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APZ Aspen Group

2.45
0.00 (0.00%)
12 Dec 2024 - Closed
Delayed by 20 minutes
Share Name Share Symbol Market Type
Aspen Group ASX:APZ Australian Stock Exchange Ordinary Share
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 2.45 2.47 2.55 0.00 20:02:11

Crunch Time for Camp Operators as Australia Resources Sector Slows

19/08/2013 8:02am

Dow Jones News


Aspen (ASX:APZ)
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   By Rhiannon Hoyle 
 

SYDNEY--For years, Australia's Fleetwood Corp. (FWD.AU) developed caravan parks for sunseekers wanting a beach vacation. Then global commodity prices shot up and the units catered to an entirely different crowd: contract workers jetting in from as far as away as Bali to work on the state's mega-pits or big gas-export projects.

But the recent slowdown in Australia's resources industry is hurting companies like Fleetwood as profits slump and accommodation goes unlet, prompting some to focus on holidaymakers once more. On Monday, Fleetwood shares fell 17% after it warned demand for its worker camps remained low.

"The significant drop in commodity prices during the year caused delays and cancellations to resources projects that flowed through to demand for manufactured accommodation," Stephen Price, Fleetwood's chief executive said.

For many Australian communities, the accommodation camps represent both the opportunities and cost of a China-led resources boom that spanned around a decade. On the one hand, rising investment by the likes of mining giant Rio Tinto PLC (RIO) and oil and gas producer Woodside Petroleum Ltd. (WPL.AU) in remote towns created jobs and infrastructure like schools and roads.

But the influx of workers - some of whom earned $200,000 a year - also triggered a housing shortage and drove up the cost of living for ordinary residents. Buying a Big Mac meal in Karratha, a gateway town to the Pilbara iron-ore production hub in Western Australia state, costs a lot more than what customers pay at McDonald's branches in cities like Sydney.

Housing workers in former holiday parks or constructing camps from scratch aimed to solve the shortage of accommodation. Swimming pools, gyms, sports pitches and even giant chessboards were built to keep workers happy after long shifts in a dusty region where temperatures frequently top 40 degrees.

However, many of the temporary camps are now grappling with falling rental prices and occupancy, especially in Western Australia where the workforce is beginning to thin out. Hopes that Woodside Petroleum Ltd. would expand its $15 billion gas-export project near Karratha and employ thousands more workers, were dashed when a drilling campaign failed to find enough reserves. Rio Tinto is also seeking to cut $5 billion in costs, including in its iron-ore business.

Western Australia-based Brighthouse specialized in developing caravan parks for nearly two decades after it was founded, shifting only to target resources in 2008 as mining investment accelerated. At the peak of the boom, resources work accounted for half its business, but this has since fallen to 30%.

David Holland, the company's principal strategist, sees more opportunity in chasing the tourist dollar and building retirement villages.

"The boom in that kind of (resources) work is over," he said. "There is a progression from temporary units to a smaller, more permanent operational workforce."

According to Fleetwood, occupancy at Searipple--the site of a former caravan park in Karratha, now used by Rio Tinto mine workers--is only 65% of capacity. It's also reviewing the size and cost of a proposed camp for 1,000 workers at the port town of Gladstone in eastern Australia's Queensland state amid doubts about whether several resources projects nearby would go ahead.

Underscoring these challenges, Fleetwood said its net profit for the year through June fell 77% to 12.5 million Australian dollars (US$11.5 million).

The problem facing mining towns like Karratha is their isolation, which means they have little other industry to take up the slack. Karratha is nearly 1,000 miles or a 16-hour drive from Perth, Western Australia's capital and a key entry point for tourists visiting the state.

In 2011, half the 12,000 workers living in and around Karratha were directly employed in the mining or construction industries. But population growth is now at its slowest since 2005, which was just before investment in resources soared.

"If you had a room in Karratha, 12 months ago you'd have filled it in a second," said Anthony Walsh, managing director of Ausco Modular, one of the biggest builders of mobile homes. Recently, however, as many as one in five units have been empty and rental values are down by up to 20%, he said.

Real estate investor Aspen Group (APZ.AU) last month wrote down the value of a worker camp in Karratha, citing reduced demand.

Warnings of a wider impact on Western Australia, which supplies the world with two in every five tons of iron ore and is a global force in natural gas supply and production of metals like gold, are becoming louder. Bank of America Merrill Lynch's chief economist Saul Eslake has described the state as "close to experiencing recession-like conditions" as mining firms lay-off workers and the number of scrapped investment plans rises.

Similar problems are being faced elsewhere in Australia, especially in towns which are reliant on the resources industry. A recent survey by the Transport & Tourism Forum, found revenues per available room in Gladstone and the coal-export port of Mackay fell 23-29% in the three months to March, driven by falling occupancy.

-Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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