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Bankwest Future of Business: Focus on Mining Services 2018
Bankwest Future of Business:Focus on Mining Services
2018
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Contents
Key insights
Focus on mining services
Industry overview What’s drivingindustry growth?
Spotlight on Australia
Spotlight onWestern Australia
What does the future hold?
Where do theopportunities lie?
Forecasted industry growth
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Understanding factors impacting your industry, and how other businesses in your industry are performing, can be a great gauge for how your business is tracking.
The Bankwest Future of Business: Focus on Mining Services Report is designed to give you a snapshot of the current and expected future state of your industry, which could help you plan and spark ideas. The report covers Australia’s mining and support services sector, summarising trends based on statistics from IBIS World, the Australian Bureau of Statistics and other reputable sources.
Rising commodity prices across the resources sector in the latter half of 2017 has been a boon for employment with a 66.7%1 increase in mining job vacancies in the year to November 2017. Coupled with the falling exchange rate, Australian exports have become more attractive to international buyers, bolstering mining exports and industry revenue. Although 2017 marked an uptick in industry performance, figures are still subdued compared to heights reached in 2012.
Furthermore, the long-term trend of declining iron ore prices has seen exploration investment pivot towards gold as commodity prices are expected to hold around USD$50 or (AUD$65)
for the next 15 years. Gold mining recorded the largest rise in direct Western Australian employment across the sector, increasing by 15.1% in the year to June 2017.
The recovering sector’s huge shift in focus towards productivity and innovation magnified in 2017. Rising costs and slowing returns have created a need for businesses to cut costs by leveraging new technologies to improve bottom lines. Technological advances such as self-driving vehicles and drones have bolstered productivity and reduced errors from manual inspection. Western Australia’s 15-year marriage between iron ore prices and interstate migration could be coming to an end, with recent activity suggesting a divergence between the two. In the 2016-17 financial year, some 39,419 people migrated interstate from WA, yet the iron ore price rose from $69 to $92 per tonne2. While prices have risen, production and exploration has continued to fall, likely accounting for the inverse relationship.
WA’s mining story could be starting a new chapter, however, with prelude and icthys large-scale LNG projects and Kalgoorlie’s planned Super Pit extension likely to be a drawcard for people in the sector moving back to the state.
Key insightsForeword
1 ABS 6354.02 http://bcec.edu.au/assets/BCEC-Quarterly-Economic-Commentary-Dec-2017.pdf
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Focus on Mining ServicesThe mining sector boasts $214.7 billion in total revenue, and is the second biggest sector in the nation in terms of trade volume.
What makes up the mining sector?
Mining support services recorded an additional $10.2 billion in revenue, while contract mining services contributed a slightly lower $9.9 billion.
Mining supportservices employees
The mining industry includes many employees with diverse roles. These include miners, kitchen staff, cleaners, occupational health and safety officers, nurses, employee relations, legal advice, workers compensation, IT support, occupational hygiene (testing air quality, gases, water quality) and security.
Mining support services businesses
2016: 1,680
2017: 1,641
Mining services businesses
2016: 7,293
2017: 7,102
Mining services employees
2016: 163,480
2017: 177,630
Mining support services employees
2016: 37,582
2017: 38,710
$59.7 bn$63.3 bn
$1.8 bn
$16.1 bn
$5.7 bn
$34.0 bn
$1.4 bn
Iron ore Black coal Nickel ore Gold ore Copper ore Oil and gas extraction
Petroleum exploration
Source: IBIS 2017
Source: IBIS 2017
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The mining services sector includes coal, copper, gold, iron ore, nickel ore, oil and gas extraction, petroleum and lithium as well as mining support and contract services.
Industry overview
Mineral exploration and mining support services saw the largest fall in establishments in 2016, likely due to the industry shift from exploration to production.
Mining services businesses entries and exits, Australia, 2015 - 2016
Coal mining
Oil and gas extraction
Iron ore mining
Copper ore mining
Gold ore mining
Nickel ore mining
Other nickel ore mining
Petroleum exploration
Mineral exploration
387
387
129
63
588
38
125
581
2,117
353
366
110
59
573
34
120
556
2,082
-8.8%
-5.4%
-14.7%
-6.3%
-2.6%
-10.5%
-4.0%
-4.3%
-1.7%
Operating at thestart of the
financial year
Mining sales andservice income
Mining output represented 6.9%of Australia’s GDP in 2015-2016 at $114.9 billion3.
