CONSULTANTS SURVEY: Strata Control Technology (SCT)

Full transcript of SCT's response to second exclusive survey of consultants servicing the underground coal market.
CONSULTANTS SURVEY: Strata Control Technology (SCT) CONSULTANTS SURVEY: Strata Control Technology (SCT) CONSULTANTS SURVEY: Strata Control Technology (SCT) CONSULTANTS SURVEY: Strata Control Technology (SCT) CONSULTANTS SURVEY: Strata Control Technology (SCT)

Winton Gale, Strata Control Technology

Angie Tomlinson

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 the role / use of consultants changed over the last three years with the mining sector consolidation? How do you see roles developing in the future?

Consolidation to the big four companies; BHPB, Xstrata, Anglo Coal and Centennial, has generally resulted in the industry looking to maintain a low exposure to risk.

Whilst a significant amount of SCT’s consultancy is based on day to day operational issues, a growing part of our business is centred on corporate level decision making. This includes brownfield and greenfield developments, design of key infrastructure (longwall installation face) and milestone events that are now more commonly co-ordinated at head office level.

This has translated into the client project managing a multi-disciplinary team of in-house specialists and third party consultants (geologists, geotechnical engineers, mining engineers). With respect to future roles, a natural requirement of the client is to maintain ownership and direction of the project, but seeking value adding from consultants in areas of technical speciality, and to a lesser extent resources to permit timely completion. From this perspective, consultants will need to differentiate either on product/capability and/or on cost.

How competitive do you see consultancy rates vs costs for permanent employees? What are the key factors determining why consultants are used and how do you expect these factors to change in the future? How will these changes impact the way consultants do business and the nature of consulting?

As noted in the previous question, and answering the second part of this question first, consultants are used because of specialist knowledge, to supplement resources at peak times/shortage and or because they provide a cost benefit. In the area of geotechnical consultancy, clients are usually seeking specialist knowledge. This does not necessarily equate to a premium on costs.

Daily charge out rates for our company vary between $900 – 1,600 day. To recruit this level of specialist knowledge in-house, mining groups are looking at salaries in the range $100,000 – 140,000 plus vehicle. Total costs including superannuation, payroll tax and overheads are therefore approaching $220 – 250,000. Add into this high recruitment and relocation costs that result from the shorter employment timeframe working on site then consultants are becoming more than cost competitive.

The investment in people, and maintenance of a career path for technical specialists, would appear to be limited in the mining houses. Staff that SCT have employed from mine sites join because of the opportunity of technical development, varied workload and peer interaction. In this sense, consultants will continue to provide specialist technical knowledge not available on site, and a capability which is continuing to diminish over time within the industry.

AL: An emerging issue is the impact of increased professional indemnity insurance premiums on consultant’s ‘license to operate’. Some smaller companies have chosen to operate with no cover. What is your company position on this issue and how has it affected your company?

SCT maintains professional indemnity cover, as both a business decision and as a requirement of several key clients. On a dollar by dollar insured basis, our coverage has increased approximately 6,400% over the last 3 years (primarily since the collapse of HIH).

The overhead cost of maintaining PI insurance has so far been adsorbed by the company, however, this is unsustainable and will eventually be reflected in increased billing rates.

AL: Please comment on the impact on consultants of corporate governance protocols that mining companies are introducing.

Corporate governance protocols are another way in which the consolidation of the mining industry to a few key players has impacted consultants. The large mining houses will look to ensure third party providers (consultants, OEM’s etc) provide a minimum standard of supply. For consultants this will include such things as:

· professional indemnity and other insurances

· health, safety and environmental code

· quality assurance standards

· a financial framework

· demonstrated technical excellence and certified practicing status for its staff

In real terms the sole engineer or smaller practice will find it difficult to develop and maintain the corporate overheads associated with complying with the mining companies.

AL: How has the issue of ‘sustainable mining’ impacted on your business? And what impact has it had on your clients?

All of our clients have had to contend with the issue of mining and its interaction with the wider community. Changing community expectations have resulted in a range of statutory and procedural changes, most notably the approvals process for second workings (longwall and pillar extraction).

There is a significantly higher requirement on mining companies to be accountable for, and mitigate, the likely surface effects above mining operations. With respect to our business, this has resulted in the requirement to better understand the complex ground behaviour and fluid flow relationships above extraction panels to ensure appropriate design solutions are provided.

AL: What has been your experience with regards to international vs Australian work? How do you see this trend going into the future?

Australian technology, particularly in the area of geotechnical design, is certainly worlds’ best practice. Since the formation of SCT in 1989, a large proportion of our work has been conducted overseas. Traditionally this has been in providing transfer of roof bolting technology to countries including the UK, Japan, India, New Zealand, Poland and China.

To enable the development and implementation of international work, SCT have invested in a range of foreign ventures. The SCT group includes a 50% interest in Rock Mechanics Technology in the UK (with International Mining Consultants Ltd), a fully foreign owned company in Beijing, China and a joint venture with Yanzhou Mining Group Ltd based in Jinan (Shandong Province).

The major emerging market for technical services is China, and the development of a site based presence and capability has enabled SCT to conduct large technical programs with several Chinese state owned companies. In the short to medium term, the rationalisation and opening of the market in China will allow the larger foreign companies to invest with some level of confidence into the mining area (in much the same way that the CBM market is currently evolving). This will provide another business opportunity for well placed ex-pat companies.

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