Results for the 2000-01 financial year (operating profit of $104.8 million) do not fully reflect the value MIM has brought to its operating assets. The year also saw record coal and copper production levels, further cash cost reductions for most production centres, and higher employee productivity. Only the European zinc smelters, which MIM has plans to exit, performed poorly.
The effects of restructuring are nowhere more evident than in the coal division, the group’s star performer.
MIM’s Bowen Basin-located coal assets consists of a 75% interest in the Oaky Creek and Newlands-Collinsville-Abbot Point (NCA) complexes. Oaky Creek comprises the central operations of the Oaky North and No.1 longwall mines, together with the Alliance longwall, and an opencut mine recently reopened to provide greater flexibility of production sources. NCA is made up of the Newlands longwall mine, Collinsville opencut operation and the Abbot Point port. Combined product coal from these operations totalled 19 million tonnes in 2000-01 and is budgeted to increase to over 22Mt in 2001-02, which would boost MIM’s share of product coal to around 17Mt (compared with the 1997 figure of 7.7Mt.)
But what stands out about the company’s coal results is the astounding turnaround in profitability. Earnings before interest and tax (EBIT) for coal soared to $249 million in 2000-01, up $156 million on the previous year. This accounted for 42% of group earnings. For 2001-02 earnings are forecast to rise to a very impressive $422 million, according to Deutsche Bank.
The unit cost of production has gradually dropped from $50 per tonne in 1997 to $39/t in 2000 and 2001, while employee productivity at Collinsville and Oaky Creek reached record levels of 19,057 and 12,972 tonnes per employee respectively this year.
Managing director Vince Gauci -- who was anointed to lead MIM into a new era of growth in April this year after former chief Nick Stump set the wheels in motion -- pointed out these improvements had been made with much the same infrastructure, the same workforce and minimal capital expenditure. “The key is for managers to earn the respect of the people in the workplace,” he said.
“We are confident we still have a lot of improvement left to achieve in all our businesses. I don’t see any indication that we’ve achieved our full potential.”
Encouraged within MIM is a sharing of ideas across the various divisions with regular meetings between operational general managers providing the forum for this exchange.
“As far as management and work practices go, the coal industry was a fair bit behind the hardrock industry but it’s catching up pretty fast,” said Gauci, who joined MIM in November 1995 as executive general manager - mining after a stint as managing director of Pancontinental Mining, before it was taken over by Goldfields.
“Regarding mining methods, there’s a lot the hardrock industry can learn from coal. In hardrock it’s all bore and fire whereas coal people use roadheaders and coal cutting and rock cutting machines. While the coal equipment is not always applicable in the hardrock environment, sometimes in hardrock we forget that this equipment is available.”
Improvements in productivities and operating efficiency are also much in evidence across the group’s other business areas, including copper, lead-zinc and gold.
Copper production has doubled over the past four years, to 358,000t in 2000-01, and contributed EBIT of $317 million for the fiscal year.
The improvement in MIM’s copper operations has “translated into consistent reductions in unit costs at a time when copper prices have continued to fall,” Gauci said at the company’s AGM in October. “Copper is MIM’s most significant metal. If the cost of production had not decreased we would be well and truly underwater at today’s prices. You will also see that year to date costs are continuing to trend downwards.”
The Mount Isa mine in Queensland is on target to hit copper smelter production of 235,000t in 2001-02. Output from the new Enterprise operation, which is mining a world-class orebody beneath the existing Mount Isa mine, is steadily being lifted from 2.3Mt per annum last year to nameplate capacity of 3.5Mtpa. Meanwhile the total cost to produce a pound of copper from Mount Isa has dropped from US90c/lb in 1996 to US0.56c/lb.
The company’s diversity and spread of commodities is clearly a major competitive strength, and, as Gauci suggested, MIM can no longer be regarded as simply a ‘copper play.’ Because coal prices were generally counter-cyclical to metals, current weak metals prices were being offset by a growing demand and healthy outlook for coal, he added.
In fact, the soundness of the coal business prompted recent analyst speculation that the company may be an attractive takeover target.
In 2001-02 MIM’s focus for the coal division will be ongoing growth in output. To this end, the mine environs exploration budget allocation has been increased to about $25 million. The exploration program is largely aimed at upgrading resources to the category of reserves and will be undertaken near existing operations so that any additional development can tap into existing infrastructure and unit costs can be kept in the lowest quartile.
MIM has two wholly owned steaming coal resources, one between Rolleston and Springsure in the Bowen Basin and the other at Wandoan in the Surat Basin. A pre-feasibility study into the 300Mt Rolleston-Springsure deposit has been carried out, and a feasibility study has commenced, which should take about six to 12 months to complete. At this early stage, development of an opencut mine producing a large volume of steaming coal that may not require washing is being touted. Proposed development at Wandoan is earmarked for the medium- to long-term.
Recently, Gauci has been introducing MIM to other markets and potential investors, most recently in Hong Kong, Singapore and the United States.
“We’ve been quiet on the investor front for some time,” Gauci said. “This company has been criticised for over-promising and under-delivering. In the past five years we’ve been cognisant of that fact and we want to make sure we are promising things we can deliver. As we’ve become more consistent with our performance it gives us greater confidence to talk about what we can achieve.”
If the success in coal is any indication, then MIM shareholders finally have a reason to be smiling. - Australia's Mining Monthly
