Natural Resource NZ

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The Natural Resource Potential of New Zealand

Richard BarkerConsulting Geologist

March 2008


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Natural resource potential of New Zealand. March 2008

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Contents

Background.................................................................................................................................................. 3The NZ resource sector in 2008 ................................................................................................................... 3

Minerals and coal ..................................................................................................................................... 3Petroleum ................................................................................................................................................ 4Natural gas .............................................................................................................................................. 6

Resource potential....................................................................................................................................... 6Oil and gas............................................................................................................................................... 7Metals ...................................................................................................................................................... 7Aggregate and industrial minerals........................................................................................................... 11Coal....................................................................................................................................................... 12

Development potential................................................................................................................................ 14Oil and gas............................................................................................................................................. 14Coal....................................................................................................................................................... 14Metals .................................................................................................................................................... 14Non-metallic minerals............................................................................................................................. 15

Changes needed to realise potential .......................................................................................................... 16Government administration and management......................................................................................... 16Mineral ownership and access................................................................................................................ 16Oil and gas............................................................................................................................................. 17Coal....................................................................................................................................................... 18High value minerals................................................................................................................................ 18Aggregate .............................................................................................................................................. 18Exploration initiatives.............................................................................................................................. 19

List of Figures

1 IMF Commodity Price Indices 3

2 IMF Metal Price Index deflated by US CPI 3

3 Value of NZ Mine output 1999 - 2006 4

4 NZ oil production 1970 - 2006 4

5 Sedimentary basins of New Zealand 5

6 Natural gas users 2006 6

7 NZ Natural gas production 1970 - 2006 6

8 NZ gas discovery forecast 7

9 Metallic minerals excluding gold 9

10 Gold mines, deposits and prospective areas 10

11 Industrial minerals 11

12 Coal exports 1998 - 2006 12

13 Coal fields and operating coal mines 13

14 Exploration spending NZ and global 14

15 NZ gold production and exploration spending 18

List of Tables

1 Export value of main primary industries 6

2 Potential value of metallic mineral resources 8

3 Summary of coal resources 12


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BackgroundTowards the end of the 20 th century real prices for many commodities including petroleum and minerals wereat historical lows, and for some metals (e.g. copper) probably at 20 th century lows. The new economy ofthe 21st century was to be dominated by new technology, the internet and the communications sector.

Energy and minerals were seen in many developed countries (including New Zealand) as old economysunset industries that were struggling to survive. In New Zealand the resources sector was sidelined as agovernment priority for example new research funds were diverted away from the traditional commodity

based fields into the new economy.

Since 2001 this situation has been reversed with commodities (minerals and energy particularly) beingamong the most profitable industry sectors (Figure 1). In 2000 the market value of Cisco Systems, theworlds leading internet company, was greater than that of the worlds 12 largest mining companiescombined. In 2008 Cisco is still a large and successful company, but its value is significantly less than thatof BHP Billiton, the largest mining company.

Although commodity prices have risen strongly since 2001, real metal prices are not exceptionally high byhistorical standards (Figure 2). Rising living standards in developing countries are creating demand forenergy and building materials that shows no signs of abating.

A rare opportunity now exists to make more of New Zealands resource potential.

The NZ resource sector in 2008

The value of the minerals produced by mining operations in New Zealand has increased by 93% since 1999to $1,500 million in 2006, the latest year for which complete statistics are available (Figure 3). The increaseis due mainly to increases in the volume and value of coal and aggregate which is used for building and roadmaking. Further increases are likely to be reported for 2007. New Zealands petroleum production is nowincreasing rapidly after a decade of decline, and the value of oil produced in 2008 is predicted to increasethree-fold from that of 2006.

Minerals and coal

The NZ mineral industry produces more than 50 million tonnes of minerals (including coal) each year, withaggregate for building, construction and road-making accounting for close to 70% of this total.

IMF Commodity Price Indices

0

50

100

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200

250

Agriculture M etals Energy

Energy index includes oil, gas and coal.

