Coal downturn helps Sedgman diversify, says Watson

COAL’S downturn has helped ensure Sedgman’s commodity and geographic diversification strategy is now irreversible and the company will not return to being so coal and Australia-centric when it expects coal to rebound late 2015 or 2016, its new boss says.

Anthony Barich

For the first time in its history, 51% of Sedgman’s order book is in non-coal projects, with about 35% of its business outside Australia, marking a distinct shift from only two years ago when 80% of its order book involved coal and was in Australia.

Among these are gold projects in Kalgoorlie and Latin America and copper in Botswana, and a few big contracts awarded just in the past month.

It is a point Sedgman has longed to be at since it listed in 2006, but efforts over the next two years to make serious inroads into commodity and geographic diversification were derailed by the 2011 to 2012 boom.

“It doesn’t mean we’re in any way moving away from coal, but with current commodity pricing, the activity levels just aren’t there in coal and even as they do pick up – and I’m sure they will – we wouldn’t see ourselves swinging back to be so coal-focused and so coal-centric as an organisation,” new CEO Peter Watson told International Coal News.

“We’ve fundamentally moved now into a global minerals business with multi-commodity capability, but as coal work develops we’ll certainly be putting our best foot forward to try to win and execute as much of that as possible.”

Recognising it had “too many eggs in the Australian coal sector basket”, Watson said the company looked to further leverage some particular skills gained via the 2007 acquisition of minerals process engineering and project management company Intermet for $32.75 million.

A few of the non-coal projects on which Sedgman has worked include Fortescue Metals Group’s recently suspended Solomon B60 project; Guyana Goldfields’ Aurora gold project in South America; Discovery Metals’ Boseto copper project in Botswana; and First Quantum Minerals’ Guelb Moghrein copper-gold project in Mauritania.

Sedgman planned to diversify from coal from the get-go ever since listing on the Australian Securities Exchange in 2006, but then the boom happened and it couldn’t turn its back on a golden opportunity in its core strength – coal.

“There was a lot of coal activity in our historical strengths and we couldn’t turn that away for the strategic intent of diversification,” said Watson.

Watson is a chemical engineer who was promoted to CEO in June, having managed the company’s Australia West, Americas and Africa regions as regional director. He has also overseen its engineering project delivery and contract operations across the coal, metals, iron ore and infrastructure sectors as executive general manager Australia.

Circumstances have now helped Sedgman get a better balanced portfolio; and while FMG announced only this week it would suspend Solomon, the fact that the company is talking to, winning and executing work for such large companies was “heartening”

Last week Sedgman won a $133 million EPC contract for Groote Eylandt Mining’s (GEMCO) manganese mine expansion in the Northern Territory; and the week before won a $59.8 million EPC contract to be the main integrating contractor for Alcoa’s Kwinana filtration plant in Perth’s south.

Watson believes smaller coking coal opportunities, with access to existing infrastructure with extra capacity are the most likely to become projects in the short to medium term.

This has occurred in Canada where relatively small, very good quality coking coal deposits that have access to existing rail infrastructure and port capacity typically only need a small rail loop or increment to connect.

Watson said those operations that did not need to fund or support their own rail/port facility development are characteristic of what Sedgman sees in the short to medium term, before the real optimism will kick in longer-term.

It is in the longer term when “many would agree that the future for coal remains very strong, as a fundamental piece of the energy market, and is obviously the case with coking coal with the steel and manufacturing products market”

“We expect things to recover, but who knows what the timing is?

“Most people are now saying towards the end of next year or sometime in 2016 before commodity prices reach some form of slow, but continual, increase that may well be enough to fund incremental expansion.”

He said Sedgman had also noticed that a lot of the recent capital development in the coal sector had resulted in assets that “perhaps aren’t generating the business case they needed to for a variety of reasons – either the value of the product or the initial business case”

Yet in many instances, there were many opportunities to go in and look at asset enhancement or asset optimisation, he said.

Sedgman has responded to this by combining its historical technical strength in coal processing with its long-term operational capability, where it has operated many coal assets on behalf of clients, and in some cases its own coal assets.

Taking the availability and operational management knowledge, Sedgman’s efforts in the coal space are now looking at helping clients extract more out of the existing assets or improving their value in use, to help mitigate effects of current commodity pricing.

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