At first glance, there are not many positives coming out of the coal sector, with dropping commodity prices, miners operating on thinner margins, deferred projects and investment, and job losses.
Add to this the myriad of smaller mining service companies that popped up mid boom and the challenges they are now facing as the industry backs off the boiler and the landscape gets darker.
But in every moment of darkness there are a few persistent fighters that will figure out how to tread the mining waters smarter, doing business differently and survive the downward trending cycle.
HunterNet chief executive officer Tony Cade told Australian Mining the small to medium mining service and supplier companies have been hit hard by the downturn in the Hunter Valley coal sector.
“If we had iron ore in the Valley, we’d be ok,” he said.
He added that there is future hope for the sector with a growing global demand for energy coming out of Asia, a relatively strong Aussie dollar and China’s decreasing stock levels all due to weigh in on the sector.
But for now the current state of the market is rife with uncertainty; there’s a looming federal election with no strong contender, legislation changes, and global growth statistics and sentiment not in the positive realm.
“Once the federal election is over we’ll see some changes,” Cade said.
However the current uncertainty, which Cade explained, is still seeing miners tighten belts after a period of extraordinary growth.
“Our members are looking at emerging markets like clean technologies,” he said.
“They’re focussing on internal efficiencies, and the reality is job losses.”
Cade said there’s a trend of “downproofing” amongst smaller suppliers as they position for the next stage of growth.
He said diversification is the key to downproofing business models.
Engineering and fabrication company T.W. Woods is a third generation, family owned business that has already set about repositioning its model and entered into new markets, Cade explained.
“A lot of these companies were all about the mining sector,” he said.
“They’ve had to look at how they can manufacture leaner.”
Capturing energy efficiencies and exploring clean technologies is one way these local manufacturers are surviving, but with the market turning so quickly they’ve had to adapt fast.
“The more agile these companies are, the better off they’ll be,” Cade said.
Experiencing a plateau in the mining sector has made the smaller suppliers, particularly in the Hunter region, “aware they need to take a longer term perspective to business,” Cade stated.
“They’re really challenging times for people in the market place,” HunterNet business development manager Karl Putnis added.
“It’s now a period of business rationalisation.”
No matter what you call it, be it rebalancing, plateauing, cyclical change, or rationalisation, the truth of the matter is times aren’t as rosy as they were but the base is still better then pre-boom.
“Business needs to stop and take check of where they can sharpen up,” Cade said.
Essentially the small to medium mine suppliers have two options – exit or increase efficiencies, Cade warned.
“There’s now a lot of pressure on price which wasn’t experienced in the good times,” he said.
“Margin squeeze goes down the line.”
And while these suppliers on a whole haven’t hit the panic button yet, they are concerned, Cade explained companies which are focussed on efficiencies and are accountable will fare the tougher times better.
“Companies that have this focus will benefit when recovery comes, and there will be a recovery,” he said.
Manufacturing makes up about 11 per cent of the Hunter region’s employment, it’s an industry which is driving innovative process change.
“A lot of difficulties in manufacturing can be linked back to difficulties in mining sectors,” he said.
“It’s a double edged sword because they’re so interconnected in this region.
“But companies are stretching traditional boundaries, going towards more high technological manufacturing processes.”
As the coal sector comes to grips with the downturn, it’s the mining service and manufacturers that have ridden the booming wave who are now contending with the possibility of a crash.
Downproofing companies that popped up when capital expenditure seemed like a blank cheque is no easy feat, especially when Australia has been dealt a pretty good hand over the past decade.
But as the adage goes the bigger the boom, the bigger the bust.
Whole down-and upstream industries that emerged out of the sector are now having to not only ensure their companies survive but continue to grow sustainably in a tougher economic climate.
The answer these smaller mining service companies are coming up with is three fold:
- Get rid of any fat: Companies which employ thousands of people in regional Australian mining towns are laying off staff.
- Diversify into other sectors: Mix up the offering and expand the businesses’ capabilities.
- Look for efficiencies: Move into clean technologies; make the offering more efficient and cost effective.
Family owned, Hunter Valley based mining manufacturer and engineering company Tefol is one company that is having to contend with these issues.
Tefol general manager Simon Montgomery told Australian Mining that the company has been one of the lucky ones, after having to make the decision to lay off 20 workers in its labour hire division the company set about diversifying its capabilities.
At the peak the company had nine line boring systems, competition went through the roof, and a wage war broke out as mining companies employed many of the local skilled tradespeople.
Competition pushed up wages, making it difficult for the smaller mining service companies, but now with an estimated 9000 jobs gone from Queensland and New South Wales coal sectors in the last 15 months the wage issue is now not as big a deal, Montgomery explained.
The focus now is on keeping employees working and managing the company through tougher times.
“We’re trying hard to work with industry to save mining costs,” Montgomery said.
“One Hunter Valley miner came to us and said ‘we need to cut costs, how can you help?’ We cut our costs as much as we could without going broke.”
He explained that with lower commodity prices the coal sector is parking up machines, and stretching out service intervals.
But with a full transport service offering, components division, line boring trucks, and equipment manufacturing Montgomery said “not all our eggs are in one basket”.
“We built this business on the coal sector and we’ve now had to diversify,” he said.
“Transport has been our cushion.”
Montgomery explained that this has been the biggest hit since 2004, but the company is mindful that with hard work and focussed plays it will be around for a while to come.
“There’s a lot of rumours about mines and companies, we want to focus on ourselves and move ahead on our own steam,” he said.
It is that very ethos that is seeing Tefol prepare to launch into South America with its Australian made hydraulic access ladder systems.
Looking to Latin America is becoming an increasingly popular move for Australia’s mining suppliers.
Austin Engineering was in 2011 awarded a lucrative contract supplying dump truck bodies in Chile, and since then has expanded into Bolivia.
Austin managing director Michael Buckland at the time said "these contracts are another important step in the positioning of Austin into the South American mining market”.
Tefol also saw an opportunity to diversify its offering, a move which would see its workshops continue to buzz, keeping employees working.
“Instead of putting people off we’ve come up with a project to keep people onsite,” the company said.
According to Austrade, South America is now providing increased opportunities for Australian miners and mining services firms.
“Australians are recognised as being great at bulk mining and transportation, as well as supplying remote mines, due to their experience in the harsh Australian mining industry,” Dan Sullivan, the trade commissioner at the Australian embassy in Peru, told Australian Mining.
“Our engineers are so used to doing bulk mining projects for demanding clients in rough conditions that they often bring their own technology and innovations with them.”
Mining equipment built in Australia, while not the cheapest in the market, has a reputation as hard wearing and reliable, he added.
“There’s a lot of potential for suppliers to take advantage of this reputation and the growing market, in fact mining equipment companies are actually ahead of the miners in moving into the region, with around 70 to 80 suppliers already set up in Chile, so there is already a small Australian support base,” Sullivan said.
By investing capital and capturing in-house engineering talent Tefol has developed two new products, telemetric trailers and portable high wall lighting.
The low voltage LED light plants are designed and built onsite by the company’s engineers and are safe and environmentally friendly for operation on open-cut sites.
The TefLites are generator powered and come on a swivel base rather than being rigid mounted, they can run on low light mode and also have individual circuit breakers for each light to increase electrical protection.
Tefol has also geared up its operations to roll out 25 to 30 telescopic trailers a year.
Solar powered, the trailers can be utilised as mobile repeater stations, dust and air monitoring hubs, or remote surveillance systems.
It’s the relaxed but determinate culture that has seen Tefol continue to grow sustainably.
“Times are tough, but let’s focus on the efficiencies we can implement to move forward and recession or downproof businesses,” Cade said.