Agriculture index includes timber and wool, but not dairyproducts. Jan 1992 Jan 2008 (2005 = 100)

Source: IMF

Figure 1

IMF Metal Price Index deflated by US CPI

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nickel, zinc, lead, and uranium price indices. (1957 = 100)

Source: IMF

Figure 2


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The greatest value of the minerals sector to NZ is through its vital,supportive function for other industry sectors, and its contributionto export income. Growth sectors such as the dairy industrydepend heavily on fertilisers and road transport for which industrialminerals and aggregates are essential. Mineral production isconcentrated in regional NZ, supporting growth away from themain cities.

Coal, gold, ironsand and industrial minerals (notably high qualitychina clay) are the main exports, earning New Zealand more than$700 million per year. Within New Zealand, aggregates with avalue of more than $500 million are used to build and maintainroads, and are the main ingredient in concrete. Industrialminerals are used for building (e.g. cement making more than amillion tonnes is made each year at two plants) and by a range ofother industries. These include paper making, manufacturing,steelmaking, gold ore processing, water treatment and farming.More than 2 million tonnes of lime and15,000 tonnes of dolomite wereproduced for the farming sector in 2006.

PetroleumThe current era of NZs petroleumproduction began in the late 1960s andgrew strongly until 1988 reaching a peakof more than 20 million barrels. Itdeclined between 1998 and 2006, duemainly to reducing output from the Mauifield. The value of oil being produced inNew Zealand is expected to reach about$2 billion in 2008, a new high due toincreasing output from newly developed

fields Tui, Pohokura and Maari.

NZ Oil Production 1970-2006

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1970

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Production(millionbarrels)

Source: Ministry of Economic Development. Includes crude oil, naphtha andcondensate. 2008 data is estimated

Figure 4

Changing public opinion

When investigations into reopening theMartha mine at Waihi began in the 1970sthere was a high level of concern about itseffects.

Subsequent soundings of public opinionhave shown increasing support for the mine.

The most recent survey, commissioned bythe Hauraki District Council in 2004, foundthat 92% believed that gold mining providedeconomic benefits to Waihi, while 7%thought there were no benefits.

While 17% felt they were adversely affected(e.g. by vibration and noise), 82% thoughtthey were not adversely being affected byminin .

Value of NZ mine output 1999 - 2006

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$million

Metals Non metals Coal

Source: Crown MineralsFigure 3


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Sedimentary basins of New ZealandFigure 5

In 2006 New Zealands self-sufficiency in oil was 17%, the lowest it has been since 1980. It is now expectedto reach 50% during 2008, and may increase further with the development of the new fields. Ongoingexploration is essential just to maintain this level of self sufficiency in the future.


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Natural gas

Since its first development in 1970, gas production increased to more than 200 Bcf in 2000. Gas wasproduced from 12 fields in 2006, all of them within the Taranaki Basin. The main use of gas is for generatingelectricity, with industrial uses and methanol production significant users also. The total value of gasproduction is about $1,000 million per year. It accounts for more than 20% of New Zealands total primaryenergy supply. Royalties on oil and gas of more than $110 million were paid to the government in 2005, and

these are expected to rise strongly as oil output increases.

Resource potentialNew Zealand is rich in natural resources. Our sub-surface resources, gold and coal particularly were majordrivers of the early development of this country. Since the mid 20th century oil, gas and geothermal energyresources have been developed as well, and are now major additional indigenous sources of energy. Theoutput of non-metallic minerals (aggregate, limestone and specialised high value minerals) and theirprocessed products such as cement have increased in line with economic and population growth.

New Zealands past production of high value minerals has been dominated by gold, with total recordedproduction now more than 1,000 tonnes (33 million ounces) with a present day value of more than $NZ 30billion. Coal production totals more than 270 million tonnes. New Zealand has large resources (about 10,000

million tonnes) of coal, mainly in the form of lignite or brown coal, and ironsand (about 900 million tonnes oftitanomagnetite).

Mining uses less than 0.1% of New Zealands land area, and sites of former mines are now rehabilitated forother uses. The table summarises recent estimates of the total area of land that is directly affected atpresent by a range of rural industrial land uses (including mining), and export values.

Table 1: Export value of main primary industries

Sector Land area (sq km)Export value

($million per year)Export value

($/ha per year)Production forestry 18,000 3,300 1,833

Dairy 20,000 7,000 3,500

Horticulture, viticulture 1,100 2,200 20,000Mining 40 700 175,000

Sources: Crown Minerals, Ministry of Agriculture and Forestry, Statistics NZ.

