The slowdown in mining investment and falling commodity prices has had a significant negative impact on many Australian Mining, Equipment, Technology and Services (METS) companies.
Clearly the mining sector is in a difficult period, with the widely reported weakening demand, escalation in costs, low productivity, current price of mining commodities and the strength of the Australian dollar.
These factors have led to the cancellation of new major projects and a change in design to existing major projects. Many existing mines have been put in to a ‘care and maintenance’ mode because of low ore yields, until the viability of mining improves. The knock on effect to the mining economy is significant with a Queensland Resource Council (QRC) report, estimating close to 8,000 job losses in the Queensland coal industry alone.
A big issue for the industry is productivity.
A McKinsey (a global management consultancy firm) study highlighted that multi-factor productivity was growing up until 2005; but it dropped 0.7% per year until 2011, when the study was undertaken.
A similar report on behalf of the Mineral Council of Australia highlighted that Australia’s mineral sector last delivered a productivity increase in 2003, but since then, overall productivity in the minerals sector has fallen by 30%. Adding to this, the QRC report showed that the cash costs to produce a tonne of coal have nearly doubled since 2005.
Despite this backdrop, there are 26 projects under $500 million at the committed stage, with a combined value of $4.8 billion, 16 mining projects with a value of over $500 million and six projects with a value of over $2 billion.
Coal mining investment has peaked for the immediate future, but future prospects remain strong.
The driving forces for longer term optimism is the continued urbanisation of both China and India and the ramp up of international energy demands which are set to grow by 30% in the next two decades.
Australia’s mining sector is at the forefront of mining technology and has built a reputation as a world leader in the METS sector.
Australia’s leadership position is enhanced by some of the highest occupational health and safety standards in the world. Small to medium size businesses (SMEs) feature strongly in the sector and as reported from the METS survey, of the $90 billion revenue being generated by the METS sector, 20% comes from innovative SMEs with revenues between $5 million and $29 million.
Accessing global supply chains is a focus for METS exporters with 47% of METS having offices or operations offshore, signalling a sophisticated and long-term approach to international markets. 24% of companies are considering new opportunities offshore, particularly in Asia and Africa.
Of those companies that are not currently exporting, 18% plan to do so in the next one to two years. In the next three months Austrade reports that there will be over 200 mining companies visiting various parts of the world to promote Australian technology that make mines more productive and profitable.
ICN is working on many mining projects, to help increase opportunities for Australian industry, especially SMEs. ICN receives Australian Government funding, through the Suppliers Access to Major Projects (SAMP) program, to promote and maximise the participation of local Australian suppliers to large-scale projects. The highly publicised Roy Hill Iron Ore project, the GVK Alpha Coal project and the Adani Coal project are each valued at around $10 billion and are supported by SAMP.
With the help of ICN, Roy Hill already has significant local content, with $96 million in orders already placed with Australian suppliers for the early works. This demonstrates the value of the work itdoes, in helping SMEs access major resource projects. The GVK and Adani projects are also expected to yield valuable contracts for local companies.
It works closely with state governments, the Australian Government and business associations to make sure local industry is aware of mining projects that have opportunities for SMEs; engaging with proponents at the very early stages of projects, to map SME supply chain capabilities, so that full consideration can be given to capable suppliers when it is time to go out to tender. ICN has done this mapping exercise for the GVK coal project and will also help Adani with this Carmichael project.
The operations and maintenance phase for projects will give SMEs opportunities to demonstrate to the project owners that they are flexible and can respond to needs of the project. With the average build of a project being three years and the operation being 15 years or more, the maintenance spend over those years is considerable and capable suppliers close to the mine site are highly valued.
The mining sector is going through a tough time, but it will recover. The major mining companies have turned their focus to efficiency and productivity rather than just production. Consequently, innovation and technology is paramount to ensuring Australia develops a sustainable and competitive advantage in the mining sector.
Fred Cross is the national sector manager for mining at ICN.