has become a key concept. Companies are increasingly publishing extensive reports on their environmental, occupational health and safety, and community support activities in addition to financial and operational reports. One important lesson learned from this has been that it is essential to be open and honest, 'transparent' in current jargon. The worst thing to do is to leave the impression that one is trying to hide or gloss over something.

Today the stage has been reached where it is becoming important to remember that the fundamental responsibility of private enterprise is to create economic value. It is appropriate and legitimate to ensure that all the various parties affected by a company's activities are treated reasonably and fairly, and that any adverse effects are made good. It is in the companies' interests to work in a favourable community environment, but it is not the proper role of private enterprise to become a community welfare agency. The dividing line can become fuzzy and the pressures are always for more involvement. Companies need to think very clearly when defining their policies.

Inevitably, there are activist groups, the existence and continued influence of which depends on exaggerating the issues they are pursuing. In extreme cases the last thing such groups want is finding a way in which their professed concerns can be met. Fortunately, the public eventually sees through such tactics and the extremists lose their public support.

Truth a Casualty

Regrettably, truth is not always an important concept in public debates, as has been well explained by American climatologist Stephen Schneider:

The well known love of the media for a good story can aggravate this. The current issue of possible climate change is an example.

Climate Change?

I have been trying to keep an open mind on climate change, listening to the arguments of both those who say there is a serious problem and others who say there is not. It is therefore a matter of real concern that a friend of mine who has been involved at a senior level in the International Panel on Climate Change confirms that the Panel's conclusions have been 'significantly misreported' in the media. As to why the Panel does not correct such misreporting, he says that they have tried, but failed.

Here we have a situation where much pressure is being put on governments to take certain actions which would have profound consequences for their citizens, while these citizens are being misinformed. Worse than that, I am also told that the Kyoto protocol, which is such a heated issue at present (no pun intended!) will, if implemented, do very little to resolve the problem if there is one. To stabilise the carbon dioxide concentrations would require a reduction of about 80% in the present worldwide emissions (not just by the parties to the Kyoto proposal) which is clearly not possible. If carbon dioxide emissions cause climate change, the world will to a large degree have to adapt to it.

This may be well understood by scientists but it certainly is not understood by the public, who think that those who decline to ratify the Kyoto protocol are condemning the world to something dreadful which they could prevent. I did not understand it fully until quite recently.

The explanation for not highlighting this important aspect of the issue is that 'it would provide an easy excuse not to do anything'. It seems that the Schneider logic of those in the know being entitled to choose between 'being effective and being honest' is being applied.

Similar less-than-truthful techniques are known to be used by groups pursuing other issues. One famous example is the speech attributed to Chief Seattle of Puget Sound Indian tribes in 1854, referring in moving words to their ancient harmonious relationship to the environment. Although subsequently admitted as being not the words of Chief Seattle but written by a scriptwriter for a TV documentary in 1972, the bogus speech became the basis of much publicity and a widely distributed environmental book for children, even after the scriptwriter had informed the publishers. It was apparently another case of deciding that honesty did not matter.

It seems that the ideological and political aims of those promoting various causes can become to them more important than the truth.

The World a Better Place

We are told every day that what we eat or drink is poisonous or at least not good for us, the air we breathe is polluted, new illnesses are attacking us, our jobs are unhealthy or too stressful, and so on and so on. Disaster is in sight, and the end of the world is approaching.

If this is so, why is it, then, that on the average people now live longer and the average age continues to increase? In Australia, the average age of men at the time of Federation in 1901 was 56 years; it is now 76 and continues to increase by one year every five years. Women do even better; from an average of 58 in 1901 their average lifespan has increased to 81 years today.

If this continues, by the end of this century 100-year olds will be as common as 80-year olds today. Together with the decline in the birthrate in all countries with high living standards to below the replacement rate, this introduces a real problem---the ageing of the population and its economic and social consequences, but this is another topic.

What we are told is clearly greatly exaggerated. It is easy, and always will be, to be unhappy with many things that are happening, but on balance the world is a better place to live in than it ever has been. It just seems a pity that we can't all channel our energies towards making it an even better and a more rational, sensible, and truthful place as well.

The Future

Let me now ruminate on what might happen in the Australian minerals industry in the future.

Looking back over the last fifty years, I have come to the conclusion that my ability to predict the future is minimal, and that virtually nothing is impossible. A story I recently came across in one of the airways magazines illustrates the second point rather neatly.

The rescued crew of a sunken Japanese trawler was reportedly jailed after authorities disbelieved their incredible story. The sailors claimed a cow had fallen from the sky, shattering the ship's hull and causing it to sink in a matter of minutes.

Some time later, it is said, the crew of a Russian Air Force cargo jet admitted to having 'apprehended' a cow which wandered too close to the edge of a runway at a Siberian airport, loading it aboard their aircraft. Everything was fine until the cow went on a rampage in the cargo area, high above the Sea of Japan. To save their own hides and the aircraft, crew members lowered the aft cargo door and shoved the poor heifer out. So much for the impossible!

