Drill and blast specialist Ausdrill is a typical example of a modern-day mining services provider that is navigating a new-look marketplace for its sector.
The Western Australian-based company reinvented itself during the industry downturn to adapt to the challenging environment that was created for contractors and mining services groups.
Like most of its peers, Ausdrill felt its share of pain three to four years ago as its profits and stock value on the ASX both nosedived.
Ausdrill, which is led by industry veteran Ron Sayers, has experienced a turnaround in fortunes over the past year, reflected by its share price hitting highs not reached since 2013.
In the past six months, Ausdrill’s order book has been bolstered by several new contracts and extensions to existing agreements to help drive this revival.
Starting with this year’s Australian-based extensions, Ausdrill secured more than $200 million worth of contracts with two of its existing clients in WA’s Goldfields region – Kalgoorlie Consolidated Gold Mines (KCGM) and Gold Fields.
Ausdrill, through subsidiary BTP Equipment, also added a $70 million contract extension with Peabody Energy at the coal company’s Hunter Valley and Bowen Basin operations.
However, Africa continues to be the strongest source of activity for Ausdrill, with several contract wins strengthening its growth prospects.
In December 2016, Ausdrill announced that subsidiary, African Mining Services, won two mining contracts in West Africa worth a combined value of more than $500 million in its latest achievement on the continent.
Competitive conditions continue
Despite the improved outlook these contract wins and extensions have delivered, Ausdrill chief operating officer Andrew Broad explained that market conditions still presented many challenges for the contractor and other services companies.
“Demand is still not matching supply, and there is still an excess of equipment and services companies out there,” Broad told Australian Mining.
“Looking at the exploration drilling sector there’s an awful lot of gear out there and companies are struggling, both small and large companies, in that space.
“They are very much focusing on cash flow. So, some of that rates going around in the market are quite cheap now.”
Being a company that prides itself as a market leader for service – more so than for offering the lowest costs – Broad said this environment provided Ausdrill with a tough pricing decision it now commonly had to make.
“If a client is looking at price and he is happy with service, but then Company B comes along and they are 20 per cent cheaper, it makes it hard for them not to look at it,” Broad said.
“We are not in the market of price matching and we are holding our revenues because of that.”
What this environment also meant for Ausdrill was that the recent contract extensions weren’t as easy to secure as they may have appeared.
Contract values had to be discussed and adjusted with its long-term clients, and Ausdrill’s hierarchy also focused on ways the company could add value in areas where it may not have previously.
“There has been price movement on all of the contract extensions we’ve had – either price or condition movement,” Broad said.
“But to be honest it’s about sitting down with a client and working through what’s currently driving their success and trying to come up with solutions that integrate you with their process.
“From a marketing perspective that is where we are trying to positions ourselves. If we are doing a drilling contract on site that is not all we do – where we can value add?
“Whether it is through other parts of our business or other parts of our service offering that we can integrate for our client. And trying to understand where they are going in the long term and how we can be part of that.”
A key way services companies can add value for their clients is by joining the current trend in the industry of being innovative and using technology, Broad continued.
Ausdrill demonstrated this commitment by making a technology investment in Chrysos Corporation, which is aiming to commercialise a CSIRO-developed photon assay technology.
According to the CSIRO, the x-rays used by the technology provide a faster, more accurate way to detect gold over traditional chemical analysis.
“It’s a lot quicker, a lot more efficient and arguably a lot more accurate,” Broad said.
“So while we are still going through that testing process by pulling that technology into our group we can then look at how it can help change the mining operations (of our clients).”
Broad said it was important for the mining services and contracting sector to identify ways that it could be innovative to follow the standard set by leading mining companies.
“The autonomous mining that the big miners are progressing is certainly driving some of the technology changes,” Broad said.
“Like always there is a trickle down effect to the smaller operations and the contractors like ourselves. We have to start thinking about how we can incorporate that into our business to be able to offer what would traditionally be a large miner project.
“Innovation and technology will need to be a part of the service providers offering in the future.”
Broad said Ausdrill’s ongoing success in Africa was also set to continue, with the company’s balance of work on track to move further away from its traditional home, Australia.
He said the company was simply finding more opportunities in Africa than it did in Australia.
“That’s probably been reflected by our contract wins in the last six months and there is still a big pipeline of work that we are bidding for in Africa,” Broad said.
“It’s interesting because traditionally our business has been one third Africa and two thirds Australia, but in 12 months we can see that ratio is going to flip in the other direction.”
Ausdrill is familiar with operating in Africa, having held a presence in the continent since the early 1990s.
This article appears in the April edition of Australian Mining magazine.