Despite the mining sector slowing, there are still many opportunities for ‘smart’ manufacturers. Alan Johnson reports.
With commodity prices retreating from record highs, costs are suddenly important to mine operators again. No longer is it all about adding incremental tonnes (or pounds or ounces) by whatever it takes.
The industry has stabilised as the wall of new supply has finally caught up with the ever rising demand for minerals, leading to prices settling at or near the top of the cost curve.
For most commodities and for most producers, pricing is not something that they can control, however what they can control are costs of production and productivity, and it is in these areas that mining companies are looking for ‘smart’ technology and equipment.
Robert Trzebski, Executive Officer of Austmine, Australia’s peak industry body for the METS (mining equipment, technology and services) sector, said that while many of the larger manufacturers are facing tough conditions, he said there are pockets of success, mainly smaller, specialist, innovative manufacturers.
“The key characteristic of these companies is flexibility, plus being reactive, adaptable, able to listen and work directly with their customers and being innovative with materials and design. In short they must be smart,” Trzebski told Manufacturers’ Monthly.
He said the other important areas are being international and having access to global supply chains.
“Not necessarily on a big scale but being able to collaborate with customers and understand their needs, and be able to easily and flexibly adapt to them.
“When you look at the local mining industry, there are now too many contestants for the jobs available, that’s why many of our members are looking beyond Australia.”
Trzebski said many of his association’s mining members are looking at the oil and gas sector.
“While that industry has its own problems, with prices falling, there are several very large projects being developed,” he mentioned.
Understandably, the lower Australian dollar is having a positive impact on Austmine’s members, which according to Trzebski is about the only positive thing that is happening in Australia’s mining sector right now. “Certainly not the commodity prices.”
He pointed out that a couple of years ago, Australian manufacturers were still doing well because they were smart enough sourcing components and materials cheaply to compensate for costs and a high AUD.
“With the dollar in the mid to high 70c range, it is much easier, especially exporting products and services.”
However, Trzebski explained that the price of the product is not always the deciding factor.
“For example, when we visited Russia and Kazakhstan six years ago now, it was made clear to us how important services are to the mining companies there.
“They could buy much cheaper products from China, however there had been a change of thinking, a generational change, at the procurement, technical and engineering levels within the mining companies.
“One of the most important components of this change of thinking was regarding goods supply and the service level Australian companies could provide.”
That was six years ago, today Trzebski suggests manufacturers look at countries where the mining sector is continuing to grow, without any outside impact.
He says Russia is not a good news story at the moment, instead Trzebski suggests manufacturers focus on the Americas, from Canada down to Chile.
“These are the countries that have stability, large populations, and are fairly easy to enter.
“The US, for example, its coal industry is doing very well as a low-cost coal producer. They have reduced their labour and production costs, and are exporting a lot of coal now,” he said.
Trzebski says companies should also look at the Asian region, but they should be aware that some markets are more receptive than others.
He pointed out that Indonesia’s landscape has changed considerably of late, with the country changing its legislation forcing mining companies to process most of the ores in the country before exporting them. “This is a big opportunity for Australian manufacturers,” he said.
Trzebski said companies should also look at other newer markets with mining and oil and gas, included Myanmar (Burma), Vietnam, the Philippines and Malaysia.
Other markets he mentioned included emerging markets such as Mongolia and Kazakhstan, but said the Americas was the best place to go.
While Trzebski admits today is not a good time to enter the mining sector, he says you never know what conditions will be like in say three or six months time.
“Commodity prices might go up in a few months’ time. For example, who would have predicted that oil prices would fall so much in just one year?
“My message to companies is to diversify, offer similar products to different industries, be smart and be different to your competitors,” Trezebski concluded.
One company that is doing well despite the slowdown in the sector is Keech Australia, a leading manufacturer of ground engaging tools for machines such as excavators, shovels, loaders and draglines.
