Published in June 2009 Australian Longwall Magazine
What we asked
1. What impact has the global financial crisis had on your consultancy, including the level and type of work you are doing in the coal industry?
2. What steps should companies be taking during tough economic times like these and what role does the consultant play in this?
3. What will be the positives to come out of the global financial crisis for coal companies?
John Buffington, general manager – Australasia, Runge Australia
1. Overall, Runge’s workload remains solid. Mining professionals with either good operational experience or specialist technical expertise are still enjoying a market that recognises, demands and is willing to pay for their skills. We see that the shortage continues to exist with respect to operationally experienced mine geologists, engineers and accountants.
We’ve seen reasonable stability in the level of work for short-term, production-related activities and for assessment of the stronger future growth opportunities. There has also been a recent increase in the level of due diligence work resulting from fire sales and divestments.
We have seen a slowdown in the medium-term (six months to five years) planning work for some existing operations since December 2008, although it appears to be picking up again now. Although there is less cash out there to spend, we are seeing a continued desire to invest in standardised mine business planning systems. We believe this investment is related to a desire for continued improvement of business forecasting accuracy and turnaround time, which is in turn driven by the need to both manage the operation more efficiently and provide tangible evidence of strong corporate governance in rapidly varying markets.
2. The two primary areas that we see opportunities in are 1) reining in the operating cost blow-outs of the last five years, and 2) systematised business planning.
Almost across the board from late 2001 through 2007 we saw massive increases in operating costs and in many cases falls in the output per man shift in the coal industry. The focus was on getting tonnes out the gate as the prices were very good. Although profit margins, for coking coal in particular, are still much higher than in the 1999-2000 period, the current price squeeze provides an opportunity for mine operators to trim the fat. This appears to be happening in all operations.
Runge is assisting customers in these efforts through a combination of operating efficiency studies and provision of business planning tools to forecast, track and drive performance.
All mine operators and investors need to have a very strong handle on what impact different commodity prices, production levels, stockpile levels and manning levels will have on their business in both the short and longer term.
The volatility of today’s markets has increased their desire to invest in standardised mine business planning systems. This is especially the case with larger mining companies as they seek global standardised business planning systems, which provide them with tools to manage their corporate governance requirements while improving the ability to assess the impact of rapidly changing commodity prices and volumes on their operations.
Fundamentally, mine operators need to identify what actions will unlock the value in assets or how the costs can be significantly reduced. Runge is working hand in hand with many customers to achieve this goal, through a consistent process of: strategic discussion, solution design, system implementation and user training.
3. We should see a time of consolidation from which more productive, lower operating cost mines emerge the winners. Some high-cost operations and prospects may be mothballed or put on the back burner respectively.
The amplitude of the supply and demand curve swings should then attenuate to a more stable level … until the next big swing, that is. This will allow more rational growth strategies to be developed and brought to life.
Ron Willis, regional manager Coal & Energy, AMC Consultants
1. The impact of the global credit crisis started to be felt by Coal & Energy and the greater AMC Consultants at the end of 2008. The resulting outcome has been swift and has affected the Coal & Energy business unit’s income stream in a negative manner. However, Coal & Energy has invested time and financial resources into recruiting and training consultants and plans to ride out the financial crisis.
Coal & Energy was officially launched in October 2008. Since that time, our consultancy generated workload has consisted of confidential due diligence, reserve/resource modelling and reports in accordance with the guidelines contained in the JORC Code (2004), life-of-mine planning, scheduling, corporate advice, whole-of-mine planning and scheduling analysis, Minescape training and input into several hard rock projects.
2. Coal mine operators must realign their free-on-board costs in order to remain profitable within an environment of 45% reduction in their coal price and up to 20% reduction in demand for their product. Coal & Energy consultants are well equipped to assist mining operators in right sizing, mine optmisation, benchmarking, rescheduling and replanning, and corporate support.
3. Today we are witnessing doom and gloom across coal and mining and consultancy alike. However, positive economic signs are beginning to appear and it is a recognised fact that the whole world needs minerals and energy.
Coal companies will have to right size and jettison all the excess fat accumulated during boom periods in order to survive. Metallurgical coal and thermal coal is forecast to return to some normality in late 2009 or early 2010; however, coal prices are not forecast to return to the levels of 2008. Those mines that successfully right size will return to less stressful times and enjoy the predicted global market’s expanded appetite for energy.
Dave Thomas and Gary Benson, IMC Mining Solutions
1. The global financial crisis has had a marked impact on our work in the base metals side of the industry, although to partially compensate, gold work continues due to buoyant gold prices, and there is some activity by cashed-up juniors, Chinese and Indian companies looking to buy distressed assets.
The global financial crisis has had only a minor impact on our coal industry consultancy work, although we now have greater reliance on a smaller pool of coal companies, being those that are committed to project development and those seeing that advancing their projects in the current downturn will help them emerge with an advantage on the other side.
IMC’s coal exploration management work has continued unabated. Work on project valuation, due diligence and independent expert reports for acquisitions, mergers and ASX listings has slowed markedly from the intense activity in 2007-08.
2. We think that the necessary steps are self-evident by the actions that coal mining companies have already taken, which is mainly downsizing their head office staff, consolidating field offices, negotiating the cost of supplies and also taking a hard look at the requirements for contractors at their operations.
However, the companies must not lose sight of future development requirements such that all project development work is halted for short-term savings, against a background of strong profits in recent years. As we have seen in the past, things can turn around quickly, and companies that may have followed the slowdown or complete halt path can find themselves behind the competition when the turnaround occurs.
Already, IMC is noticing a trend of increased demand for thermal and coking coal to China, apparently as a consequence of Australian quality and price now being attractive compared to China’s proposed internal pricing. This has already resulted in increased hard coking coal exports to China; whether thermal exports follow remains to be seen.
With the downsizing of support staff by the mining companies, the consultant can play a vital role by filling in the gaps created by this downsizing of staff without a corresponding reduction in the work requirements. In this regard, IMC and similar consultancies are well placed to fill these gaps as we can provide the necessary short-term mining and geological engineering and operations management support required to keep project development on track.
3. The positive for coal mining companies is that the recent restructuring and redundancies will see them better placed in terms of productivity and profitability to take advantage when the growth cycle returns. The challenge will be to maintain this leanness into the future.
Article continues tomorrow.
