A mining boom has three stages

Each with different economic benefits and payoffs.

  1. Design stage This kicks it all off after miners first detect a surge in demand and scramble to plan new project. It continues until they decide exactly what to build and where. It’s usually accompanied by rising commodity prices and rising terms of trade. Importantly it doesn’t bring much to the economy aside from a few jobs in engineering and geology. Australia entered this stage around 2005 after it become clear Asian demand for Aussie dirt was soaring.2.
  2. Development stage This stage covers our investment boom that’s just ending. Miners taking advantage of rising prices and demand set about to build and expand mines and related infrastructure ie rail, airports, ports etc. Foreign investment flows in and armies of construction and engineering types fly in fly out of regional towns near mine sites. It also generates what economists call ‘backwards multipliers’ which in plain English refers to the multiplier effect also known as carry-through effects  of miners buying huge amounts of engineering and mining equipment from local suppliers. We entered this stage in 2007 and of all the stages this one brings the most direct benefit to the economy. But this stage also played havoc sending the dollar through the roof, decimating export exposed industries and leaving us with a patch work economy.
  3. Operational stage We’re transitioning into this stage now. Mining companies that have spent billions building mines are seeking a ROI as they transition from being mine builders to mine operators and begin producing dirt for export. During this stage announcements of new capital expenditure by mining companies taper off , heaps of high paying mining jobs disappear, and once thriving regional communities start returning to quieter times pre 2005. The rest of us meanwhile start enjoying higher share dividends, and the benefits of the governments get a surge in company taxes to build (hopefully) roads, airports, train lines and so on. Interestingly both Rio and BHP have just announced record iron ore production rates signalling the emergence of this final stage.

Well that’s all folks and while I am at it, let’s not forget the world is also a stage.