Dr Herbert Hermens, CEO of Keech Australia, said the company is now getting its products into broader and broader markets, from Australia to all parts of the world.
“This is very exciting for us as it partially offsets the downturn which has been occurring in the market for the last six or seven months in Australia.
“Happily the downturn seems to be bottoming out now and we are starting to see some demand come back into the market locally, but certainly overseas it continues to look very encouraging for us,” Hermens told Manufacturers’ Monthly.
As with most Australian manufacturers, the lower Australian dollar has been a positive for Keech, though it is no magic bullet.
“It has come back almost 30% from where it was at one stage, and that is fantastic and gives us a much better competitive position, but what we have to remember is that Australia is still an extremely expensive manufacturing location.
“It was very difficult when we had parity with the US dollar, even at 77c it’s still a challenge,” he admitted.
The reason for Keech’s success is not rocket science, the company plans to continue developing new products and is investing 7 to 12% of its revenue into product and production development.
“We are making better products all the time. We are developing new products and new methodology in making these products including taking costs out wherever we can and enhancing the quality and efficiency.
“We have put a lot effort into that in the past year or so, and have recently developed a new series of cast lips that go onto buckets used in the mining industry.
“The VYPR lip system is a great product, and because of our in-house prototyping capability, using 3D printing, we were able to go to the market, to interact with our customers, show them the various iterations of the lips.”
Hermens said feedback from customers here and overseas has been very encouraging, with an extension coming out in the next few months as well.
He said that following trials in one South American mine, for example, it has now changed 100% to the VYPR cast lip system.
“They cut the US-made plate lips out and installed ours and found the production costs on the bucket went down up to 25%. That’s a huge saving.
“We can’t promise that on every bucket, but we know we can get more ‘usable weight’ to ‘throw away
weight’, meaning our lips last far longer.”
He said the uptake of the VYPR lip system, particularly in South America, has been very encouraging, and in Australia too.
Overall, Hermens said, exports were growing quickly with Keech now exporting well over 25% of production.
According to Hermens, the company’s considerable investment in R&D, and not being a ‘me too’ and
just producing a lump of steel are the key reasons for Keech’s success.
“Today, customers don’t just call saying they want a point for their grader, now they are asking for a specific product.
“That is a massive change, turning a commodity into a specific product. There is a lot of development work that goes into making that point, and to sell it by the kilo is underrating the quality of the product we produce.”
Hermens pointed out that Keech has a large number of engineers working for the Bendigo-based company, including a flow engineer and materials engineers, all working to make its products better.
“This is why the volume of the company continues to develop the way that it has,” Hermens concluded.
Summit Matsu Chillers
Another company continuing to enjoy success in the mining sector is Summit Matsu Chillers, a leading Australian chiller manufacturer specialising in commercial and industrial air cooled and water cooled chillers (pictured).
Shane Carmichael, the company’s Group General Manager says business is very good at the moment.
“Because we make niche product, general upturns and downturns do not have a huge impact on our business.”
Carmichael told Manufacturers’ Monthly that the position of the Australian dollar has been helpful.
”The majority of our projects are local, however we have been awarded several export projects recently where our competitive pricing has proved beneficial.”
Carmichael says the main reasons for the company’s on-going success is being flexible, and offering a customised solution.
“What we need is to be a little bit smarter with our engineering, and produce a unique product that is customised to the client’s requirements.
His advice for manufacturers thinking of entering the mining market is to focus on engineering.
“Strong engineering is most important when manufacturing for the mining industry, it is a step above most other industries.”
Carmichael explained that most of the chillers the company manufactures are destined for the mining industry; around 80%.
Our biggest advantage, he said, is that the chillers we produce are modular, plug and play systems
customised to the client’s specifications.
“Creating a dedicated packaged solution makes it easy for the customer to install and operate.”
He said the chillers are suitable for use in a wide range of applications including lubricant cooling, potable water, safety showers and even concrete mixing during construction.