Glencore is a Swiss-based multinational commodity trading and mining company with a market capitalisation of A$78 billion Australian dollars—so around the same size as Macquarie Group. It also happens to operate a copper smelter in Mount Isa, Queensland, which is connected to a copper mine.
The problem is, the copper mine has reached its end of life. The smelter and connected refinery aren’t economic without having a captive source of ore, and are expected to lose A$2.2 billion over the next seven years at least in part because it’ll now have to truck more expensive ore in.
Glencore’s shareholders, understandably, don’t want to continue such an endeavour. Enter the federal Labor and Queensland Liberal governments:
“A bipartisan taxpayer bail-out of the Mount Isa copper smelter has been formally put to Swiss giant Glencore after the Federal Labor government and Queensland’s Coalition government united behind a joint offer for the loss-making asset.
About 600 jobs would be saved if the joint offer convinces Glencore to keep open the smelter and an associated copper refinery in Townsville.”
This is a good example of what economist Frédéric Bastiat called the seen and unseen. The seen is the 600 jobs that are being “saved”. The unseen is the jobs that will never be created elsewhere because of the finances that must raised via higher taxes or additional borrowing to support Glencore and these 600 jobs, with the opportunity cost and deadweight loss borne by the wider economy.
For Australia as a whole, it would be better to let this uneconomic copper smelter shut. There is no economic or national security case to extend its life. Yes, the workers would suffer a direct loss and should be supported through any transition (presumably Glencore can relocate at least some of them), but propping it up is a waste of scarce resources that could be better used elsewhere.
Worse, bailouts such as this send a message to other businesses that the government is ‘open for business’, so to speak (moral hazard):
“The federal government is under pressure to fund another massive bail-out for Rio Tinto’s Tomago aluminium smelter in NSW. Rio wants to make a decision on Tomago’s future this year because its power contract will expire in 2028.
Rio’s Bell Bay smelter in Tasmania is also marginal and will require a new electricity supply deal with the state government after December 31.”
If the Albanese federal government and its state counterparts keep up with these antics, the result will be lower growth and higher taxes for every Australian.