BGC Contracting CEO Greg Heylen has been through the heady days of the past mining boom and admits that it is time for contractors to look at doing things differently.
The company is the contracting arm of vertically integrated construction business BGC – which was built by the late Len Buckeridge.
Buckeridge bought the then small earthmoving outfit General Bulldozing, out of receivership and set about turning it first into a civil contracting business and then, as the boom hit, mining contracting business.
That mining contracting business thrived through the boom times and finds itself in a healthy financial position that should set it up well for the challenges ahead.
“As an industry we’ve got fat and lazy over the past 10 years,” Heylen said.
“The focus has been on digging up the product. The focus has been on getting more iron ore to the port.
“Now the focus is on efficiency and productivity.”
That means there will have to be a change in thinking when it comes to the client too.
“The challenge for contractors is to work with clients and lower their cost base,” Heylen said.
This way the client can remain profitable and, it if is done right, so can the contractor.
Reading between the lines that means just cutting the cost of doing the contract is not the answer because, as some of the small players are finding out, that way can lead to disaster. Rather it is to find innovative ways to improve the entire business and get the costs savings that way.
Heylen said one of the contractor’s brand pillars was to have strong relationships with clients.
“We work very hard at that,” he said.
“We always try to have frank and open discussions with the clients.”
So where are these cost base reductions going to come from if not from cutting the contracting rate?
“In our experience there is not one single item that will largely improving your productivity,” Heylen said.
“Instead we’re working on a number of fronts.”
That covers things such as equipment choice, how the workflow is structured on site and how the contractor works with the client.
In this Heylen said the most important thing anyone could ask is “why are we doing this?”
“We find it’s a matter of challenging all these things at site.
“If people can’t give you answer on why you are doing something, then don’t do it.”
One thing Heylen has tried to build into BGC Contracting has been a culture where the employees are not afraid to question why they are doing something or even why they are doing something a certain way.
If there is a better way to do it, he wants them to say it, because that is where innovation and efficiencies come from.
“If you change how you’re doing things you can find ways to do things cheaper,” Heylen said.
One of the problems facing BGC Contracting at the moment is that all of its mining contracting eggs are in the iron ore basket. It has contracts with Cliffs, Arrium and Atlas Iron.
That is something Heylen wants to work on. In the past the company has had gold, nickel and coal contracts too.
He also tries to keep the business split 50-50 between mining and civil contracting.
Of those mining contracts Cliffs seems the most volatile with its US-based management seemingly unsure about whether to keep its Australian operations.
Heylen’s view on that is simple.
“We have a contract that survives through a change of ownership and it still has five years to go,” he said.
There is also the question as to why a miner would opt to take on a contractor rather than doing the work itself.
During the boom contractors were an easy answer for emerging miners because they offered a quicker way to get into production.
Heylen reckons the drivers that made contractors attractive to mid-tier miners still exist, while conceding that majors like BHP Billiton and Rio Tinto are becoming owner-operator companies.
Were a mid-tier miner to try to turn away from contracting to owner-operation it would face a capital challenge.
Heylen said contractors provided their own equipment.
Indeed, BGC Contracting spent $100 million to buy earthmoving equipment to move into its Arrium contracts.
“Mid-tier clients often need the expertise that contractors can bring,” Heylen said.
“Contractors also bring the systems that are needed to operate a mine. Developing those systems from scratch is very expensive.”
Heylen said BGC Contracting spent tens of millions of dollars on its systems – both in continuous improvement and in maintenance.
“You have to go to the sites and find out what parts of the system aren’t working for them [the workers on site] and fix it,” he said.
“If the systems don’t work, the guys become inefficient and you get a high cost base.”
The good thing with BGC’s business in many of the contracts it has is that it covers everything from the drill and blast through to the processing and loading of the ore on the site.
That gives it the opportunity to look at how it can streamline the whole operation from making sure the drilling and blasting is done optimally to finding the most efficient haul strategies and loading plans.
Operator training is another key area the company concentrates on. It uses Immersive simulators and cross checks the results from those simulators with actual survey data from the sites the operators are working on.
While client relationships are important to Heylen, so too are the ones with suppliers.
BGC Contracting has formal alliances with Komatsu for its mining equipment and Atlas Copco for its drilling equipment.
“If you link that back to where our where we’re trying to find cost efficiencies in our business, having an alliance with Komatsu and Atlas Copco helps us align how we work more efficiently,” Heylen said.
“We’re not just a buyer of their products, we’re working with them.”