Published in the November 2009 Australia’s Mining Monthly
Therefore it is heartening to witness the early signs of activity returning to the sector.
Money is flowing to the junior explorer sector again. According to banks such as ANZ, the worst of the debt crisis is behind us – although being bankers they are not prepared to consign the global financial crisis to history yet. There also are signs investors have their risk appetite back. The number of companies looking to float has grown dramatically, albeit from a very low base.
With money to spend junior explorers are once more exploring, which is increasing the utilisation of drill rigs that have, in some cases, been parked up for more than a year.
Commodity prices have also picked up in a number of areas. Gold has been a strong performer; there are a lot of iron ore resources being drilled out; and copper and nickel are at 12-month highs.
From a drilling contractor’s point of view coal – and coal seam gas – seems to be the market to be in.
Of course rates have fallen in a number of areas. One source had underground rates down by 10% and surface prices dropping 15-20%. Availability is also fairly high.
Every Day Mining Services, which floated at the height of the mining boom, once believed it would carve a niche supplying drilling services to Cobar’s zinc and lead miners. That did not work out so well, particularly when the mining sector took a dive last year.
Enter managing director Ashley Pattison who took the company down the coal and coal seam methane path in New South Wales and Queensland with some good success.
He points to the queues of ships growing off Australia’s key coal points as vindication.
EDMS recently raised $7.5 million via a share placement to help the company carry out extra work it hopes to pick up in the near future.
“By the end of November we will have every one of our surface rigs utilised,” Pattison said. “We’ve placed orders for another four surface rigs.”
Peabody and Shenhua are keeping EDMS busy and it has a couple of big tenders that should be finalised by December.
The company initially made its name in the underground space. These days, Pattison said, the company was doing “a few tech holes” in the underground side but little else.
Coal seam gas is where Pattison sees a lot of EDMS’s opportunities and he is beefing up the marketing of that side.
The Australian dollar is the one cloud on the horizon for the sector. Its near parity with the US dollar is making life a bit harder.
Ever upbeat, Pattison said he welcomed the higher Australian dollar at the moment because he was “looking at buying a lot of gear from overseas”. However, he probably would not mind it slipping back to about US80c once those purchases have been concluded. If things are looking up in the east coast coal, they also seem sweet in Western Australia with its abundance of iron and gold.
Swick Mining Services company secretary Jason Giltay said enquiries from the junior explorer sector had started to come in over the past month. “That’s been particularly for surface diamond rigs,” he said.
Swick has two basic types of surface diamond rigs. One is a truck-mounted drill and the other is the smaller, track-mounted type rig.
Giltay said the larger rigs were better suited to larger clients and had managed to stay fairly busy.
“But those track mounted rigs have been pretty much parked up for 12 months,” he said.
However, they are being put back to work thanks to the funds flowing into the junior sector.
Swick also has a strong underground diamond drilling business and that has managed to stay constant through the downturn. It took a slight dip before rebounding in January.
That is partly due to the gold sector’s resurgence.
Similarly the company’s reverse circulation drilling business started to pick up again in February-March.
One thing miners are finding is that the high – some would have said crazy – prices that drillers could charge have mostly gone.
Giltay said rates had fallen about 10% for underground drilling and about 15-20% for surface drilling.
Hartleys resources analyst Andrew Muir said mining companies were finding that they could get drill rigs cheaper than in the past year or two.
“They are also finding it easier to get rigs,” he said.
His view is shared by DJ Carmichael analyst Christopher Chong.
“I know over the past year there has been a lot of competition and price reduction [in the hard rock sector],” he said.
“But in surface drilling in the coal sector I haven’t noticed a lot of price reductions at the top end. Indeed, in coal and coal seam gas it seems like nothing has changed.
“For those drilling companies exposed to gold and iron ore they will be seeing strong demand.”
Drilling company Brandrill, which is in the midst of merging with fellow mining services player Ausdrill, has enjoyed the market rebound.
Managing director Ken Perry said the company had a couple of major civil projects progressing well and was fairly stable on the hard rock side. “The exploration side is still tough but we have our head above water there and a reasonable amount of our rigs in work,” he said.
One of the things that attracted Ausdrill to the merger was the fact that Brandrill had good exposure to the coal sector.
However, Perry expressed his disappointment with that side of the business. “In coal we’re not doing as well as we should be but I’ve made some management changes there.”
Perry also believes that, while the mining boom boosted the wages costs in the sector, it was not as bad as some commentators were making out.
“At Brandrill we took the view that this market would bounce back and that we didn’t want to reduce our human capital for when things improved,” he said.
“I’m glad we took that move. That aside, I don’t see wages coming down. They may have stabilised but they won’t be coming down.”
