TEN YEARS ago the likes of Rio Tinto and MIM – since snapped up by Xstrata – could hardly make a buck mining copper. Dotcom was ”in”, base metals were most definitely ”out”, although the switch often came down to the same West Australian entrepreneur floating a different company.

Few were brave or prescient enough then to scoff at the ridiculous prices being forked out for dotcom assets – or the valuations being signed off by directors.

As with any boom, few will pick the top for copper, or commodities in general. But when that rainy day comes, it will be too late for Australia to open a savings account. Surely, it is time now to set up a sovereign wealth fund. (The Future Fund is commonly mistaken for a sovereign wealth fund but its purpose is to cover public servants’ superannuation liabilities.)

Ten years ago, copper fetched US80¢ a pound. Now it sells for $US4.50. All commodity prices have shot through the roof: base metals, coal and gold, and soft commodities such as sugar and wheat. All of which Australia has in abundance.

All of which won’t last forever, super-cycles and Chinese economic miracles notwithstanding.

The world is awash with cash. With the Americans and the Brits splashing billions on their own bonds, printing money like the clappers, investors are chasing hard assets. Inflation fears are driving a stampede. Still living beyond our means, still producing a current account deficit each quarter, Australia is sitting as pretty as ever. Best terms of trade since the 1950s.

As commodity prices soar, however, costs are also rising.

Ten years ago, you could have put a copper project together dead cheap. Find the stuff, strap together the finance and bring it to production. Now, the mines are getting deeper. The huge Oly Tolgoi mine in Mongolia, the biggest new copper/gold project in the world, owned by Ivanhoe and Rio, will cost $6 billion to develop.

The main orebody sits almost one kilometre beneath the surface.

Compare that with the orebodies in the Pilbara – or with Broken Hill and Mount Isa – where they are sticking out of the ground.

Legend has it that the stockman who discovered Broken Hill stumbled over the asset when he tethered his horse to a clump of ore.

Australia has competition like never before, a challenge which would only really become apparent in the event of a downturn, a commodities bust. In the event of a downturn, costs begin to count.

As costs rise and grades drop, Africa and Asia look more attractive, despite the sovereign risk.

But the easy orebodies have been had. Mongolia, the new frontier in Asia, is luring bankers and entrepreneurs by the dozen.

Junior explorer Xanadu Mines, which floated on the stock exchange last year touting Mongolian coal and iron ore prospects, had already returned its seed capital investors 10 times their money in five years.

Xanadu has a 327 million tonne thermal coal resource, and another ”target” resource of 150 million tonnes. On an enterprise-value-to-tonne-of-coal-in-ground basis this junior explorer’s coal is priced at 30¢ a tonne. A tonne of coal sells for $70 over the border in China.

A decent geologist in Australia will cost $300,000 a year. In Mongolia, it’s $30,000.

At the Davos talkfest last week, the common fear cited by business leaders was inflation and a further upswing in commodity prices. The biggest fear for Australia is surely a commodity price crash, in which case we could be left with a whole bunch of uneconomic mines, zero savings from a sovereign wealth fund … and a financial services sector still charging humungous fees.

Last week, this newspaper’s esteemed economist Ross Gittins put things in perspective on the Queensland floods, in financial terms at least: ”They are a great human tragedy but they’re not such a big deal for the economy.”

The Reserve Bank yesterday sallied forth with some comment on the ramifications of the floods, saying essentially the same thing. The floods will hit GDP by 0.5 per cent and deliver a small kick to inflation. Both temporary effects. The damage to production will largely be offset by rising prices for the likes of bananas and sugar, and coal for that matter.

The Reserve’s calculations were made on the Queensland flood damage. They did not include Cyclone Yasi, but the same principles would apply.

Some studies on the economic effects of natural disasters even suggest they might enhance economic growth.

The RBA found the biggest hit would come from disruption to coal production since mines and ports operate close to full capacity.

Elsewhere, the destruction of property and infrastructure would provide a one-off hit to GDP but would be recouped by rebuilding activity.

Although the insurers would take a big hit, they were well capitalised, said the RBA, and therefore able to absorb the claims losses.

Qantas’s safety record is without peer. And when it comes to crying poor the national carrier also has a rich tradition to uphold.

In 2005, the then Qantas chief executive Geoff Dixon posited, via a BRW magazine cover story, that the carrier might not survive. Unless of course it was kept protected from competition on the Pacific route from Singapore Airlines, and so on.

Espousing this fear of extinction – and earning itself the moniker ”the Mangy Roo” in the process – Qantas went on to notch up a billion-dollar profit two years later.

This week, Dixon’s successor Alan Joyce was questioning the viability of Qantas’s full service operations internationally. This prompts the question, is Joyce simply beating up the unions or do we buy Qantas with our ears pinned back?