NZ Natural gas production 1970 - 2006

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1970

1975

1980

1985

1990

1995

2000

2005

NetGasProdcution(Bcf)

Source: Ministry of Economic Development

Figure 7

Gas users 2006

(percent)

Electricity

generation, 56.4

Methanol, 10.6

Ammonia Urea,

4.8

Residential, 4.6

Commercial, 3.3

Industrial, 20.2

National

transport, 0.1

Source: Energy data file 2007

Figure 6


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Oil and gas

New Zealands gas resources are estimated at about 2,000 PJ, sufficient to maintain the existing level ofoutput until about 2015. Continuing exploration could see that date extended, and the graph below is basedon a maximum plausible assessment of that potential.

Estimates of potential resources of the Taranaki Basin, New Zealands only economic petroleum producingbasin have varied widely between 79 and 1,144 million barrels oil equivalent, indicating the uncertainties thatsurround such assessments. Expert opinion is that large fields remain to be discovered in New Zealandspetroleum basins, given their size. The recent discovery of major new oil and gas resources in the SantosBasin in the deep continental margin of Brazil are a reminder that the more you look the more you find.These new discoveries could change the regional and even global balance of energy power1.

Unconventional resources such as gas hydrates may become significant in the future, but the technology todevelop them is yet to be developed.

Metals

NZ has excellent potential for the discovery of new, high value minerals including platinum, gold and othermetals. New Zealands potential mineral resources were assessed by GNS Science in a study in 19992. Itidentified potential for 16 metals in 32 different types of mineral deposit. These potential metallic mineralresources were valued at $86 billion using 1999 values, based on conventional resource modellingtechniques. Real prices of most metals and minerals were at historical lows in 1999. Since then furtherinvestigations and price rises have increased the potential value of the assessed resources to more than$200 billion. More detailed studies have now been carried out into the mineral potential of the Northland andOtago Regions, and the Thames-Coromandel and Hauraki Districts.

Table 2 lists details for 7 metals gold, silver, platinum, copper, iron, molybdenum and titanium. The valuesare derived from the Mineral potential of New Zealand resource estimates, updated using 2008 prices.Potential resources of these 7 metals now have a value of close to $140 billion. Potential is also recognised

1The Economist, February 12th 2008.

2Christie AB, Brathwaite RL,1999. The mineral potential of New Zealand. Institute of Geological and Nuclear Sciences

science report 1999/4

NZ gas discovery forecast

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Kapuni Other developed Maui

Pohokura Kupe onshore undiscovered

of fs ho re W N orth I sl an d u nd is c f ro nti e r u nd is co ve re d d eman d

Source: CAENZ 2004

Figure 8


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for deposits of other metals that include antimony, chromium, lead and zinc, nickel, rare earth metals, tin andtungsten. Occurrences of all of these have been located in New Zealand, and several have been producedin small quantities.

The resource values in the table are based on current metal prices and an assessment of the probability offinding deposits of specific geological types. New Zealand data is used where it is available (e.g. for golddeposits) but in other cases the assessment is based on similar geological environments in other countries.

The values are gross, in situ values and give an indication of potential total value. They are not predictionsof what is achievable in the near future.

Table 2: Potential value of metallic mineral resources

Metal Deposit type Potentialvalue$NZ million

NZ Mining Main locations

Gold Mesothermal 17,350 Macraes mine, Otagoand Globe-Progressmine, Reefton areoperating

Otago regionNorthern WestlandNorthwest NelsonMarlborough

Epithermal 18,800 Martha and Favonamines at Waihi areoperatingPast mining veryextensive in Haurakiregion

Hauraki-CoromandelTaupo Volcanic Zone, central NorthIslandEastern Northland

Alluvial gold 5,500 Operations in W estCoast and Otago.Large historicalproduction

West Coast, coastal flats and riverand terrace gravelsOtago River gravels, terraces andolder quartz gravelsMarlborough and Northwest Nelson

