Consultants' survey 2009 - Part II

CONTINUING the series, Australian Longwall Magazine asks some of Australia’s best coal consultants about the ramifications of the credit crunch and how to make the most out of tough times.
Consultants' survey 2009 - Part II Consultants' survey 2009 - Part II Consultants' survey 2009 - Part II Consultants' survey 2009 - Part II Consultants' survey 2009 - Part II

Courtesy Mining Consultancy Services.

Angie Tomlinson

Published in June 2009 Australian Longwall Magazine

What we asked

1. What impact has the global financial crisis had on your consultancy, including the level and type of work you are doing in the coal industry?

2. What steps should companies be taking during tough economic times like these and what role does the consultant play in this?

3. What will be the positives to come out of the global financial crisis for coal companies?

David Reece, The Safety Managers

1. There has been little impact on workload but there is less work in the project area, like assisting with new projects. There is more work in the training and audit areas largely driven by legislation changes and a tougher stance from regulators.

The perception among our clients is that of rationalisation of expenditure and a reduction of workload and resources from the previous high levels to a more appropriate, sustainable level.

2. While it is understandable that this rationalisation will mean labour reductions, we are seeing some significant losses of corporate knowledge and skill leaving some businesses. In a similar vein to the skills shortage due to recent rapid growth, there is an issue of skill attrition through voluntary redundancy. There needs to be a strategic decision-making process applied to personnel rationalisation.

As our company is in the business of risk management, it is concerning to see a lack of risk assessment and change management in the area of personnel displacement. There also needs to be a continuing focus on education and competence at all levels so that we don’t see a similar lack of skill when demand increases.

3. As with previous cyclic downturns in the mining industry, those who survive will be more cost competitive and efficient. Coal still remains a cost-effective energy source, though not an environmentally attractive option; it will focus energy debate on the cost-benefit requirement for energy provision. There is also the potential spin-off of the development and implementation of more efficient operational systems, such as the numerous technological developments as reported in your publication: wet dusting, personnel tracking, etc.

There is some sorting of those who are in the business for the long haul, at a company and individual level, rather than the opportunistic.

There is the potential for closing of ranks and integral support from and for those who remain – to support each other and make the best of the situation.

John Boyd II, president and CEO, John T. Boyd Company

1. John T. Boyd Company has maintained an active and diverse workload across all its offices, with project work in numerous countries on six of the seven continents, as in previous years. The most significant impact on our clients has been the scarcity of third-party debt and equity funding sources, although the situation is improving in most parts of the world. Large producers remain cautious after postponing lower-priority projects.

2. The world will emerge from this financial crisis. Companies with stronger balance sheets should be looking for merger and acquisition opportunities whether it be entire companies, select mine/s or strategic reserves. The planning and approvals process for mine extensions and new mines should continue in anticipation of demand returning to historic levels and growth rates. Producers should focus on methods to improve productivity and lower costs.

Capital expenditures have to result in lower operating costs and increased margins; tonnage volume should not be the driving factor during this period.

John T. Boyd Company is providing guidance and recommendations in all stages of the mining cycle from exploration design and monitoring and geotechnical analysis to geologic modelling, mine planning/modelling, efficiency of capital expenditures, quality/processing, market/transportation analysis, feasibility/economic analysis and environmental review/land restoration. Clients benefit from our long and diverse international experience in identifying productivity and capital efficiency improvements and cost savings.

3. Financially weak coal companies and those who are mining marginal properties will exit the business, thereby reducing supply. The benefit to those coal companies that adapt through this global financial crisis will be the consumption of stockpiles and an eventual return to a tight supply environment with higher coal prices. There will also be renewed focus and rigour on project due diligence and valuation practices by both coal companies and financial institutions.

John Pala, managing director, Palaris Mining

1. Palaris has not observed any noticeable decline in our level of business. We have continued selective recruitment. Management services through our professionals with operations experience continues to be in strong demand across all areas of the business.

2. The appropriate response will vary from company to company and depends on issues such as balance sheet, gearing, refinancing obligation etc. The responses are likely to be in two broad categories: improving current businesses by focusing on cost structures and productivities; and looking for growth opportunities, either through acquisition or continued support for project development.

Companies who are generally in good financial shape will use the current situation to capitalise on acquisition opportunities. Most companies will be familiar with the cyclical nature of the industry and long development lead times for projects, and the need to keep a pipeline of projects to ensure sustained future growth.

Consultants will provide services in areas such as due diligence, feasibility studies, productivity improvement and organisational improvements.

3. The previous growth rates would have been difficult to sustain with everyone’s resources stretched to breaking point, rapidly escalating operating and capital costs, and short-term decision-making. The slowdown will help to focus people’s attention more closely on the business fundamentals and provide a more sustainable platform for future growth and investment.

Chris Wilkinson, managing director and principal, Mining Consultancy Services

1. The impact of the changed market conditions in the coal industry has had both negative and positive influences on our business. The budgets for several projects have been reduced due to clients’ drive to reduce expenditure. This has necessitated redeployment of some resources and greater need for internal cost control in order to provide the required service within a reduced budget.

However, there are still projects that had been funded or approved before the drop in coal price and volume which are still being executed at original budgets and schedules. Many clients who were making high margins during the boom are now refocusing on the fundamentals of economic production, which inevitably leads to the desire to increase productivity.

Over the last 21 years we have repeatedly seen increases in our productivity optimisation business during down cycles, which is again evident at present. In a predominantly fixed-cost industry the desire to produce more at the same cost or the same with less production units is paramount. Our reputation and proprietary technology developed to assist clients achieve improved productivity is well known and at present in high demand.

The recession has also had a positive effect on the availability of skilled engineers, of which there has been a chronic shortage in recent years. We now have the opportunity to recruit people based on sound selection criteria and at realistic costs.

There has been a noticeable increase in requests for proposals for due diligence and feasibility studies recently, which may be attributable to merger and acquisition opportunities in the market and resumption of normal business following a frenetic period of restructuring by most mining companies.

2. The impact that the current economic situation has on a mining company is somewhat dependent on their client base, coal products and type of mining (open cut or underground), plus whether they use contractors or are owner operated. Most mining companies have been forced to reduce production, redefine what production is economic (particularly open cuts) and reduce overheads.

In some cases mining companies are looking to outsource services that they had previously undertaken in-house, in which case using consultants for a limited period could be more cost effective.

After the initial cost-reduction measures taken, mining companies are now looking to further reduce cost per product tonne through rationalisation of mine planning and operations. This is an area where consultants can play a valuable role to quickly and rationally determine the most effective mining strategy, without destroying long-term value from the coal resource.

Underground longwall mines have increased contractor development during the boom. There is now renewed focus on reducing development units to save cost, which requires improved development productivity. MCS has significant experience in assisting clients improve development productivity through our Production Optimisation Process utilising

MCS electronic performance monitoring in combination with a process-based management system.

Where open cut mines have now become marginal with high strip ratios and current coal prices, there will be renewed focus on transition to underground mining. This often requires external expertise from consultants and MCS is well positioned to provide assistance for projects of this nature.

3. The limitations on financial systems has created numerous problems in the process of coal trade and shipping, which may necessitate a fundamental reappraisal of the way commodities are traded and sold in future.

There will be opportunities for mergers and acquisitions that may have greater value than some current projects. This may provide opportunity to leverage value and future returns.

The shortage of skilled people and some key supplies will return to a more balanced market condition, which will have a positive impact on cost and production.

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