Western Australia keeps border shut to protect world-leading mines

Western Australia, the country’s largest and most mineral-rich state, was due this week to finally open its domestic borders after two long years operating as a “hermit state”.

But the rapid rise of the Omicron coronavirus variant prompted an abrupt reversal of that plan. Mark McGowan, the state’s premier, broke the news late last month that the border would remain closed indefinitely, leaving its population in limbo and sections of the business community deeply frustrated.

Rob Scott, chief executive of Perth-based retail conglomerate Wesfarmers, opted this weekend to relocate to the east coast of Australia. The company said in a statement that it was now “virtually impossible to run a national business from Perth” and questioned the need to keep the border shut and maintain lengthy quarantine protocols. “Unfortunately, in WA we remain in limbo and we need a plan for how we move forward,” the company said.

Western Australia is home to many of the country’s largest mines, ranging from the huge iron ore pits in the Pilbara operated by BHP, Rio Tinto, Fortescue Metals Group and Hancock Prospecting to smaller operators digging for nickel, lithium and gold.

The border closure has played a large part in protecting the country’s mining industry from the worst ravages of the pandemic. Omicron has begun to penetrate the state, with the first case confirmed at BHP’s Yandi iron ore mine last week when a train driver tested positive, forcing 70 of his colleagues to isolate.

Covid-19 cases, which have had a devastating effect at mines outside the state, have been rare. But the closure of Western Australia’s borders has also led to a labour shortage, particularly of train drivers, mining and electrical engineers, geologists and geophysicists.

The heads of the largest mining groups met McGowan last week to discuss the prolonged travel restrictions and how to improve the flow of specialist skills into the state with a more workable quarantine system.

Elizabeth Gaines, chief executive of Fortescue, warned on an investor call that keeping Western Australia closed off threatened to deepen the labour shortage and said it was “disappointing” there was not a defined plan for easing the border controls.

The mining company is gearing up to complete its A$3.5bn (US$2.5bn) Iron Bridge project in the Pilbara and said last year that the cost of the development had already blown up partly because of worker shortages.

“The lack of clarity on the reopening of WA’s borders may lead to an exacerbated shortage of labour and skills,” she said.

Smaller operators including Western Areas, a nickel miner that runs the Spotted Quoll and Cosmos mines, have also warned of a labour shortfall, while Ramelius Resources, a gold miner in the state, on Friday forecast lower production.

RBC, the investment bank, said: “Labour issues appear to be biting.”

Many mining workers, including at Fortescue, travelled to other states for the holidays believing they could return in February, but they are now struggling to get back as planned.

Jakob Stausholm, chief executive of Rio Tinto, has travelled to Melbourne from his London base but would need to undergo Western Australia’s two-week quarantine if he were to see the company’s main assets in the west now the border reopening has been postponed. “Can I get into WA? Who knows,” he told the Financial Times.

The state has only recorded 1,551 cases of Covid-19 since the pandemic began but remains vigilant for an outbreak of the highly infectious Omicron variant that has rapidly spread through other states. Twenty new cases were recorded this weekend, mainly in one cluster linked to a Perth club night, but the positive Pilbara test has underlined the difficulties of remaining “Covid free”.

Australia initially adopted strict border closures internally and internationally, which helped keep its toll of infections and deaths comparatively low. Most states relaxed the restrictions, however, after vaccination rates increased and in response to accusations that the border closures infringed on citizens’ rights. Only Western Australia has kept its border closed.

Jakob Madsen, professor of economics at the University of Western Australia, questioned how much of an impact the border closure has had on the labour market, noting there was already a shortage in the industry due to a mining boom that has been heightened by some workers’ unwillingness to get vaccinated, a government requirement.

Meanwhile, the overall labour market in the state remains tight, with unemployment below the national average at 3.4 per cent. Madsen argued that the government and industry had not done enough to promote educational courses and apprenticeships in recent years to fill those gaps.

Glyn Lawcock, a mining analyst with Barrenjoey, said however that the rapid spread of Omicron could lead to a much bigger problem for large miners than the labour squeeze.

“Absenteeism was as high as 25 to 30 per cent” at mines in other states with high levels of Omicron cases, he said, noting that some assets “were within a whisker of being shut” last month.

This was evident in BHP’s operational review this month when the country’s biggest miner warned that high levels of worker absenteeism threatened its core iron ore outlook.

The impact of a similar outbreak in the Pilbara region could be devastating not just for Western Australia, or the country’s economy, but for the world, said Lawcock, adding that the state was responsible for 60 per cent of seaborne iron ore and half of global lithium output. “It is an economic juggling act,” he said.