5 other deposittypes

3,180 Sams Creek, depositin NW Nelson isundeveloped

Northwest Nelson, W estland,Hauraki, Northland, Fiordland

Silver Epithermal 1,585 As for epithermal gold As for epithermal goldCopper 5 deposit types 26,990 None currentlyHistorical small scalemining only, e.g. at GtBarrier and KawauIslands, Northland,Nelson

Eastern Northland and CoromandelNorthwest NelsonCentral NorthlandEast Cape, FiordlandNelson, Southland

Iron Shoreline sands 26,000 Waikato North Headand Taharoa

West coast of North Island betweenWanganui and Kaipara Harbour

Molybdenum Porphyry 33,720 None Northwest NelsonWestlandFiordland

Platinum Magmatic 7,100 None Northwest Nelson, SouthlandTitanium Shoreline sands 2,250 Pilot scale only West coast, South Island

Total 139,295Sources: Christie and Brathwaite 1999. Mining Journal, January 2008 for current metal prices

The data above relates to on-shore resources only. Exploration is being carried out for gold and ironsandoff the west coast of NZ, and for precious and base metals on the seabed to the northeast of the NorthIsland. The potential value of these resources is additional to values indicated above.

Onshore, exploration is concentrated on precious metals, coal and ironsand. A company programme usingsophisticated airborne geophysical methods has redefined the geology of Otago. The Regional Council iscontributing $1 million to the cost of the survey because of its value as an economic development tool andfor managing resources, water particularly. Central government declined to contribute.

Regional development agencies in Northland and the Waikato are carrying out research into the value of

their mineral potential.


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Metallic minerals excluding gold

Figure 9


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Gold mines and prospective areasFigure 10


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Aggregate and industrial mineralsAggregates in New Zealand are made mainly from greywacke rocks that underlie much of both islands.These are quarried, or extracted from riverbeds and alluvial terraces where natural transport processes haveupgraded their quality through the breakdown of weaker material. Volcanic rocks (andesite and basalt) areused in the North Island, mainly around Auckland and Taranaki, while various other rock types are used inthe south of the South Island where greywacke is not available.

Industrial mineralsFigure 11


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The demand for aggregate is tied strongly to economic and population growth, and as urban centres grow,quarries within, and on the outskirts of these centres find that continuing operation becomes increasinglydifficult due to the opposition from a growing local population. This problem is particularly severe inAuckland where aggregate is being transported over greater distances as quarries within the urban limit areclosed. Between 2002 and 2006 Crown Minerals data shows the average selling price of aggregate in theAuckland region increased by 40%, which has a significant effect on the costs of building and maintaininginfrastructure, roads in particular3. Just 30 km of road transport can double the delivered cost of aggregate,

and these costs are passed on to local residents via rates and taxes. Between 2000 and 2006 theproduction of aggregate throughout NZ has increased by nearly 30% to 38 million tonnes. Maintaining thesesupplies from sites close to their markets reduces costs and the effects of heavy traffic on roads, other roadusers, and those living near transport routes. It would also reduce CO2 emissions and reduce householdcosts through local authority rates.

Among non-metallic resources, industrial minerals have potential for producing new, high value products.Northland china clay and Canterbury bentonite are examples of how niche markets for high value, uniqueminerals can be developed successfully, and there is potential to repeat these.

CoalNew Zealands coal resources have been

investigated in detail by a Governmentfunded survey and more information isavailable on them than for the otherresources4.

Coal production in the North Island isdominantly for use by New Zealand Steel atGlenbrook for steelmaking, for electricitygeneration and for industrial use. MostSouth Island production is higher rankbituminous coal that is exported. Over thelast 10 years coal exports have doubled to2.7 million tonnes in 2006, and have a value

of about $300 million per year.

New Zealand has large resources of lignite -a low rank coal - in Otago and Southland.These amount to more than 7,000 milliontonnes and are New Zealands largest conventional energy resource.

Table 3: Summary of the in-ground coal resources of New Zealand

Coal region Coal Rank In-ground resource(million tonnes)

Recoverable resource

(million tonnes)

Northland Sub-bituminous 3 -

Waikato Sub-bituminous 2,100 700

Taranaki Sub-bituminous 380 170Total North Island 2,483 870

Nelson Sub-bituminous 2 -

West Coast Bituminous, sub-bituminous and lignite

980 340

Canterbury Lignite 4 2

Otago Lignite and sub-bituminous 2,700 1,220

Southland Lignite and sub-bituminous 9,400 6,300

Total South Island 13,086 7,842

Note: Only the lignite tonnages are likely to meet current standards for defining recoverable resources.

