Australia's Longwalls second exclusive survey of consultants servicing the underground coal market has confirmed an increasingly dominant role for the external agents in industry decision making, particularly at the boardroom level.

As with the first survey in 2001, Australia's Longwalls received an excellent response from the leading coal mining consulting groups. Survey respondents included Australian Mining Consultants (AMC), International Mining Consultants (IMC), John T. Boyd, Mineconsult, Minecraft, Mining and Resource Consultants (Minarco), NorWest Mine Consultants, Palaris, Runge, Seedsman Geotechnics, SCT Operations, Snowden Mining Industry Consultants, SRK Consulting, Strata Engineering and, Tennent Isokangas.

They indicated that in the past three years their role in aiding mining companies' decision making had expanded considerably. Coal industry consolidation and a shortage of skilled people were identified as key factors behind the continued rise of outsourcing.

The past three years had also seen a shift away from a purely operational focus, the consultants said, though many continued to merely backfill the void created by an industry-wide skills shortage.

Australia’s Longwalls: Three years ago, respondents remarked on the growing role of consultants in strategic decisions in Australia's underground coal mining industry. How has this evolved in the light of continuing mining sector consolidation?

Consultants were overwhelmingly bullish about their continuing role in the sector given a continuing skills shortage and industry consolidation. They said they were more involved than ever before in key strategic areas, including new project evaluation and major capital expenditure evaluation, cited by many to have influenced the current upswing in the coal sector.

Many commented on a shift away from day-to-day operations input.

“A growing part of our business is centred on corporate level decision making,” said SCT. “This includes brownfield and greenfield developments, design of key infrastructure and milestone events that are now more commonly co-ordinated at head office level.”

Mineconsult saw this continuing with both long and shorter term planning input being provided by consultants.

Some consultants anticipated companies requiring more “value adding” services in areas of technical speciality, which will require consultants to differentiate either on product/capability and/or on cost.

The foreseeable downswing at the end of the current cycle made a convincing case for the use of consultants for strategic planning and new business development, IMC said, so companies could avoid engaging a short-term surplus of employees with the required skills.

SRK said major coal mining companies appeared to be more interested in developing longer-term relationships with a few consultants.

“This seems to be in the hope of retaining corporate knowledge with a loyal consultant who is expected to be available at any time as would be expected of a full time employee,” the firm said.

“This has had the effect of alienating these consultants whereby the other major competing mining companies will not use them in fear of their corporate knowledge being unintentionally leaked back to the loyal client,” SRK said.

Like many other consultants, Tennent Isokangas commented on continuing competition for qualified/experienced engineers/professionals, particularly in the 35-45-year age group.

AL: How competitive are consultancy rates versus costs for permanent employees? Why are consultants used and what about the future?

Responses indicated more specialist tasks were being farmed out than ever before with a widening of the remuneration and skills gap between in-house employees and consultants.

In general, given the wide range of expert areas covered by consultants, respondents agreed consultants provided cost effective solutions and value for money. Areas of expertise included operational support, site management issues, feasibility studies and planning, management/organisational development and restructuring, and legal assessment.

Snowden said: “At first glance, consulting rates do not appear comparative with rates for permanent employees, until one considers the utilisation value of consultants: namely, the targeted nature and timeframe of most consulting tasks, together with the experience that is being applied.”

“Consultants bring much more than cost effective solutions,” said Strata Engineering. “They also bring an industry-wide database to local issues. Many issues re-occur in regional coal basins and across the industry. The experience offered by consultants therefore tends to be complementary to in-house expertise (both technical and operational).

“If a company considers the outcomes they require (for example, longwall continuity and reliability of supply) then the cost of ensuring a well designed and managed strata control system is cheap insurance against inadequate attention being paid to this strategic imperative of the business.”

For Seedsman, a specialist provider of geotechnical consulting, cost pressures were not an issue given the scarcity of available expertise.

“We anticipate that long-term review roles may become more common whereby an external geotechnical consultant is contracted to visit the mine regularly – say on a monthly or quarterly basis - to check on conditions, fine tune the design, and mentor young mining engineers (or more likely a geologist) on site.”

As SCT pointed out, for mining groups to have specialist knowledge in-house total costs including superannuation, payroll tax and overheads were approaching $220,000 – $250,000 for a single person. (SCT’s rates vary between $900-$1,600 per day.)

“Add into this high recruitment and relocation costs that result from the shorter employment timeframe working on site, and consultants are becoming more than cost competitive.”

According to Minarco, where a mining company can offer a stable position with a career path for professional people they should consider employment of staff. Where a company needs specific skills intermittently or they cannot provide a suitable career path, they should consider using consultants.

John T. Boyd predicted the use of consultants would become more widespread where an unbiased, independent professional evaluation of an investment decision on technical issue is required. Consultants would be increasingly accountable for the value they added to the client’s decision on business.

AL: An emerging issue is the impact of increased professional indemnity insurance (PII) premiums on consultant’s “license to operate”. What are the ramifications of this?

There were varying views on the effects of PI insurance. Some smaller companies elected to operate with minimal cover, whereas larger groups such as IMC, Snowden and SRK viewed PII as critical.

For AMC and Strata Engineering, professional indemnity was... Article continues, click here.