Despite recent project cancellations, falling commodity prices and costs blow-outs, those in the West Australian E&R industry are optimistic about 2013. A number of large miners have downgraded forecast earnings, delayed expansion projects and shed jobs in the past three months, but according to senior E&R industry lawyers, the west is not bust yet.

“I think the market for mining, energy and resources is still strong,” said Robert Edel, head of DLA Piper's mining and resources practice in Australia and recently appointed head of the firm's global mining sector practice. “Some larger projects have been put on hold for the time being, but there are many others proceeding to development.”

In addition, Edel is optimistic about the impact of those projects not going ahead for the time being as those projects that do not begin now will take out some of the demand from the market for labour and resources, thus helping to keep costs contained. “Cost escalation has been driven by the tight market for sub contractors and materials,” he said.

Herbert Smith Freehills Perth partner Justin Little has also seen costs impacting the viability of projects in the short term, but he also remains optimistic about what the next 12 months might bring. “We are in a period of sustained growth, we may not see the levels of growth we have seen… but it is an industry that will continue to grow,” he said. “It is only one aspect of the market has fallen away, and that is the new project development.”

He added that unlike mining, the energy sector, in particular the LNG sector, was continuing to grow but that it too had come up against costs issues, as seen with the announcement by Chevron that its  Gorgon liquefied natural gas project, has  had a A$9 billion blowout.

Both lawyers are also optimistic about increased M&A activity in the New Year as a result of continued tight credit and IPO markets. “I think next year we are expecting more M&A activity; what we have seen in the past three or four months is buyers and sellers of resource companies are getting their prices more aligned,” said Little.

Edel added: “I think there will be increased M&A activity in 2013. Equity markets remain pretty tight, credit markets remain tight, which I think will mean more M&A, as companies will run out of cash, and those that have funds will see the opportunity to buy assets that require funds.”

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