2016: The year ahead for mining and METS

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The start to 2016 for the mining and METS sectors has been a disappointing one.

Whilst iron ore has temporarily risen in price, it is forecast to drop back down to around $US30 per tonne, and another smaller iron ore player, Gindalbie Metals, has been abandoned by parent company Ansteel and currently hovers in uncertainty about the future of its Karara Project.

Some of Austmine’s directors took time out to share their thoughts on 2016, what it holds for the industry and what can be done about it.

Alexander Kachellek, managing director of Korvest and chair of Austmine, gave a shrewd evaluation of what is to come in 2016:

"Miners and METS companies need to be able to continue as they are for, I believe, the next 2 years with the current tumultuous business conditions. Businesses need to focus on strategies, then action plans, that include things like Kaizen that makes the business fitter and ready for an upswing.

"Remember, ‘if it is down, then it will go up and if it is up, it will go down’; we just do not know the length of downs and ups!"

Ian Gibbs, executive general manager – mining of RCR Resources provided some excellent insights and advice: 

“The METS sector is facing one of the toughest periods in history, with 2016 being defined by weak domestic opportunities. (Certainly the worst I have seen in nearly 40 years in the industry). Many projects have been delayed and the outlook appears these will remain on hold for the most part of the year," Gibbs said. 

"Both coal and iron ore sectors do not forecast rapid improvement, certainly in the first half of the year. Many companies will face the challenges of restructuring to prepare for the future, leaner and with improved effectiveness. 

"My thoughts are, our opportunities lie in improving our efficiency as suppliers, restructuring our offering to clients and providing real cost saving solutions by innovation. This may include new technologies, but also new ways in engaging with clients in service and support. 

"However offshore opportunities will present with the weaker Australian dollar and I have already witnessed our competitiveness has dramatically improved, which should unlock many opportunities, for Austmine members," he said. 

"Apart from the obvious measures to reduce costs Australian companies will need to be very nimble, seize the opportunities presented and looking a new ways to do things.” 

Rob Simpson, manager for infrastructure and environment at Xenith Consulting and deputy chair of Austmine concurred with Gibbs, emphasising the need for diversifying in METS: 

“Whilst 2015 was one of the toughest years in recent history for the mining and METS sectors, 2016 has started with even more uncertainty.  The forecast weakening Australian dollar and late 2016 recover of the oil price provides some light, however subdued investment throughout the industry will continue, as will financial pressures on many organisations," Simpson said.

"Retaining existing clients whilst broadening service, geographic and/or customer base; as opposed to even further, unsustainable cost cutting and market shrinkage; is critical for METS companies sustainability over the next 12 months.” 

Max Wijasuriya, vice president for capital equipment at Metso Australia made some excellent observations on the opportunities and need for innovation provided by these challenging market conditions. He took a positive approach to how organisations need to tackle this new market norm:

"The challenges will certainly be there in 2016 with the volatility around the world markets and uncertainty around commodity prices. What seems to be changing though, is the opportunity for innovation, to do things differently – something which has always been there, but where the take-up of these ideas was quite low (or took too long) in the past, due to the focus on proven production sometimes seemingly at any cost," Wijasuriya said.

"More and more now we’re seeing that mining companies and suppliers are challenging themselves to do things differently, and that’s not just around new technology and innovation, but also in new ways of approaching a problem or issue, and (cautiously) embracing these ideas if they work. For the METS industry, it is about how they can add value to their customers – and this is happening more than ever before.  This ties in very well with Metso with their innovation and technology initiatives, as well as strategic partnership/development projects with key customers.

"METS companies need to find more than ever before ways to add value, whether through technology, innovation, or different problem-solving approaches, etc. The need to maximise profit and improve efficiency has never been more important with less to go around given the challenging times – but mining will continue to remain a critical business worldwide; it’s just that some of what is being focused on may change and progress.

"What was important before will remain important, but other areas and ways of thinking will come to the fore – a positive development.”

Alan Broome, chairman emeritus of Austmine and chairman of Micromine and Hedweld, two Austmine member companies, offered his insights into the reality of the next 12 months for miners and METS here in Australia: 

“This year is going to be very tough for Mining and METS," he said.

"The latest Macquarie Bank commodities forecast is very gloomy, reflecting the current and immediate future state of our sector. My opinion is that a lot of Mining Companies will go out of business and a huge number of assets will be put up for sale at bargain prices. The flow on to METS will be significant and unless they can adjust, they will falter.

My view is that many METS businesses are not equipped to adjust quickly enough to the changing market demand and circumstance. They will need to be very focussed on 'adjustment strategies' rather than "more of the same". I’m not sure that this is widely appreciated as yet. Every company needs to have its own adjustment strategy; there can be no one fits all approach. This state of the market is not a flash in the pan; it has been with us for quite some time and will continue for a fair while yet, so you can’t just hold your breath and hope it goes away.

"The places to be are South America, particularly Chile and Peru, and the emerging markets in Central Asia and Russia. The commodities most likely to provide opportunities are nickel and copper because they have good medium term prospects, but frankly at the moment everything’s quite depressed.”

Peter Seligman, managing director of SRO Technology, an SME METS business provided commentary and advice based on his own position in the industry, facing these challenging times:

“The last few years all the miners have been chasing their cost curve. Their products have been getting cheaper, so they either had to get more productive or cut the costs of their operations. More often than not, they’ve been focusing on getting cheaper, rather than more productive. We’ve seen this with them cutting their workforce, spending less on maintenance and investing in less capital expenditure.

"Last year, David Moult, MD and CEO of Centennial Coal talked about the 3 waves of the downturn (a concept borrowed from Kirby Johnson, Consulting Partner at Wipro) and improving efficiency," he said.

"Firstly you cut costs, secondly you sweat your assets and thirdly is the re-engineering phase, where you begin to spend money once again on making your assets more productive. That third wave is the huge opportunity for METS – but who knows when it’s going to happen? It might be 2016, it might not be. However, it does have to be relatively soon, because there’s no more cost the miners can cut. They will need to start spending money, in order to save any more on costs.

The opportunity for METS, in my opinion, lies in METS taking responsibility for kicking off that third wave. What can they do to get their hands dirty to demonstrate that miners can, and should, initiate that third wave?

"METS need to get pilots up and running, or demonstrate the cost savings of their technology, rather than just explaining it. I know that costs money, and most METS are small businesses like mine, and it means you have to invest hard cash, but sometimes you can find a customer who is willing to help you fund a pilot in an innovative way if they feel it may save them some money in the future! The challenge as I see it is that people are standing on the sidelines, rather than risking getting involved in these projects that could help reduce costs for the industry or their operations.”

Austmine CEO, Christine Gibbs Stewart shared her thoughts on what METS can do to stay strong and competitive during the year to come:

“As noted by our Directors, and evident in the commodity prices, news and forecasts, 2016 is going to be another challenging year for the METS sector. We can either be defeated and go nowhere, or rise to the challenge and look at new ways of doing things, explore new opportunities, develop new relationships and importantly – innovate."