Price is king when it comes to miner/supplier relationship

While a recent mining industry suppliers conference heard there is still an abundance of opportunities for businesses in the sector, the overriding message of the day was the value-add they could offer resource companies.

Earlier this month the NSW Minerals Council hosted a conference which heard from a range of the top-ticket mining companies in a panel discussion that centred around the relationship between mining firms and their suppliers in times of a downturn.

“There is no doubt that where we are at the moment with supplier price is king,” general manager of Rio Tinto’s Northparkes mine, Stefanie Loader, said.

“Letting suppliers know where the opportunities are for us and being open about where our weaknesses are becoming more important.

 “We are going to go after price.”

As resource companies continue to review their operations, businesses who supply the services the sector needs are feeling the effects.

From drilling contractors to labour hire companies and engineering firms, the last month alone has seen millions slashed from projected revenue forecasts.

Ausdrill has downgraded its profit forecast to between $35 million and $45 million for the 2014 financial year, a far cry from the $90.4 million profit Ausdrill posted last financial year.

The contract driller said the weaker than expected outlook is a result of “challenging market conditions”.

Downer EDI have forecast a high level of uncertainty in revenue for the 2014 financial year.

"The 2014 financial year will be characterised by a reduction in major capital works in the resources sector and a greater emphasis by mining customers on optimising their volumes and cost of production,” the company said.

Bradken have also felt the pinch, with sales falling 10 per cent in 2013, resulting in the axing of around 1200 jobs in across the company’s US and Australian operations in the last 12 months.

CEO of Whitehaven Coal Paul Flynn said with the market remaining in a trough, conversations between miners and their suppliers have become more tricky.

“At a time when we’re all under some duress these conversations are becoming more hard edged,” Flynn stated.

However he agreed that open and honest communication was the best way to draw suppliers into the fold.

“We’ve got to draw suppliers in and explain to them where some of the pressure points are,” he said.

General Manager of Centennial Coal, Mick Cairney, said while commodity prices have fallen off a cliff, costs haven’t followed, resulting in both miners and suppliers needing to work harder at finding cost and productivity benefits.

And the steep prices that were once asked for services will no longer wash within a cash-conscious  industry.

“If suppliers can be really cost-competitive and come back with solutions for us, that’s what we want,” Cairney said.

When asked what suppliers should be targeting, Cairney said there were three in particular: automation, automation and automation.

Pointing to value-add innovations like data software and enhanced technologies, Cairney said issues with productivity needed to be addressed and stated that suppliers played a key role in achieving this.

“In this environment profitability is key when it comes to choosing suppliers,” he stated.

Loader agreed, explaining that innovation around all aspects of a mine’s profile including engineering, consulting, machinery and logistics was a way suppliers could kick the glut.

“We’re looking for innovative solutions from suppliers,” she said.

Loader said efficiency gains did not have to mean supplying large and expensive machinery, but that it could be as simple as saving companies money by changing outa a portion of the way they do business.

Loader highlighted that a recent change and Northparkes mine by a supplier had been instrumental in saving Rio Tinto time and money.

“We’ve completely changed one our key technologies in terms of transport and the handling of our product and that has been primarily driven number one by price but also that the added benefits that are driven by changing that technology, the way we handle our product and deliver it into the market,” she said.

With Australia boasting one of the most technologically advanced mining sectors in the world, with productivity gains inherent in the creation of innovative solutions, all members of the panel agreed that suppliers would play an important role in mining’s future.

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