The Asia Miner

OCT-DEC 2015

The ASIA Miner - Reporting Important Issues to Mining Companies in the Asia Pacific Region

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12 | ASIA Miner | October-December 2015 TIMES are tough for those who supply to the mining industry. With a focus on reducing costs and lack of investment capital, miners are holding their purse strings tight, causing suppliers to re-think their priorities and re-shape how they do business. In a recent survey of the Australian Mining Equipment, Technology and Services (METS) sector, 60% of companies surveyed reported they are very or extremely concerned with the mining downturn. Concern was consistently high across companies in all states, with the highest percentage of companies being very or extremely con- cerned in Western Australia (66%) and Queensland (66%), the two largest mining states. Conducted by Austmine, the peak industry body representing the Australian METS sector, and funded by the Australian Federal Govern- ment's Department of Industry and Science, the survey was the sec- ond major national survey of its kind, the frst one being two years ago. The 2013 survey refected a very buoyant sector coming off the back of record high commodity prices and a decade long mining boom. Most companies in 2103 reported double digit revenue and employ- ment growth, with the ability to fnd and retain skilled staff being the top challenge for many. Two years later the story is quite different. The impact of the min- ing downturn in Australia has been overwhelmingly negative for METS companies. So much so that 79% reported a decrease in revenue, 61% a decrease in proftability, 59% a decrease in customers and projects and 52% a decrease in employees. On average, the de- crease in revenue reported was 31%. Unsurprisingly, the number one challenge for the sector, with 66% of companies selecting it, was the mining industry downturn. "These results are not surprising," said Austmine's CEO Christine Gibbs Stewart. "We know it is a diffcult period for the METS sector and one reason for conducting the survey was to obtain a good understanding of what impact the mining downturn is having. We know in talking to our members that there have been large reduc- tions in staff numbers and business closures, and the larger the company, the more dramatic the impact has been. "Despite the expected cyclical nature of the mining industry, many frms have commented the downturn seems to be deeper than be- fore and cost structures fostered in the boom times cannot now be supported. This is refected in the survey as 46% of businesses reported that the cost of doing business in Australia was a key chal- lenge, making it number two on the challenges list. "Companies, however, have not been blindsided and in 2013 the storm clouds of the downturn were recognized as gathering. This means companies have been preparing for some time, and the survey has helped us gain insights into the strategies companies are adopting and to identify where the bright spots are. "The good news is that the sector is very resilient, agile and forward thinking and that plenty of opportunities exist, despite the downturn." Highly innovative Innovation is the lifeblood of Australian METS. The survey ex- plored drivers of innovation, with 63% reporting that innovation was core to their strategy. This encompassed external, cus- tomer-focused product, process or service innovation. Staying ahead of the competition and customers' problem solving were also key innovation drivers. Launching a new product or service for 37% of companies was a key strategy to combating the mining downturn and equal- ly 37% of companies saw this as a key opportunity for future growth. The survey found that 81% of companies launched new products or services every few years, or more frequently. Of the companies surveyed, 78% reported expenditure on R&D in financial year 2014. While the average spend was almost 50% lower than the 2013 survey, the percentage of those involved in R&D increased from 50% to 78%. Total R&D expenditure reported by the companies surveyed in FY14 was $1.18 billion. The survey also explored barriers to innovation and 37% of companies said a major barrier was the conservative nature of mining companies. Linked to that, 36% of respondents felt the procurement practices of target customers were a barrier. Collaboration the key Australian METS are highly collaborative but more work needs to be done to foster collaboration across the entire value chain. It is seen as an opportunity for the sector, however, as increased collaboration with others in the supply chain was seen by 32% of respondents as a way to combat the downturn. 39% of companies reported that they collaborate with other or- ganizations on R&D; 62% collaborate with other suppliers; 45% collaborate with mining companies; and 42% collaborate with universities. Other partners include government entities, CRCs and public and private research organisations. Going global Australian METS are a global success story and the envy of many industries for their penetration into value chains worldwide. METS companies are globally focused with 66% reporting that they export, an increase from the 2013 survey number, which recorded 55%. Firms in Queensland and Western Australia tend to be more export focused, while those in South Australia tend to be less so. The Australian METS' export footprint reaches globally. With a focus on the Asia-Pacifc, key export regions include South East Asia and South and North America. Indonesia, New Zealand, USA, Chile and the Philippines were seen as top export markets by a high percentage of frms exporting there. Suppliers re-think their priorities

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