Predicting the future is not an occupation in which you would wish to be paid by results, and predictions of the future of the minerals industry have not been great successes. To mention just two instances, the Presidential Commission convened by President Truman in 1950 to assess the demand and availability of minerals for the next 25 years took advice from the foremost experts at the time. In the event, their predictions were well out in just about every aspect of their report.

The well publicised Club of Rome report 'Limits to Growth' in 1972, which gave great impetus to the extremists in the environmental movement, predicted that the reserves of energy and minerals and metals would be exhausted within a short time, some as early as in the mid-1980s. The report was seen as having particular authority through being one of the early computer studies. The authors may have been experts in computers, but they certainly did not understand the dynamics of mineral exploration and the nature of mineral reserve estimates. After very substantial consumption in the intervening years, the known reserves of all metals and minerals are greater today than they were in 1972, while the prices in real terms are lower.

In principle, the future of the Australian minerals industry depends on the answers to four questions:

1. Will there be a continuing world demand for the products?
2. Does Australia have the mineral endowment to supply a part of this demand?
3. Will it be possible for the industry to explore for minerals and, if successful, bring the discoveries into production?
4. Will the Australian minerals producers be competitive in world markets?

Demand for Minerals

Not long ago it was seriously suggested that a fundamental change had occurred in world economic and business activity. It was argued that the great advances in information and telecommunications technology had created a new economy, and that industries in the 'old economy', including the minerals industry, were becoming unimportant. The annoying economic cycles and constraints had been abolished. Spectacular action on the stock exchanges where fantastic fortunes were made overnight seemingly out of nothing appeared to confirm that the inconvenient business of making a living by actually producing something was out of date.

The equally spectacular crash of the dot-coms and the downturn in the world economy in the last year or so have brought us back to earth. The advances in information technology and telecommunications are real and have certainly opened up vast new opportunities to improve the way we live and work. They have created new industries and are being used by the minerals industry and others to great effect in making these industries more effective and efficient, but they do not make minerals production redundant.

The demand for minerals continues to grow. While many people in the developed countries may well be approaching a saturation point in their standard of living, the majority of the world's population---those less well off in the developed countries and virtually the whole population of the developing world---have a long way to go before reaching a living standard with which they are satisfied. The population of much of the developed world has reached a plateau and has started to decrease, but in developing countries it is still increasing rapidly. All in all, there is no doubt that there will be a growing demand for the products of the minerals industry.

Australia's Mineral Endowment

There is also no doubt that Australia continues to be highly prospective for the discovery of new mineral deposits. To turn this potential into additional proven deposits requires exploration success in greenfields areas, and to ensure the future of the industry it must be possible to bring the discoveries into production. It is in this area where the outlook is less certain.

Ability to Explore and Develop

The present production and further growth of the industry comes largely from major deposits discovered many years ago, and their extensions. Large mineral developments have very long lead times from discovery, let alone the beginning of exploration, to production. Australia should be now discovering the orebodies which will be the main producers 20 to 30 years from now. In spite of continuing improvements in exploration technology, this is not happening.

The reasons are complex and you should ask someone now active in exploration to explain the problems, but it is essentially a question of access to prospective land and assurance that any discoveries can be developed into profitable production.

Restrictions on access to land with mineral potential in Australia have coincided with increasing globalisation of the world minerals industry. The markets for Australian mineral products have always been international, with virtually no obstacles to trade across national borders. In recent years national barriers to exploration and production have also virtually disappeared. Many countries, particularly in South America, Asia, and Africa, have areas of high mineral potential and are now actively encouraging international participation in their minerals industries.

While no country is free from problems and their attractiveness for making such investments varies, Australia does have serious competitors for the scarce resources available for exploration.

Australia's Competitiveness

In general, Australia's minerals are at present competitive in world markets. The low exchange rate of the Australian dollar assists in this, although it is a double edged sword because it also means that the market value of Australian companies in, say, US dollar terms, has been reduced.

Maintaining competitiveness is, as we all know, an ongoing battle. Our competitors in other countries are continuously improving their productivity and efficiency and we must at least match them. We can never relax.

Australia is in the forefront of exploration, mining, and minerals processing technology, through to metals production and fabrication, and a world leader in innovation. I am told that over 60% of the world's mines today use computer software created by Australian companies. Exports of minerals industry related intellectual property in 1998-99 amounted to $1.2 billion, greater than the exports of Australian wine in that year at $900 million. E-commerce is being applied successfully to purchasing and international trading of metals.

One possible concern regarding future competitiveness arises if something like the Kyoto protocol results in the introduction of what is in effect a tax on energy in Australia.

A significant proportion of Australia's production of aluminium, zinc, copper, and nickel is exported as highly refined metals, consuming large amounts of energy. As I understand the Kyoto proposal, Australia gets no carbon dioxide credit for producing metals for use in other countries. Depending on the increase in energy cost in Australia as a result of applying a tax on carbon, it may well become necessary to do the refining in one of the developing countries which are not affected by the Kyoto proposal. The carbon dioxide emissions will be no less, the only change being that the metals refining industry has moved from Australia to elsewhere.

Did I hear you say that this is just too silly and therefore can't happen? Well, let us hope so.