News Archive

UWA Business School
Prior to the global financial crisis, or GFC, as it came to be known, Western Australia was riding high on the back of the resources boom.

Thanks in no small part to mining royalties, the state government achieved a budget surplus of over $2 billion in the 2006-07 financial year. That same year, Access Economics told us that we were living through the biggest boom we were ever likely to see, and the Western Australian economy grew by 14 per cent, forcing the Reserve Bank to lift interest rates three times in eighteen months.

One year later, the global economy imploded.

At a July breakfast forum hosted by The University of Western Australia Business School and The University Club, three panellists from West Perth's resources industry examined the challenges facing the sector. Justin Mannolini, Managing Director of Gresham Advisory Partners Ltd., James McClements, Co-founder of Resource Capital Funds, and Alex Passmore, Director of Patersons Securities, discussed the impact of the global financial crisis and the entrepreneurial spirit that resides in West Perth.

While Australia was cushioned from the worst of the GFC, West Perth's mining industry still suffered, acknowledged Justin Mannolini. ‘It [the GFC] has choked off speculative capital because people were scared by it and have adopted a more pessimistic mindset,' he said. ‘You need an element of background optimism before investing in risky ventures such as mining, and that optimism still hasn't recovered to pre-GFC levels.'

The problem now facing West Perth-based resource companies, as well as governments and financial institutions, has been to find a way of restoring confidence in the market. One suggestion has been the introduction of tighter regulations.

‘While it may be tempting to celebrate our success to date, it would be reckless to say Australia's financial regulatory framework is perfect and does not warrant review in light of our experience of the GFC. On the contrary, now is the most appropriate time to examine the weaknesses exposed as a result of the crisis and those aspects requiring modification,' concluded a 2009 survey report by the Financial Services Institute of Australia (Finsia).

However, talk to mining industry insiders based in West Perth, and what everyone seems to agree on is the need to avoid over-regulation. James McClements puts it bluntly. Government's role, he said, is to ‘not get in the way.'

Mannolini agrees with this assessment, pointing to West Perth's history of self-directed growth. ‘West Perth is a business cluster that has grown completely organically without any form of external direction,' he emphasised.

‘What we have seen created in West Perth over the last four decades is a particular know-how: how to package opportunities in the resources sector so that they are attractive to risk capital. There is a system of harnessing and targeting risk capital to resource sector projects around the world which is unique to West Perth.'

Its uniqueness, according to Mannolini, is impossible to recreate.

‘There is no essence of West Perth that you could bottle and export to another sector,' he said. ‘It is the persistence of the people, their flexibility and dynamism, that capacity for reinvention that interests me. You find common networks of people and promoters behind many different endeavours, some of them failures and some successes. It's an entrepreneurial spirit.

‘These people are all hardwired with a unique DNA, a broad understanding of what is required to attract risk capital to resources opportunities. Regardless of their particular expertise, they all speak the language of the market, which is a unique phenomenon - it happens in no other place in the world.'

Yet while West Perth's entrepreneurs may like to think of themselves as unique, the city's economic and entrepreneurial strengths are already attracting comparisons to the Square Mile in London and Silicon Valley in California.

‘West Perth is becoming acknowledged as a global mining centre,' affirmed McClements. ‘This is reflected in the number of international visitors to Perth on an international basis. Technical and commercial personnel will travel here rather than the other way around, which reflects Perth's importance.'

In March this year, the Australasian Oil and Gas Exhibition and Conference attracted 9,749 visitors and 500 companies to Perth. Lord Digby Jones, the UK Trade and Investment Business Ambassador, called it, ‘The most important exhibition, in the most important industry, in the most important part of the oil and gas world.'

Whether or not this is an exaggeration, the figures are still impressive. Last year, WA's mining and petroleum industry was worth $61 billion, and comprised 85 per cent of the state's total merchandise exports. The majority of mining and resources companies responsible for these exports were based in West Perth.

It makes for an exciting atmosphere. ‘You can walk through West Perth and run into people developing projects all over the world,' said McClements. And that is increasingly so, added Mannolini, as less and less of West Perth's money is being invested in Australia.

‘It is almost getting too difficult to bring new projects into Australia,' he observed. ‘Africa, Asia, South America - and we are talking about jurisdictions outside the mainstream such as Burkina Faso, Laos, Columbia ¬¬¬- they may have a high political risk from our Western perspective, but relative to Australia, they are becoming quite competitive in terms of their competitiveness for capital. It's ironic.'

Mannolini blamed a combination of factors for this shift away from investment in Australian projects. Although he declined to comment on the proposed Minerals Resource Rent Tax (MRRT), he did emphasise that fiscal stability is important.

‘Resource investors take on significant risk, gambling on low-likelihood events which have the ability to produce spectacular gains. If you cap the potential gains, the impact can be punitive,' he argued.

McClements, too, declined to comment on the MRRT, but agreed that restrictive regulation on capital markets would be negative. Although, he acknowledged, certain regulations that have been positive and about establishing credibility - such as establishing reporting standards for ASX-listed companies - have assisted the sector.

The second factor that Mannolini cited as discouraging investment in Australian resources is the lengthy approvals process. But even more critical, he said, is Western Australia's looming skills shortage.

If West Perth's success is, as Mannolini and McClements both claim, premised on having a strong network of skilled workers - stockbrokers, lawyers, geologists, corporate advisors, engineers - then, hinted McClements, this may be one area in which the sector would welcome assistance.

Despite the shift away from investment in Australian projects, Mannolini was fast to point out that this doesn't mean that West Perth is losing any of its influence. Rather, he noted that all of these mining companies are still headquartered in West Perth - a mark, he said, of its robustness as a centre for the development of opportunities.

West Perth has survived the global financial crisis relatively unscathed. Yet times ahead will be different as the business hub develops a more global outlook in response to challenging regulatory processes and the impending skills shortage.

Where to next for mining's Silicon Valley?

Mannolini's main priority is to avoid over-regulation. ‘My hopes are that effectively things don't change,' he said. ‘There will be successes and failures, and the odd story of bad conduct, but we have to be careful that we don't kill the goose that lays the golden egg.'

Perhaps unsurprisingly, it seems that West Perth will take responsibility for clawing itself out of the financial crisis.

Justin Mannolini, James McClements and Alex Passmore were all panellists at The University of Western Australia Business School and The University Club's Breakfast by the Bay on 28 July 2010. The topic was West Perth: Mining's Silicon Valley, and the forum was moderated by Professor Ray da Silva Rosa, from The University of Western Australia Business School.

Media references

Heather Merritt
Director, External Relations
UWA Business School
T: +618 6488 8171
E: [email protected]

Professor Ray da Silva Rosa
Accounting & Finance
UWA Business School
T: +618 6488 2974
E: [email protected]