Mining services updateMarch 2013 |
Please find below updates and alerts on issues that may be of interest, trends in the market and our insights. If you would like to receive further information on the topics below or the industry generally, please feel free to contact one of our team listed at the end of the page.
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Accommodation and mining camps
Accommodation and mining camps continues to be a hot topic for our clients and we thought it would be topical to share some of our thoughts on this industry following some recent engagements and industry insights. Like all mining services, there are opportunities in accommodation and mining camps for experienced and prepared operators. Typically, operating and maintaining accommodation and mining camps is not a core business for a mining company and so they outsource this role to an operator for miner owned camps or use externally owned and operated camps. Common industry concerns on accommodation and mining camps include the price per room charged to operate the camp, the services and amenities offered within the camp and any unforeseen changes in occupancy levels.
There are long term opportunities in accommodation and mining camp operations as there are significant advantages for a miner to outsource this function. It is important for mine camp operators to ensure they have an appropriate accommodation strategy which complements workforce requirements so that costs for staff mobilisation and alternative housing arrangements are minimised. The main challenges arise from unrealistic business strategies, aggressive growth forecasts or not stress testing forecast occupancy models. One of the key takeaways from this sector is that when considering either building additional mining camps or acquiring an existing location it is essential to understand the mine the camp is servicing and whether the workers are undertaking production operations, mine expansion or infrastructure works. This is very important when assessing the payback period for the investment or amortisation of facilities.
Contract management
Contractual arrangements are currently under scrutiny or are already in dispute in a number of mining and mining services companies. One of the key areas of concern relates to multiple variations or change orders to original contracts that have contributed to projects running over time and over budget. In some instances this has been compounded by inadequate contract management processes to properly monitor and/or validate amendments and related invoices. The application of these variations to timeframes and scopes of work have, in some instances, been challenged and have resulted in significant claims, some of which have been subject to Building and Construction Industry Payments Agency (BCIPA) requirements requiring responses in ten days. A key enabler in this process for respondents is data analytics which can capture and analyse complete data sets (accounts payable) across defined periods to quantify forensically the amounts paid and the claim period/variation attached to same. The Forensic and Data Analytics team can assist with any queries in relation to this.
Preparing for a sale or takeover
Despite the record levels of growth seen in mining services over recent years, many operators have not invested sufficiently in non-revenue generating assets and infrastructure such as finance and IT, or dedicated sufficient time to corporate governance and reporting structures. As the industry begins to slow, this lack of investment is manifesting itself in a couple of ways.
Firstly, management teams do not have the necessary financial and operational information to make informed decisions about their business, especially in light of reduced levels of demand and increased pressure on margins. Contract profitability and asset utilisation are two critical areas where good quality data is often lacking.
Secondly, as operators look to raise capital (debt and / or equity) to fund growth or working capital requirements they are finding potential lenders and investors to be unsupportive, primarily because those funders are uncomfortable with the business’s level of financial and operational reporting. The same principle applies to owners of mining services businesses looking to exit, where they are finding potential buyers are withdrawing from transactions during the course of due diligence for the same reason. Alternatively the vendor is facing a sizeable value discount.
We are increasingly working with businesses and business owners in the mining services industry to ensure they are match fit - more commonly referred to as being ‘investor ready’ - in the event they choose (or as is increasingly the case need) to raise capital or sell.
Contact us
If there is anything you wish to discuss further, please contact one of the team:
| Nick Harwood Tel: +61 7 3308 7136 |
Gary Doran Tel: +61 8 9365 7080 |
| John Greig Tel: +61 7 3308 7108 |
David McCarthy Tel: +61 2 9322 7086 |
| Paul Childers Tel: +61 7 3308 7205 |
Sal Algeri Tel: +61 3 9671 7362 |
| Graham Newton Tel: +61 7 3308 7080 |