3

Brown, M, 2007: New Zealands Mineral industry a national perspective. Presentation to combined IOQ and AQAAconference, Wellington4

Barry JM, Duff, SW, MacFarlan DAB 1988: Coal Resources of New Zealand Energy and Resources Division, Ministryof Commerce, Resource Information Report 16.

Coal Exports

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1.0 0

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2.00

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19 98 19 99 20 00 2 00 1 2 00 2 2 003 2 00 4 2 00 5 2 006

Milliontonnes

Figure 12


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Operating coal mines and coalfieldsFigure 13


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Development potentialNew Zealand has well defined potential for the discovery and development of oil and gas, metals, industrialminerals and coal. The sector could be much more productive than it is at present delivering improvedexport performance, more secure energy supplies at internationally competitive prices, and more efficiently

supporting other industry sectors and the development of infrastructure.

Oil and gasAt present natural gas accounts for more than 20% of New Zealands primary energy supply, and thepotential exists to increase that with further exploration.

The effect of the relatively small Tui oilfield on NZs exports is an indication of the potential value of NZsundiscovered oil resources. Dairy exports have been growing rapidly, and in December 2007 for the firsttime topped $1 billion for the month and were 77 per cent higher than in December 2006. Oil exports aregrowing too, and with production from the Tui field, oil exports were $254 million, 10 times their level a yearearlier and enough to offset one-third of the month's record oil imports. The export value from just onesmall oilfield is equivalent to a quarter of the value of the entire dairy industry.

CoalLignite feasibility investigations are under way in Otago and Southland. These resources are NewZealands largest energy resource. The energy content of the recoverable lignite is estimated at 74,000 PJ,equivalent to 20 times the energy content of the Maui gas field before it was developed, and about 35 timesnatural gas reserves.

The lignite resources have the potential to form the basis of a large scale petrochemical industry that couldproduce liquid and gas fuels, and industrial chemicals such as methanol and urea.

Coal seam gas is methane gas that can be extracted via drillholes from coal that is in-situ. Gas productionmethods are being investigated internationally and in New Zealand in the Waikato, Otago and Southlandregions particularly.

Coal exports The value of NewZealands coal exports haveincreased dramatically in recentyears, and now exceed $300 millionper year. Export production ismainly from West Coast, SouthIsland coalfields for steel making inAsia and the Pacific.

MetalsExploration activity has increased

word-wide as a result of the risingmineral prices due to demandoutstripping supply, but in NewZealand the rate of expenditure hasdeclined in the year to March 2007,despite continuing increasesinternationally.

The Fraser Institute5, an independentCanadian research and educationalorganisation each year surveysseveral hundred resource companiesthat are active throughout the world.

It then ranks 68 jurisdictions

5www.fraserinstitute.org

Exploration spending NZ and Global

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

NZspending($million)

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Globalspending($US

billion)

NZ Global

Data sources: Crown Minerals, Metals Economics Group

Figure 14


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(countries, states and provinces) using a policy attractiveness index. Mining is managed at the state orprovincial level in countries with a federal system (Canada, Australia and the US).

In the 2007/08 survey Quebec, Nevada and Finland rank at 1, 2 and 3. Ecuador, Zimbabwe and Hondurastake the bottom 3 spaces. New Zealand ranks at No 44, behind all 6 Australian states and 10 Canadianprovinces that are included in the survey. Poor policy and a failure to keep up with other countries in suchfields and new digital data are the most obvious explanations for this dismal result.

Maintaining a high level of exploration is essential for maintaining and expanding the volume and value ofthe minerals we produce.

