Industry Report: Mining Services in Australia

The Mining Services industry is feeling the impact of the global financial crisis on the real economy. MINING DAILY presents key Mining Services outlook indicators from IBISWorld.

Mining Services is feeling the impact of the global financial crisis on the real economy. The industry accounts for over 0.2% of total GDP, and despite falling in 2008-09 the revenue generated by the industry is expected to expand at an average annual rate of over 7% in the five years ending in 2008-09.

According to IBISWorld, the gain reflects increased activity resulting from rising mineral prices during most of that period.

The Mining Services industry does not export and does not face import competition, as all services, whether provided by local or overseas firms, relate to the domestic mining industry.

As a result, domestic demand is equivalent to industry revenue.

About 16,200 people are employed by the industry, and the industry comprises about 115 establishments and 95 enterprises.

Much weaker demand conditions for mining services prevailed in 2008-09 and will persist in 2009-10. Beyond that time, conditions are expected to improve as world growth firms and the demand for minerals revives. Nonetheless, activity levels will remain relatively subdued and the average annual growth in industry revenue is expected to amount to only 1.3%.

Outlook

According to IBISWorld, the gold mining sector, which provided a strong impetus to the early growth of contract mining, is expected to provide steady, ongoing work during the outlook period, rather than large new projects.

New contracts in the gold sector will essentially replace those that have expired due to reserve depletion or where the reserve has become uneconomic to mine.

A continued move towards underground work is also anticipated, as the more easily won (by open cut methods) gold reserves are depleted.

The increase in the gold price has also led to renewed interest in the metal and this is expected to translate into improved contract mining opportunities.

The mining of other metallic minerals will provide some opportunities, although mine owners will continue to focus closely on the cost of mining contractors as opposed to in-house operations.

A major growth area for contract miners will be provided by the black coal mining industry.

Over recent years, firms in the industry have succeeded in winning a range of jobs in both that industry and, to a more limited extent, in brown coal mining.

Nevertheless, the strength of the coal mining unions and their determination to keep jobs in-house will constrain the speed with which contracting is introduced, according to IBISWorld.

Continued strong growth in iron ore production will also provide an important source of activity for contract miners.

Overall the conditions faced by contract miners are expected to be mildly favourable.

Industry rationalisation is expected to continue, as small and medium sized firms look for synergies, and as large firms continue acquiring smaller operators.

The scale of many contract mining operations will make it increasingly difficult for small firms to compete effectively.

There is also likely to be a trend towards undertaking large projects on a joint basis. However, mergers amongst the largest operators in the industry (Leighton Holdings, Downer EDI and Macmahon Holdings) are not anticipated.

The average annual increase in real industry revenue for the outlook period is expected to amount to about 1.3%, while industry profit is expected to remain flat.

Performance will be uneven, with continued falls in revenue and profit expected in 2009-10, followed by moderate growth.

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