44.1
34.6
54.9
5.4
15.0
2.6
4.9
7.3
90.4
188.9
Billion ($)
Coal mining
Oil and gas extraction
Iron ore mining
Copper ore mining
Gold ore mining
Mineral sand mining
Silver/Lead/Zincore mining
Total metal ore mining
Exploration and other mining support services
Total mining
Source: ABS 8165
Operating at theend of the
financial year
Percentagechange
3 ABS 52046
What’s driving industry growth?Industry growth is being driven by commodity prices (iron ore, gold and bauxite), demand from overseas buyers and the exchange rate, which impacts the price foreign countries pay for Australian commodities.
Overseas demand remains strong(Australia’s commodities exports)
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Performance drivers
Increase in commodity price of iron ore USD$71.76/tonne (AUD$88.74), annual return up 22.8% however down compared to 20124
Rise in commodity priceof gold USD $1,257.56/ounce (AUD $1555.48), annual return up 1.0%5
AUD increased against the USD, up 5 cents to 0.77 during 20176
India
China
Japan
South Korea
Other
4 http://www.worldbank.org/en/research/commodity-markets 5 http://www.worldbank.org/en/research/commodity-markets6 https://www.exchange-rates.org/Rate/AUD/USD/12-30-2016
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Source: IBIS 2017
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Spotlight on AustraliaIron ore and gold production continued to rise in 2017, likely due to growing international demand and exports.
Bulk commodity prices (i.e. iron ore) shows greater volatility than base metal prices and therefore has greater impact on industry performance. Australian commodity prices for base metals increased by 15.3% in the 2017 calendar year while bulk metal prices declined by 14.7%.
Base metals and bulk commodities price index 2007 - 2017
Across Australia’s largest 50 ASX listed companies with a market capitalisation less than $5 billion, cash flow generated from operations increased by 33% in the year to June 2017. Higher operating cash flow allowed mid-tier mining businesses to increase capital expenditure by 35%, increase dividend repayments by 41%, as well as pay down 64% more debt relative to the previous year.
Capital expenditure Debt repayments Operating cash flow Dividend repayments
Mining commodity prices declined in 2017 however prices recovered in thelatter half of the year, showing an uptick from July to December 2017 of 8.8%7.
* Base metals refers to aluminium, lead, copper, zinc and nickel**Bulk commodities refers to iron ore, metallurgical coal and thermal coal
Source: RBA 2017
300.0
250.0
200.0
150.0
100.0
50.0
0.02007 2008 2009 20112010 2012 2013 2014 2015 2016 2017
Bulk commodities price** Base metals price*
+35% +64% +33% +41%
7 RBA I2 Commodity Prices8
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China49.7%
UK3.8%
Germany1.3%
India1.5%
Sth Korea5.5% Japan
13.0%
Hong Kong8.0%
Singapore2.2% Indonesia
2.0%
Taiwan1.5%
*Other11.4%
Spotlight on Western Australia
4.0%rise in mining employment
18.1%rise in exploration expenditure
15.1%rise in gold employment
Western Australia remains a large global player in mining services, accounting for:
37.5% 6.0%world iron ore production
world gold production
Despite mining investment continuing to fall, WA recorded8:
Bulk commodities price** Base metals price*
Source: WA Department of Mines, Industry Regulation and Safety
9.0%WA mining exports by country
world liquid natural gas
8 Government of Western Australia: Department of Mines, Industry Regulation and Safety 2017 9
9 IBIS 201710 BDO Energy 2020 Vision Report
What does the future hold?In the future, we are likely to see an increased industry focus on9:
Production
Efficiency through automation
Outsourcing
Artificial intelligence
Environmental sustainability - increased need to comply with government regulations
Robotic technology and the internet-of-things is expected to impact employment, accident rates and digging costs in the mining industry over the next three years, with robots predicted to replace more than 50.0% of miners by the year 202010. According to consultancy BDO, half of the miners affected will be retrained to run the technology controlling the robots.
While global economic growth is expected to improve, concerns remain about China’s GDP with revised forecasts in 2018 0.4 percentage points lower than previously estimated as the government tries to curb soaring house prices and risky borrowing - therefore pushing up lending costs.
Technology is set to birth a new era of mining with jobs in remote
operations, maintenance, software development, data processing and data
analytics expected to curb labour costs while bolstering efficiency and
decision-making capabilities.
What challenges does the industry face?
Mining for efficiency:
Falling revenue insome sectors
Potential rising interest rates may weaken international demand for mining exports
Weak capital raising environment will create greater barriers to entry
Forecast low iron ore prices until 2031 reinforces the need for increased productivity
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Where do the opportunities lie?
