Roxby Downs - food for thought. Since BHPs announcement in 2012 that they would put the Olympic Dam expansion "on hold", the market in Roxby has taken a big hit. Things spiraled as there were plenty of negative commentary/spin and ill-informed headlines in the media. Speculation from the punters was rife ("expansion canned", "pulled", "closing!?!")? everyone was understandably spooked and investors fleed. The correction (and headlines) hit Roxby hard. BHP went from building around 20% more new houses in Roxby Downs to accommodate the anticipated influx of workforce for their BIG BANG expansion prior to the announcement. After the announcement, around 200+ jobs were axed from Olympic Dam. Much more houses, much less people. For property prices, it was a double whammy: 1. a massive loss of confidence (speculation ?will BHP pull out all together & close the mine?!?!); 2. a huge inequity in the supply demand ratio The number of rental properties in the market increased 6 fold, from 22 to 118. The average rental price for a 3B1B house dropped from $650/w to $300/w. Property sale prices dropped 30%+. The turnover of house sales almost stopped. Properties that used to fetch $500k are now worth around $350k. Investors are a large portion of property sales in Roxby. If they are interested, everything turns (and quickly), if not, everything stalls and quickly. Two years later and where is Roxby at? Given the poor yield equation at the moment and the perceived lack of certainty from BHP, investors are sitting on the sidelines, or looking elsewhere. The supply/demand ratio has improved signifcantly (but quietly): o Number of properties on the rental market have gone from a high of 118 houses available in Roxby now down to around 50. There has been a 50% decline in rental house in less than 9 months. Once this hits sub 30, things will get very interesting. o Falling rental prices finally plateud a few months ago and we are now starting to see a slight up kick of plus 5-10% in the past month. o BHP recently announced record quarterly results in Olympic Dam with more production than ever before at lower costs. The mine productivity gains have been strong. o BHP announce they will be including Olympic Dam in their main tier 1 company (not pushing it into the NEWCO group for lower priority mines). o In Aug 2014, BHP announce they have found a new approach to mine the Olympic Dam ore (heaped leaching) which enables them to stage an expansion and maximise the output from the ore (keep in mind that the $30b expansion spooked all major BHP shareholders... too high risk for such high cost... this is a scalable shareholder solution) o Aust Government fast track approvals BHP request to conduct larger scale heaped leaching trials at Olympic Dam to commence in 2016. No EIS required. o More jobs are slowly coming back (which is resulting in the reduction in avail rentals). o Banks stopped lending money for home purchases in Roxby but now the purse strings have loosened slightly. Once more certain announcements are made this will loosen further. Investing in Roxby... the future of house prices and yields? If history is anything to go by, once the available rentals in the market drop below 25, the supply/demand effect will start translating into rental price increases. Yields will be on a strong improve, with real possibility of achieving short term cashflow positive investments. But what about the likelihood of capital gains longer term? Investors will likely want to have more certainty about BHP longer term plans before they get off the sideline. This may be coming BHP is holding its annual general meeting in Adelaide on 20 November 2014. This is the first time in many years BHP have held it in Adelaide. 2013 Perth 2012 Sydney 2011 Melbourne 2010 Perth 2009 Brisbane 2008 Melbourne (I couldnt find any record before this date) There is likely a reason for this. BHP will likely provide more updates about its plans regarding Olympic Dam. Infact, Andrew Mackenzie mentioned this would be the case. Even if this is simply to say they are planning a gradual expansion post the new heaped leaching trial (albeit much slower), this will be very positive on the market. Any plan will provide more certainty, then no plan. With this comes more positive headlines, greater investor awareness, more jobs and more confidence in the market. Investors will have more confidence to invest for not only yields but also longer term capital gains. Watch this space.