Difficult conditions fail to derail Aurizon

Cyclone Debbie was considered the most dangerous weather event to hit Australia in years when it struck the country’s East Coast over March and April.

It caused immense disruption for the mining industry in Queensland and New South Wales, with widespread flooding covering large portions of both states.

For several miners, predominantly in the coal sector, the cyclone forced them to lower their production expectations for the current financial year due to output being interrupted as they waited for conditions to improve.

But perhaps the most significant impact the cyclone had on the industry was the disruption it caused to the rail network of Aurizon, Australia’s largest mining freight operator.

Aurizon’s maintenance, engineering and civil teams had to work tirelessly over almost a month to repair damage caused to its four coal systems by Cyclone Debbie and the flood events that followed.

The Goonyella rail system was the last of Aurizon’s coal operations to reopen in late April after recovery and repairs were completed at multiple sites where landslides impacted infrastructure along the corridor.

Aurizon acting executive vice president of customer and strategy Ed McKeiver said the Central Queensland coal network “bore the brunt” of Cyclone Debbie and the associated flooding.

“All four coal systems were impacted and closed for varying periods of time,” McKeiver told Australian Mining.

“Our infrastructure teams scoped more than 520 pieces of recovery work with a repair bill estimated at $40-50 million. Our crews worked relentlessly on a disciplined and well-executed recovery plan to ensure customers could recommence exports as quickly as possible.”

Positive outlook

The disruption caused by Cyclone Debbie followed what had mostly been a positive period for Aurizon, particularly over the previous six months when the company had been encouraged by a strengthening coal market.

McKeiver said despite the interruption caused by Cyclone Debbie the outlook was positive for its customers, as well as for the industry generally.

“We recognise that these higher prices may not be sustained in the longer-term, however the long-term outlook for demand of Australian high-quality resources remains positive,” McKeiver said.

“A higher coal price typically provides an incentive for coal producers to increase production, however many of our customers were already operating at relatively high utilisation rates, and therefore there were less opportunities to increase volume in the short-term.”

Despite improving market conditions, Aurizon has experienced slight fluctuations with the volumes hauled.

In coal haulage, the company saw a one per cent decrease in volumes from the first half of the 2016 financial year to the same period of 2017, primarily due to a pair of contracts expiring.

However, in iron ore, the company experienced short-term upside off the back of the stronger iron ore prices that spiked during that period.

The Moura line

 

In transition

Like most of the Australian miners it serves, Aurizon implemented a program to transform the company during the commodities downturn.

The program initially committed to saving $380 million between 2016 and 2018. In the first half of the 2017 financial year, the company generated $64 million of benefits from increasing labour and fleet productivity, outsourcing property maintenance and rationalising its supplier base through the procurement process.

Aurizon’s front office also transformed with Andrew Harding appointed as its new managing director and chief executive officer in December 2016, replacing Lance Hockridge.

McKeiver said Harding, previously an executive at Rio Tinto, was focused on continuing to deliver transformation benefits beyond FY2018 by expanding the scope of the program to include the company’s capital and revenue.

“Across the business, Aurizon is taking a very disciplined approach to managing costs and capital to drive value for its shareholders,” McKeiver explained.

“While capital expenditure has reduced and the business is generating strong cashflows, Aurizon has a clear view that it is able to achieve greater efficiencies, further cost reductions and productivity improvements, while maintaining its commitment to customers and to safety.”

McKeiver said Aurizon would use these initiatives to grow value for its shareholders and customers by ensuring its core businesses continued to improve operationally and commercially.

He believes there is also enormous opportunity to make sustained improvements across the supply chains that serve the Australian resources sector.

“A good example of productivity improvement is Aurizon’s introduction in recent years of longer coal trains with bigger payloads in Queensland,” McKeiver said.

“Likewise, new technology is transforming Aurizon’s rolling stock maintenance practices, resulting in a higher utilisation of coal train assets, lower maintenance costs, and continued high levels of safety.

“Collectively we must remain globally competitive and work hard to provide reliable and highly-efficient export supply chains for our products and our services.

“The overall benefit of supply chain collaboration means a more efficient supply chain that continues to support the global competitiveness of Australian resources.”

Pursuing innovation

Collaboration and innovation also remain key elements of the strategy that Aurizon is using to generate value in the early stages of Harding’s tenure.

On its Central Queensland coal network, Aurizon is progressing to automated track inspections by identifying complex patterns in data to predict faults, optimise the maintenance response and improve reliability.

These include reducing the frequency of manual rail operation, using remote monitoring to extend inspection periods, introducing remotely controlled rail lubricators to reduce in rail and wheel wear, and using drones to inspect electrical overhead and bridge structures.

“In our above rail business, using our assets productively has been a key area of focus in order to maximise locomotive hauling capacity,” McKeiver said.

“In the 2016 financial year, by increasing the train lengths across the Central Queensland Coal Network, we were able to use 743 fewer trains than we would have previously required to haul the same volume of coal.”

McKeiver said this allowed Aurizon to reduce its fleet size, while also benefiting the communities and the environments in which the company operates from an environmental perspective.

This article appears in the July edition of Australian Mining

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