Growth formula

AUSTRALIA’S leading mining consulting firms are gearing up for another year of heady demand for their services in 2005 as the global resources industry continues with efforts to make the most of the China-driven economic revival in Asia and the historically high commodity prices that have accompanied it.
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Coffey International managing director Roger Olds

Staff Reporter

Much like last year, consultants say they expect to be inundated with work from both local and offshore companies bearing plans to mount IPOs (initial public offerings), capital raisings and exploration forays; bring new projects on line; expand on existing operations; and/or dust off old developments that, thanks to the favourable commodity price movements, have suddenly become viable again.

Adding to the anticipated workload for the sector, the shortage of qualified mining professionals – flagged some time ago by industry observers as an imminent threat – has begun to bite hard. As a result, mining companies have become increasingly reliant on external assistance when it comes to sourcing technical expertise in a variety of disciplines.

However, despite the bull market and predictions of further strong growth, consultants are mindful that it is unlikely to be all smooth sailing. In particular, they acknowledge they face some serious staff management issues of their own and a major challenge in maintaining the quality of services provided while heightened levels of activity persist.

In sharing their thoughts on the state of the consulting sector and the outlook for the coming year and beyond, the principals of several leading firms agreed this was likely to be one of the most buoyant periods they had ever experienced.

RSG Global principal Rick Yeates said 2004 had proven an extraordinary year for the mining industry, and the consulting sector was no exception, as demonstrated by his firm’s performance. Almost every discipline division and international office within RSG had exceeded budget expectations by 30%, representing total growth of more than 40% on 2003.

And it should be a similar story in 2005. “The outlook for the mining consulting sector is possibly as bright as it has been for 10 years or more, and the majority of indications suggest this situation will persist in the medium-to-longer term,” Yeates said. “With prudent management and a supportive client base, the consulting sector can look forward to another busy and profitable year.”

He believed healthy profits, strong demand for services and the increasing shortage of skilled professionals would drive further consolidation in the sector in 2005, particularly via acquisitions at the hands of strongly performing listed engineering companies. An example of this trend already manifesting itself was Downer EDI’s acquisition of well-known Perth-based consultancy Snowden, which took place last month.

Coffey International managing director Roger Olds’ observations on the state of the market mirrored those of Yeates in that he too struggled to find a reason why conditions should take a decided turn for the worse any time soon.

“What we’re seeing is very buoyant times; not only in mining, but energy is booming and civil infrastructure is booming,” Olds said. “With those three things in combination, I’ve never seen it running as hot in all sectors in all states in my career of 25 years.

“We are seeing these things peak at the one time, and it’s a sustained peak. I don’t think it is going to change for a while. My guess is that it could easily last for five years, and in five years time, it could last another five years.”

Coffey had also experienced significant growth over the past year, both organic and acquisitive – the express method of building up a business in boom times. Its most recent purchase was environmental services firm Enesar in July, a deal which gave it exposure to a new segment of the consulting market and one in which demand for services is forecast to be robust.

“We identified (environmental services) as an area that we wanted to get into, not only in mining but in other projects as well,” Olds said. “Enesar had been in that space for 30 years and had a pretty outstanding track record.

“All development really requires a social licence which means more acknowledgement of environmental issues and community issues. It’s just a growth area of the whole sector. That’s quite frankly why we were keen to get into it.”

While also holding the view that there was more growth in store for the sector, SRK Consulting managing director Dr Peter Williams did not believe the current level could be sustained.

“SRK’s planning period is five years, and we are not looking at a continued upward trend in the market place,” he said. “There is a lot of speculation regarding economic cycles, but it is important to note that the current share market record highs, combined with record construction and housing, and low interest rates, is essentially an economic anomaly.

“The rise of the Australian dollar, with gold heading north to $US500 but hardly changing in Australian dollar terms, is largely driven by the underpricing of the RMB, and a change there will result in a significant correction of the current currency cycle in US dollar-linked currencies. Growth will also slow in Asia over the five-year term, but only marginally.

“As a result, Australia will get lower US dollar value for our exports to China, and suffer cost increases on our imports from Asia, resulting in worsening local economic indicators and terms of trade. Despite this, SRK is still predicting strong demand for resources, which complicates the equation considerably.

“Overall, we see a balancing of indicators suggesting continued but reduced growth after the current round of major resource project expansions.”

So where will the major opportunities for growth present over the next 12 months?

In terms of commodity focus, Yeates predicted it would be the gold and iron ore sectors in particular, and to a lesser extent nickel, minerals sands and diamonds. As for regions, it was impossible to ignore China’s likely influence.

“China continues to underpin significant demand for iron ore, coal and base metal concentrates, and anyone who has visited the country recently will begin to appreciate the massive infrastructure development that will undoubtedly see it become the major economic performer of this century,” he said.

“In addition to China and the more established African mining economies, increasing levels of consulting activity are anticipated in the African resource giants of Angola and DRC (Democratic Republic of Congo), which appear to be slowly emerging from extended periods of political turmoil.

“Similarly, new and more transparent mining acts in several of...click here to read on.

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