5 tricks for timing your investment in a mining town

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1. What’s being dug up?
The current demand and more importantly the forecast future demand for the mineral or gas will have a big bearing on the future health of the local economy and property market. There needs to be clear indication of long term demand and profitability for the product coming out of the ground.

The regions that are currently benefitting the most from the demand for resources are associated with iron ore, coal and natural gas, with the Pilbara in WA leading the way followed by North Queensland then the Northern Territory, with SA showing latent potential. 

2. What cycle is the town in?
As in all property markets there will be a typical cycle. Some might describe this as "boom to bust".  Within this cycle, the growth phase can be more prolonged than other property markets and is driven by external factors rather than just market emotion. This includes increased demand for resources, mineral or gas prices, infrastructure spending, mining expansion from exploration to extraction, rapid increases in the workforce as new contracts are awarded, the availability of land or lack thereof, for property development. 

This tends to drive property values and rent up in spurts rather than linear growth. In between these growth spurts you get a plateau where the market forces stabilise for a period, which are the points to look for to enter the market to get set for the next market upsurge. 

The timing of entry and the phase of the mine life cycle are very important to get right. 

3. How many mines are there?

Sustainable towns have many mines. This is significant for building momentum in the local property market and long term tenure. The impact of a mine closer or workforce reduction on a 'one mine town' can be devastating to the local community. An example of this is the impact on Hopetoun in WA after BHP's Ravensthorpe mine closure in 2009. 

4. How much infrastructure is there?
Towns that will do the best (from an investment standpoint) long term have significant infrastructure spending In areas such as port, rail and roads, hospitals and schools, local shire development and beautification programs,  coupled with property development such as hotels, apartment buildings, commercial buildings as well as house and land. They will have a diversity of industry and not be supported by just mining, and will have future projects in the pipeline – both Shire and State coupled with big business spending.
Typically the bottleneck or choke point that has caused many mining town land prices to soar so dramatically is the shortage of land and the delays in making new land available for development by local council. In essence, forward planning has been caught out or non-existent and reaction to the demand increase has been slow. 

In time, more land will eventually be brought on stream to sate the demand in many cases, which could well help to stabilize or reduce sky high land values. The towns to look for have long term sustainability, diversity of industry and diversity of infrastructure, which are well supported by one or more large mining companies. 

5. How long are the mines likely to be around for?
The lifespan of the project is determined by the size and quality of the resource deposits, as well as the long term demand and profitability of the resource. You would want to know the forecast lifespan of the mines in the area you are targeting.
Presently, Australia’s resource industry is in the grip of an Asian lead economic expansion, with China being the dominant force with their near insatiable demand for the raw materials for making steel. Coupled with this are more recent developments for the supply and export of natural gas and coal seam gas. 

When conducting risk analysis in a given mining area we need to be concerned with questions such as the long term mineral price forecast, the long term demand forecast and what is in the pipeline.

Our largest export commodity is iron ore (followed closely by coal), which is currently fetching around $150 per tonne, and has been as high as $200 per tonne in the recent past. The cost of getting the ore from the ground varies but is circa $25-40 per tonne. Current demand is from China, Japan and South Korea and is considered 'robust'. 

Future demand is forecast to increase (with demand expected to come from India in the future also) to the point where the three giants of the iron ore game, BHP, Rio Tinto and FMG are expanding their infrastructure to allow a doubling or even trebling of volume over the next 10 years.

Port Hedland is the main beneficiary of BHP's port and harbour expansion, with circa $50 billion being spent on port and rail infrastructure to take their iron ore operations from circa 150 million tonnes to 480 million by around 2020. 

The economic spin off for the local economy is massive, with the town population expected to grow from the current 15,000 to an anticipated 50,000 by 2035 (figures from Town of Port Hedland). 

Looking for more mining investment tips? Why not attend the Property Investors Forum – Melbourne, where Ian Hosking-Richards, director of Rocket Property Group, will explain how to cash in on Australia’s resources boom.

Among many other topics, Hosking-Richards will discuss buying strategies, how to select the best mining towns and the risks and rewards of dipping your feet in a mining town.

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