METS to make up the difference

While miners duck for cover, cut costs, shed employees and shelve projects, Australia’s mining equipment, technology and services sector is growing and going global.

The METS sector is estimated to be worth over $90 billion dollars and directly employs more people than the mining sector; with the last count coming in at 386,000 people.

“The METS sector represents the mining jobs of the future,” METS advocate and former Queensland Premier Peter Beattie said at a recent industry event.

“This sector will create the dynamic, high tech, highly innovative jobs that are needed to engage those young people and ensure continued employment growth for generations to come.”

As an industry it is estimated there are between 1200 and 1500 METS companies which produce technologically advanced, globally competitive products and services for the mining sector.

A recent report on the METS sector conducted by its peak body Austmine found 84 per cent of METS companies are Australian owned, with the majority located in New South Wales, Western Australia and Queensland.

The survey reports almost two thirds of the sector are small to medium enterprises, employing fewer than 100 workers; the majority have an agile structure with 46 per cent working in more than one phase of the mining lifecycle, covering operations, design and construction, exploration, remediation, and feasibility.

Working across a mine’s lifecycle mitigates the risk of market fluctuations, which in the highly cyclical and sometimes volatile nature of the resources sector is important, Austmine advisor on strategy and policy Christine Gibbs Stewart told Australian Mining.

“While there’s been cut back in the mining sector, there’s still opportunities,” she said.

Especially as miners move away from focussing on exploration and construction, moving towards operations and production activities.

Although the METS sector is bubbling with ideas and forging ahead it is facing a number of concerning hurdles.

“The Australian dollar and the cost of doing business is eating into the profits of some companies and decreasing cash flow,” Austmine explained.

“Cheap imports are causing competitive tensions and making it difficult not just to compete, but remain in business.”

But Gibbs Stewart said the recent drop of the Australian dollar, falling below parity with the US dollar, will also make exporting easier and provide some relief for Australian METS companies.

Dreaming up solutions for the mining sector, METS companies span manufacturing, engineering and consulting services and the majority are advocates for sourcing local content, the survey reports 78 per cent of firms’ suppliers are located in Australia.

But according to Austmine’s survey METS companies are globally focussed with over 55 per cent currently exporting their wares to world, totalling $27 billion in exports, and of those who don’t export 18 per cent said it’s on the cards in the next two years.

As miners move out of the construction phase and into the production phase and commodity prices soften, productivity and efficiency gains are crucial for a plump bottom line.

The METS sector develops products that cuts costs and lifts productivity but as it stands today it faces a number of barriers.

“Australia lacks the industry structure to allow the solutions sitting with METS companies who tend to be small, they’re SMEs, to feed into the enterprise level operations of your mines,” Beattie explained.

As asset owners miners have a role to play in removing the obstacles facing METS companies so they may provide the mining sector with the solutions it needs.

“This role involves collaborating with innovative METS providers, and sharing risks in a different way,” he said.

Historically miners take the risk with respect to project development and reap the rewards when commodity prices escalate, Robert Milbourne partner at law firm Norton Rose Fullbright told Australian Mining.

“METS providers are normally not very exposed, directly, to the profit or loss of the businesses to whom they sell,” he said.

“This approach may change as the increase in technology, innovation and intellectual property can change the risk/reward equation for both parties.”

Milbourne explained that as mining companies struggle with productivity challenges, reduced margins and capital constraints, the industry may be ripe for changing the way in which transactions can occur.

“Where a provider is able to reduce costs by 10 per cent, perhaps the mining house would be willing to share in that saving with the service provider rather than outlaying capital to acquire the equipment and technology,” he said.

“As mining operations increasingly move to automation and advanced technology – a domain of expertise for the METS sector, suppliers may benefit [from] thinking more innovatively in their marketing and sales structures.

“With mining houses short of capital, they may have a new found willingness to share in the profit and increased upside through productivity gains that could be achievable through a tolling or similar arrangement.”

It is estimated only 53 per cent of METS collaborate with mining companies.

“Growing trends show increased aggregation of supply chains and an increasing desire to reduce supplier numbers in an attempt to reduce costs, and of course risks,” he said.

“In a traditional boom/bust cycle this works, however in the current environment this approach can’t work because you need innovation in your supply chains and aggressive collaboration is the key to that.”

Beattie explained for miners and METS to collaborate the innovation capacity of the mining sector needs to be mapped out.

He said this requires strong and open dialogue to understand the issues miners currently face and expect to face in the future.

The second thing Beattie says needs happen in order to improve METS prospects is miners need to increase the opportunities for “more field trials”.

“Again solution providers need to work directly with you, and be able to have direct support to prove their technology with your assets,” he said.

“The only way you can do that is in the field.”

And it doesn’t stop there; Beattie called for heightened innovation around procurement and contractor relationships.

“We need tier one suppliers to move beyond the use of procurement templates, and share risks with supplier firms to encourage rapid innovation adoption,” he said.

“This will require very strong collaboration and new engagement models between mining customers, key suppliers, SME innovators and research providers.”

In short for METS to continue on its growth trajectory it needs miners to become early adopters and trial Australian innovations.

“This will require taking a different approach to risk, but there is more at risk for the mining industry if it doesn’t act in this way now,” Beattie said.

He explained that the current rate of innovation adoption is approximately 15 years which he said “is too long”.

Jokingly exclaiming on the morning before the Labor party ousted former Prime Minister Julia Gillard, that by the time today’s innovations are implemented “we’re going to have Kevin Rudd’s great grandson running the country”.

He explained that “METS companies and government need to work together to accelerate this to something like five years which is reasonable”.

“Surely we can get it down from 15, that’s just crazy.”

Establishing a unified front and embarking on aggressive collaboration is necessary for the relatively young METS sector.

“We spend about $4 billion on R&D but frankly government needs to put in more, in partnership with mining, to help you [mining companies] deliver what you want in terms of cost cuts,” Beattie said.

But Beattie conceded METS is “an industry that needs to be better understood in public life”.

Investment in innovation and entrepreneurial skills can help Australia regain its competitive edge and unshackle the economy, Austmine says the METS sector realises this, spending over $1.6 billion in R&D in the 2012 financial year.

Beattie estimates about 50 per cent of global economic growth will come from knowledge.

“That’s why an industry like METS is going to be an industry of the future,” he said.

Australia’s coal sector has recently accused uncertain government policy, complicated and duplicated regulatory approvals processes, and the high Aussie dollar of diminishing the sector’s global competitiveness.

Beattie said for miners to maintain a strong competitive edge METS companies need to continue to flourish, developing technically advanced solutions for Australian operations.

Mine owners need to play a “strong role in collaborating with METS and government and the supply communities to progress the structural issues inhibiting cost reductions, productivity increases, and innovation,” Beattie said.

“We can’t expect to maintain this position without continuing to identify and address issues as we grow, and the economic environment changes,” he said.

“Acting as one value chain with all elements reaping the rewards is the way to do it.”

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