A 2002 economic study of the NZ minerals industry by the NZ Institute of Economic Research, built on the1999 study of NZs mineral potential referred to above1. NZIER modelled the economic effects of miningindustry growth on the NZ economy and made the following key findings:

Within 10 years

NZ has the mineral resource potential tosustain a doubling of its value to the NZeconomy

Employment potential of +25,000 jobs Overall household incomes increase by 1.7% Overall exports increase by 4%

Longer term

GDP growth of 2.9% possible

Potential for overall export growth of 7% Employment potential of 35,000 jobs Households would be 2.3% better off

Both scenarios can be achieved without access toNational Parks and other sensitive areas that are

now closed to mining.

Non-metallic mineralsNew Zealand is producing industrial minerals witha current value of about $40 million per year.Minerals include: amorphous silica, bentonite, clayfor ceramics and brick making, diatomite,dolomite, perlite, pumice, serpentine, silica sandand zeolite. These have a wide range of uses byindustry in New Zealand and are exported.Extensive research and development work is needed to upgrade natural materials and to find markets forthe resulting products. The china clay operation at Matauri Bay in Northland is the only industrial mineral

operation that depends entirely on exports. Other NZ industrial minerals including bentonite and lime areexported.

High quality china clay - Matauri Bay

In 2006 sales revenues for Imerys

Tableware New Zealand Ltd wereNZ$13,000,000.

Exports to 23 countries account for 99% ofthis revenue.

Current operating expenses are in excessof $500,000 per month and most of this isspent in Northland.

Although the operation has access tothree distinct deposits only two are workedat present. The total area occupied by thetwo active quarries (Matauri Bay andMahimahi), including waste disposal and

buffer areas is approx 178 hectares.

This gives gross revenue per hectare peryear of about $73,000.

The Matauri Bay operation supports 35Full Time Equivalent staff in Northland,plus another 5 in the companys Auckland

laboratory and sales office.


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Changes needed to realise potential

Government administration and management

Until the early 1980s minerals and petroleum were administered by a stand-alone government department(the Mines Department) with Cabinet representation. Since then the group administering minerals has beenprogressively reduced in standing to a division within the Ministry of Energy, which was then abolished andincorporated into the Ministry of Commerce (re-named the Ministry of Economic Development).

Minerals and petroleum are now administered by Crown Minerals, a small group within the Ministry ofEconomic Development. The Ministry has eight branches, one of which is Business Services Branch.Crown Minerals is one of seven groups within the Business Services Branch. The Branchs otherresponsibilities include the companies office and radio spectrum licensing.

The management of Crown owned resources is structured within the government administration as a serviceto the private sector, rather than being managed as immensely valuable assets that are owned by the public.

Public sector restructuring has resulted in fragmented management of resources. The functions of the mainagencies are:

Crown Minerals, Ministry of Economic Development.

Grants permits, collects information, publishes statistics, promotes investment, collects royalties

Regional and district councils

Manage mineral resources and the environmental effects of activities under the ResourceManagement Act

Each region and district develops its own policies and rules

The Department of Conservation

An estimated 70% of the mineral prospective land in NZ is owned by the Crown DoC controls access to minerals under most Crown Land (more than 8 million hectares - about 30%

of NZs land area) Conservation is defined as preservation and protection

DoC has no incentive to facilitate exploration or development

The Department of Land Information

Administers an area of about 3 million hectares of Crown land under Pastoral Leases and ForestLicences

The Department of Labour

Has primary responsibility for worker safety

GNS Science

Has research functions of the NZ Geological Survey

No agency has the authority to take the lead in making more of New Zealands resource potential, in spite ofthese resources being owned almost entirely by the public.

Mineral ownership and accessAll petroleum, gold and silver in its natural state throughout New Zealand is owned by the Crown, whether itis located on Crown land or privately owned land. Other minerals (including coal) may be owned by theCrown, the owner of the land, some other person, or may be of unknown ownership. There is no reliableregister of mineral ownership, and it must be determined by searching individual titles back to the original

(usually 19

th

century) Crown grant - a time consuming, costly process. Other jurisdictions (notably AustralianStates and Canadian provinces) that inherited this cumbersome, uncertain system from English law havemoved progressively to a system of public ownership for high value minerals to facilitate exploration.


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Where minerals are owned by the Crown a permit is required that is granted by the Minister of Energy viaCrown Minerals.

While the ownership for gold, silver and petroleumis clear, the situation for other minerals (platinumgroup metals on private land for example) is not.Complications in determining rights are impeding

exploration for these minerals.

