* Big miners set to expand after weathering mining bust
* Rising costs, falling metals prices may eat into margins
* Most lucrative profit phase may be over - banker
* Australian mine jobs graphic
By Melanie Burton
MELBOURNE, Aug 24 (Reuters) - As Australia's big miners gearup for a new round of expansion after years of belt tightening,prices for everything from labour to fuel to equipment havebegun to rise, driving up costs and eating into margins.
Having repaired their balance sheets after a harrowingshake-out from a decade-long mining boom in 2013-2014, minersare again ploughing money into new projects.
Companies say they can wring yet more savings from alreadylow-cost operations while investing for expansion, but risingcosts suggest their fattest margins may be behind them.At the same time, metals prices are falling as a deepeningSino-U.S. trade row raises concerns about demand growth andclouds the outlook for future sales.
"The pressures are coming," said Rohan Walsh, a portfoliomanager at Karara Capital in Melbourne. "It's early, but lookingforward there are a number of larger projects starting to rampup again ...(so) competition for labour, machinery and partswill increase," he said.
"The expectation is, you do need to manage it prettyaggressively over the next 18 months otherwise there is a riskthat it will erode margins."
In June, global miner BHPgave the go-aheadfor its huge South Flank iron ore expansion and rival Rio Tintosaid it planned to expand in the Pilbara bydeveloping its Koodaideri site.
RISING COSTS
Executives at a mining conference in outback Kalgoorlie thismonth said lead times for excavation machinery have doubled overthe past two years, tyre prices for underground mining truckshave surged by 50-60 percent and delivery times have doubled asminers refurbish their fleets. Miners say costs are rising globally, but the trend may bemore pronounced in iron-ore rich Australia as demand for steelpicks up early in the economic cycle. Australia is also a majorcoal, copper and gold supplier, and more recently a source ofbattery materials like lithium, cobalt and nickel.
BHP is seeing higher labour costs, particularly in parts ofAustralia, chief executive Andrew Mackenzie said this week.Prices were also rising for diesel, steel and sulphuric acid,used in copper production.
The expansion of the majors is likely to make it more costlyfor others to follow.
Graham Kerr, CEO at diversified miner South 32 ,said inflation was "slightly ahead" in its Australian operationslike its Cannington silver/lead mine, but was also appearingelsewhere.
"In Cannington, we are seeing more and more competition forunderground people, mine engineers, geotechnical engineers,jumbo operators. The market is becoming much more competitive inthat space," Kerr told an earnings call.
The tighter labour market has been compounded by the factthat hundreds of workers laid off during the recent markettrough either moved away or found work in other sectors.
The 2013-2014 bust also shattered the appeal of careers inmining engineering. The number of enrolments in coursesAustralia-wide tumbled to just 30 this year from more than 300at the height of the boom, according to figures from minerSaracen Mineral "Mining engineers are as rare as hen's teeth," said arecruiter in Kalgoorlie. "You can get them, but you have topay."
For the world's fourth-largest iron ore miner, FortescueMetals , fuel, wages and currency movements were thebiggest inflation drivers, Chief Executive Elisabeth Gaines toldReuters, adding that it had recently "adjusted" labour costshigher.
"There are some skill shortages and that is something we arevery cognizant of," Gaines told Reuters in an interview.
AUTOMATION, LABOUR BOOST
To combat inflation, Fortescue is automating its haulagefleet of 100 trucks and introducing a new product with a higheriron content that it expects to boost margins.
"I don't think the days of current margins are behind us atall. If anything we have a very strong strategy to enhance ouroperating margins," Gaines said.
Australia's deflating housing bubble could also free up somesemi-skilled labour, while a weakening Australian dollar isboosting revenue from the sale of products priced in U.S.dollars.
BHP's Mackenzie also expects productivity to offset someinflationary pressures, while the pace of cost increases couldslow.
"With everything we see that is possible with productivity... we have a very good shot at matching that inflation andmore, to continue to drive our costs down," he said after thecompany's results.
Still, a banker in Melbourne, said that it was fair to saythat for investors the most lucrative profits from the miningsector are now in the rear view mirror.
"We have seen the best of the best in terms of metals pricesbeing helpful, currencies being helpful and companies pullingcosts out," he said, declining to be named as it is againstcompany policy.
"The self help is done, the external stuff is done, so nowit's a bit more challenging."
(Reporting by Melanie Burton; additional reporting by BarbaraLewis; editing by Richard Pullin)
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