There is an opportunity for mining tech support services or start-ups to increase efficiency in the sector. The onus, however, is on these start-ups to communicate their value proposition to the established companies considering adopting these new technologies.
The evolving car industry is fuelling a lithium boom:
Lithium mine production by country (metric tonnes)
Technology pavesthe way
Australia
Chile
Argentina
China
Zimbabwe
Portugal
Brazil
0 3,000 6,000 9,000 12,000 15,000
Source: Investing News
Australia is the world’s largest lithium producer
Growing use of batteries for portable devices, tools, vehicles, as well as having grid storage applications to fuel the industry
Potential to grow other industries such as battery manufacturing as Australia mines all minerals required in battery production
Metric tonnes
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The total mining sector is forecast to grow by 5.2% in the five years to June 202211. Copper, oil and gas will make up a greater share of industry revenue, while revenue from black coal and mining support services is forecast to make up a smaller proportion.
Forecasted industry growth
Forecast revenue growth by sector, 2017 - 2022
Projected commodity prices (USD)
Coal
Aluminium
Copper
Iron ore
Lead
Nickel
Tin
Zinc
70.0
1,968
6,118
57.0
2,500
10,559
20,426
3,000
55.0
2,005
6,257
50.8
2,465
11,541
20,834
2,890
60.0
2,200
7,000
60.0
2,300
18,000
23,000
2,400
Heading? Heading? Heading?
60.0
1,987
6,187
50.0
2,483
11,039
20,629
2,945
57.4
2,100
6,618
55.2
2,381
14,413
21,890
2,634
2018 2019 2020 2025 2030
Iron ore miningBlack coal miningOil and gas extractionCopper ore miningGold ore miningNickel ore miningPetroleum explorationMining support services
2.2%
-21.6%
65.4%
19.7%
-1.8%25.2%
22.6%
-12.4%
There are signs of recovery as the market saw a subtle uptick in growth in the 12 months to November 2017. Oil and gas sits well ahead of the broader industry with the strong forecast likely due to growth in LNG (liquefied natural gas) export volumes to Asia12.
Source: IBIS 2017
Source: World Bank 2017
11 IBIS 201712 IBIS 201712
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SourcesAravanis, J. Contract Mining Services in Australia, IBISWorld, October 2017
Aravanis, J. Black Coal Mining In Australia, IBISWorld, September 2017
Allday, A. Copper Ore Mining in Australia, IBISWorld, October 2017
Allday, A. Gold Ore Mining in Australia, IBISWorld, July 2017
Allday, A. Iron Ore Mining in Australia, IBISWorld, January 2017
Aravanis, J. Mineral Exploration in Australia, IBISWorld, September 2017
Allday, A. Mining in Australia, IBISWorld, November 2017
Aravanis, J. Mining Support Services in Australia, IBISWorld, November 2017
Allday, A. Oil and Gas Extraction in Australia, IBISWorld, January 2017
Aravanis, J. Petroleum Exploration in Australia, IBISWorld, August 2017
Australian Bureau of Statistics 8165.0 (February 2017), Counts of Australian Businesses including Entries and Exits, Jun 2012 to Jun 2016, Table 1, available at:http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/8165.0Jun%202012%20to%20Jun%202016
Australian Bureau of Statistics 8155.0 (May 2017), Australian Industry, 2015-16, Mining operations, available at:http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/8155.02015-16
Australian Bureau of Statistics 6354.0 (November 2017), Australia, Nov 2016 to Nov 2017, Mining,Table 4, available at:http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/6354.0Nov%202017
Government of Western Australia, Department of Mines, Industry Regulation and safety, Economic Indicators, 2017
McHugh, B. Mining jobs increase across Australia on the back of surging commodity prices, Australian Broadcast commission, July 2015
Reserve Bank of Australia, Index of Commodity prices, January 2017
Padhy, S. 8 Top Lithium-producing Countries, Lithium Investing News, August 2017
PWC, Aussie Mine 2017, 2017
Yao, K. China’s economy seen growing 6.8% in 2017 and 6.4% in 2018: Reuters Poll, Reuters, October 2017
World Bank Group, Commodity Markets Outlook, Washington, October 2017
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Speak with one of our Business BankingSpecialists today. Call us on 13 7000.
We provide banking solutions to many of Australia’s leading businesses, including those in mining services. Whether you require straightforward banking or a more customised solution, our team of experienced banking specialists can help.
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The information contained in this report is of a general nature and is not intended to be nor should be considered as professional advice. You should not act on the basis of anything contained in this report without first obtaining specific professional advice. To the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL/Australian credit licence 234945, its related bodies corporate, employees and contractors accepts no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this report.