The complex mineral ownership regime iscompounded by an access regime introduced inthe Crown Minerals Act 1991 that requires anegotiated access agreement with each landowner and occupier. An arbitration processoperates for petroleum where agreement cant bereached, but not for other minerals. These accessagreements are not tied to permits to explore andmine, so they can run on after a permit hasexpired. A separate system of private accessrights to Crown owned minerals is developing

because of these deficiencies in the CrownMinerals Act. Private agreements that are notregistered on land titles can prevent access toland by a holder of a minerals permit grantedunder the Act.

An overhaul of the mineral ownership and accessprovisions of the Crown Minerals Act is required.

Oil and gasThe Government has announced its intention tointroduce an Emissions Trading Scheme

progressively covering all gases and major emitters:

Electricity would be covered from 1 January 2010

A Bill is before Parliament and legislation is expected to be passed during 2008

The Government has also introduced legislation to give effect to its energy policy, the primary goalof which is to try and achieve 90% renewable energy by 2025

The Bill includes a 10 year moratorium on new thermal plants with some exceptions:

security of supply

non base-load plants

replacement of retired plant

The strategy will increase the costs of gas production operations in New Zealand compared with othercountries and may act as a disincentive for future investment in the sector.

Two studies in 2008 by Infometrics6 and Castalia7 predict a doubling of electricity prices and an increase inpetrol prices by 50%, accompanied by rising greenhouse gas emissions (Infometrics), and ongoingamendments to the energy strategy and continuing uncertainty (Castalia), contrasting with the cautiousapproach being taken in Australia, despite its commitment to the Kyoto Protocol.

The key elements of the changes were not included in the draft energy strategy, and are likely to discourageinvestment in oil and gas exploration immediately because of the added uncertainty now faced by potentialinvestors.

6Carbon Mitigation Scenarios. Report prepared for NZ Business Roundtable and Petroleum Exploration and Production

Assoc of NZ. 5 February 20087

Climate Change (Emissions Trading and Renewable Preference Bill. Castalia 30 January 2008.

Access to Crown Forest Licence land

Crown Forest Licences cover an area of more than480,000 hectares of Crown land, mainly in the NorthIsland. Much of it is prospective for minerals. The

licences were intended to privatise timber cuttingrights but have, in effect, transferred rights to theminerals too. The following is required to carry outan exploration programme on these areas of Crownland:

1. An exploration permit granted by CrownMinerals

2. An access arrangement with Land I nformationNZ

3. An access arrangement with the Licence holder(usually an overseas forestry corporation)

4. An access arrangement with the forest operator(which is usually a different company).

Each imposes fees and conditions separately onthe explorer, and may seek a return from anysubsequent mining operation. If an accessarrangement cannot be agreed there is no right ofredress.

These consents are needed to enter the land forexploration. Resource consents may be required inaddition for exploration activities.


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CoalCoal (particularly Otago and Southland lignite) is affected by the costs and uncertainties of private coalownership, the Crown Minerals Act access regime and by the fragmented administration of mineralresources in New Zealand.

In addition, the proposed new

energy policies and the e missionstrading scheme will affect coal as adomestic energy source.

High value mineralsIn the 1970s New Zealandsresources of hard rock gold werevirtually zero and the conventionalview was that a resumption ofmining was unlikely. A surge ofexploration investment in the 1980swas followed by rapid growth ingold output as new discoverieswere developed. Maintaining ahigh level of exploration investmentis essential for continued orexpanded mineral production.

New Zealand needs an inter-nationally competitive regime formineral exploration if it is to attractthe necessary investment.Methods that have been successfuloverseas include:

Acquiring and publishing new geoscientific data Compiling existing data to make it more accessible Streamlining consents for low impact exploration Better structured mineral ownership and access regimes

Taxation incentives for individual investors in exploration

AggregateThe supply of aggregate, particularly togrowing regions such as Auckland, hasbeen long recognised as a significantissue for the maintenance of infrastructureand the growth of the Auckland region. In

spite of this, comprehensive data onaggregate supply and demand is notavailable.

