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Australia, which used its proximity to China to become one of its chief suppliers of iron ore and coal over the past decade, is feeling the deepest and most immediate effects of China’s slowdown.BHP Billiton/The Canadian Press

When China sneezes, other nations catch cold – especially ones that have thrived by supplying the Asian giant with raw materials.

The world saw a graphic demonstration of that this past week as mining powerhouse Australia surprised international markets with an interest rate cut designed to stem the bleeding of an economy that depends heavily on exports destined for China.

The cut of 0.25 percentage points, to 3.25 per cent, was the latest evidence that slower economic growth in China is having an impact on major resource-based economies.

Australia, which used its proximity to China to become one of its chief suppliers of iron ore and coal over the past decade, is feeling the deepest and most immediate effects, as leading miners postpone investment plans and shutter projects. But Canada's mining community is also heavily exposed to Chinese demand, and has deep ties to Australia's mining sector.

Long viewed as one of the world's most attractive mining jurisdictions, Australia is now facing challenges that go beyond just the global economic slowdown. Costs have boomed in its mines and its wages are now some of the highest in the global industry. It is also suffering from a shortage of skilled labour.

In what now seems an ill-timed move, the Australian government imposed a 30-per-cent tax on iron ore and coal mine profits earlier this year despite criticisms that the new levy was tantamount to "resource nationalism" and would deter mining activity.

"Their economy is so connected to mining … any change in those markets, China or the iron ore price, hits them pretty hard," said Craig Kipp, who, until he stepped down a few days ago, was chief executive officer at Boart Longyear Ltd. of South Jordan, Utah, the world's largest driller, which depends on Australia for as much as 20 per cent of its revenue.

Well aware of its shortcomings, Australia is trying to cut costs through technological innovation and is trying to attract skilled workers from overseas to work at its mines.

Australia's Mine Minister Martin Ferguson said in a visit to Canada in August that Australia wants to woo more investors to its resource industry, particularly the uranium and natural gas sectors and mining services.

"You can't be inward looking," Mr. Ferguson said in an interview with The Globe and Mail. "You have to be open to foreign investment and you have to actually encourage your own industry to chase overseas investment, and Australia and Canada are very much on the same page in terms of those objectives."

About 50 per cent of the capital raised in the mining world is raised by companies listed on the Toronto Stock Exchange, and many of those have an eye on opportunities in Australia, particularly in its uranium sector.

Australia has about $270-billion in capital currently committed to mining projects. But major projects have been shelved in recent months, and more announcements could be on the horizon.

Australia's own BHP Billiton PLC, the world's largest miner, was among the first of the producers to signal concerns about the commodities cycle. In August, it reported its first fall in annual profit in three years and announced it was delaying a $20-billion (U.S.) expansion of Olympic Dam, a huge, open-pit copper and uranium project in southern Australia.

The company also said it would put other major project decisions on hold as it adapts to slumping demand for commodities and soaring production costs. Barely a week later, it announced the sale of the Yeelirrie uranium deposit to Canada's Cameco Corp. for $430-million.

"They're working on the basis that record commodity prices have gone," Mr. Ferguson said of Australian mining companies in general.

Mr. Kipp, who recently returned from a trip to Australia for Boart Longyear, would not comment directly on Australia's mining policies, but said that top companies are quick to move their drill rigs to jurisdictions that have the lowest costs.

Australia still has undeniable strengths. John Gravelle, Canadian mining leader for consultancy PricewaterhouseCoopers, said that China's economy is slowing but is not grinding to a halt, and that Australia will still be best placed to serve most of its markets.

"There's no way mining companies are going to walk away from these properties, but they'll do their best to delay them," said Mr. Gravelle, pointing out that it takes three times as long for a shipment of iron ore to reach China from Canada's Labrador Trough as it does from Australia's coast.