Policies that apply to the management ofaggregate resources vary widelythroughout NZ due to differences inregional and district councils policies andplans. Three local authorities in theWaikato region (Thames-Coromandel,Franklin and Waikato) have sought toimpose rules that would make mining orquarrying a prohibited activity over wide

areas of these districts.

Existing quarries in areas of population

NZ Gold production and exploration spending 1977 2006(5-yearly intervals)

0

20

40

60

80

100

120

140

160

180

1977-81 1982-86 1987-91 1992-96 1997-01 2002-06

Explo

rationspending($M)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

5-yearlygoldoutput(Moz)

Exploration spending

Go ld P roduction

Sources: 1977-1994 Mines statements, Reports of Ministry of Energy.Estimates 1995-1999 as no data collected. 2000-2006, Crown MineralsExploration spending is March 2006 dollars deflated using CPI

Figure 15

Matukuturua Stonefields

Basalt rock from the Auckland volcanic field that underliesmuch of the Auckland urban area has been the main sourceof supply since European settlers arrive in the 19 th century.

Conserving aggregate resources for future use has proved tobe difficult, as this example shows. At Matukuturua south ofAuckland, land containing a large basalt resource was boughtby a quarry company and zoned for quarrying purposes inthe District Scheme in the 1970s. Although the underlyingquarry zone remains, the current District Plan establishedunder the RMA designates the area for public open space forheritage protection and passive recreation (Manukau CityCouncil 2006), precluding the development of the aggregateresources.

Ironically, the present heritage value of the land atMatukuturua is the result of it having been set aside in privateownership for future quarry use. A total of 630 million cubic

metres of basalt remain available within the Auckland urbanarea, but production from these resources has now virtuallyceased.


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growth (where demand is strongest) have been unsuccessful in dealing with the effects of urban expansion,and a number have been forced to close, resulting in cost increases and pressure on local authority rates.

The difficulties that companies face in seeking to protect resources for future development are highlighted bythe experience of Winstone Aggregates at Matukuturua in Manukau City.8, 9 (See box).

Exploration initiatives

During the 1990s slowing exploration activity in Australia led two states, Victoria and South Australia toundertake initiatives to promote exploration investment by the private sector. The Victoria Initiative forMinerals and Petroleum, and the South Australian Exploration Initiative led to rapid increases in explorationspending. The initiatives consisted of field investigations that produced new information (mainly fromairborne geophysical surveys), compiling existing information to make it much more accessible, andreviewing policies that might be unduly impeding mineral exploration. Geoscience Australia investigated theeffects of these programmes in Australia and overseas, and found that each dollar invested in new data ledto $5 of additional exploration spending by the private sector, and the discovery of in-ground resources worth$100 150. They also estimate that each dollar spent on such programmes in Australia earns $360 inexports, $15 in the export of services and $19 in new tax and royalty income.

Initiatives of this type have now been carried out in every state in Australia. New Zealands work in this field,while useful, has been small scale and uncoordinated compared to the practice in the best of the Australianstates.

South Australias programme is now the most advanced. The second generation programme (PACEProgramme for ACcelerated Exploration)10 began in 2004. Numerous new mineral discoveries have beenmade including the world class Carapateena copper-gold deposit, and the programme now extends beyondgeoscience data, to a wide ranging programme of 8 themes that include developing protocols for aboriginalcommunities to benefit from resource development activities.

While the upsurge in exploration investment has been exceptional, increasing from about 2% of theAustralian total in 1995, to $150 million and 14% of the Australian total in 2006, the cost has been quitemodest. The current 5 year PACE programme has a budget of $22.5 million, with $3.1 million budgeted for

the current year. A total of 13 resource related projects with a capital investment of $24 billion have beenproposed in South Australia, and 10 more are under investigation.

8 Johnson JD, Happy AJ, Compton RG 1998. The dawn of a new stone age for Auckland. Roading Geotechnics 1998Conference. Institute of Professional Engineers, Wellington.

9 Barker, R.G., Christie, A.B., Robson, R.N., Graham, I.J., 2006. Regional policies and minerals resource potential

of New Zealand, The Institute of Geological and Nuclear Sciences (GNS Science) science report 2006/2570p.

10 www.pir.sa.gov.au/minerals

Natural Resource NZ

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