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Mining & Energy

Services South Australian Industry Consultation Report

October 2016 _____

kpmg.com.au

2 Mining & Energy Services: South Australian Industry Consultation Report

© 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation

Contents Executive Summary 3

Consultation Purpose & Process 5

Survey Outcomes 7

Key Themes 10

Future Focus Opportunities 13

Appendix 1: Survey Questions 18

Appendix 2: Survey Respondents 20

Appendix 3: Glossary 21

Inherent Limitations

This report has been prepared as outlined in the Engagement Letter. The services provided in connection with this engagement comprise an advisory engagement, which is not subject to assurance or other standards issued by the Australian Auditing and Assurance Standards Board and, consequently no opinions or conclusions intended to convey assurance have been expressed.

The summary contained in this report is based on a qualitative study and qualitative research and the reported summary reflects a perception of the Mining & Energy Services Sector and the Department of State Development but only to the extent of the sample surveyed, being the Department of State Development’s approved sample of stakeholders. Any projection to the wider stakeholders is subject to the level of bias in the method.

No warranty of completeness, accuracy or reliability is given in relation to the statements and representations made by, and the information and documentation provided by, the Department of State Development personnel and stakeholders consulted as part of the process.

KPMG have indicated within this report the sources of the information provided. We have not sought to independently verify those sources unless otherwise noted within the report.

KPMG is under no obligation in any circumstance to update this report, in either oral or written form, for events occurring after the report has been issued in final form.

The findings in this report have been formed on the above basis.

Third Party Reliance

This report is solely for the purpose set out in the Scope Section and for the Department of State Development’s information, and is not to be used for any other purpose.

This report has been prepared at the request of the Department of State Development in accordance with the terms of KPMG’s engagement letter dated 26 September 2016. Other than our responsibility to the Department of State Development, neither KPMG nor any member or employee of KPMG undertakes responsibility arising in any way from reliance placed by a third party on this report. Any reliance placed is that party’s sole responsibility.

© 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Australia. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.



Executive Summary The purpose of this industry consultation report is to generate a better understanding of the issues and opportunities associated with the South Australian Mining & Energy Services sector in order to inform the Mining & Energy Services sector development strategy, an initiative of the Mining Industry Participation Office part of the Department of State Development.

This report presents the key findings from feedback gained through a wide ranging consultation with South Australian Mining & Energy Services businesses and key industry stakeholders undertaken between June and October 2016.

There were four sources of consultation feedback:

• An online survey – Conducted between June and October 2016, 197 respondents;

• A consultation workshop as part of the South Australian Government’s Northern Economic Plan initiative - 5 July 2016;

• The Mining Industry Participation Office (MIPO) Advisory Council Strategy Meeting - 2 August 2016; and

• Individual one-on-one consultations conducted by members of the Mining Industry Participation Office of the Department of State Development with 24 businesses between June and October 2016.

Feedback was sought from South Australian businesses active in the Mining & Energy sector, as well as businesses that are interested in entering the sector.

Consultation was undertaken in the context of a whole of state approach, considering how business, government and/or academia could do things differently to deliver increased benefit to all parties and growth in the sector.

The consultation feedback has been analysed and synthesised. The biggest challenges identified by respondents align to the following key themes:

• Insights into operator issues, problems and priorities – South Australian SMEs lack access to high-level mining and resource decision makers and information relating to operator issues, problems and priorities. They therefore do not see opportunities in a timely way and are unable to prepare their businesses to meet the needs of the sector.

• Procurement reform – SME businesses are burdened by compliance requirements (such as prequalification) and find time and cost commitments associated with procurement processes prohibitive.

• Collaboration and clustering – Many SME businesses have a limited understanding of potential strategic partnership opportunities and are not networked well enough with other SMEs to identify partners. They also lack knowledge of the legal frameworks which could enable them to partner in a time and cost-effective way.



• Industry led research and policy – Research and policy are rarely industry driven and are typically developed with minimal contribution and/or direction from industry.

• International competiveness of South Australian SMEs – SME businesses are often limited in their ability to develop international export networks and access international best practice knowledge and processes. There are also cost factors which influence their competitiveness.

There was support for the future focus opportunities listed below. Alignment of business, government and research effort towards the delivery of these opportunities will provide increased benefits to the Mining & Energy Services sector and South Australia.

Increase:

• Opportunities for SMEs to access mining and resource operators and Tier 1 suppliers and increase understanding of their business needs

• Industry driven research and development, through a strategic and focussed approach and opportunities for exchange between industry and academia

• International competitiveness of local Mining & Energy Services SME businesses

Maximise:

• Industry input into government policy development

• Early stage foreign market export opportunities for SMEs

• Opportunities for SME businesses to collaborate by increasing SME Understanding of Joint Venture (JV) and other frameworks for partnering and lower barriers to collaboration

Decrease:

• Duplication, time and costs associated with procurement processes

• Cost of compliance and state based regulation by taking more innovative approaches around procurement and pre-qualification

• Impediments to industry attraction



Consultation Purpose & Process The consultation program’s purpose was to generate a better understanding of the issues and opportunities associated with the South Australian Mining & Energy Services sector in order to inform the Mining & Energy Services sector development strategy, an initiative of the Mining Industry Participation Office part of the Department of State Development.

The consultation program that supports this report was undertaken between June and October 2016. The consultation process was designed and delivered to be collaborative. The South Australian Government sought a whole of state and inclusive approach to policy development, and for policy to address the needs and issues of the sector, as articulated by industry. Similarly, it is important to recognise that many of the issues facing the sector are not within the exclusive control of government, industry or academia alone. For this reason, the consultation process and this report draws attention to issues and future focus opportunities that can benefit from the combined focus of government, business and academia.

The consultation program involved the following four feedback activities.

• Online survey – The online survey sought input from Mining & Energy Services businesses regarding the issues and opportunities facing the sector. The survey was distributed via a range of channels, including the Mining Industry Participation Office distribution list, consultations during the Upper Spencer Gulf (USG) Global Maintenance Conference and one-on-one consultations. In total, 197 survey responses were submitted. (Survey questions have been provided in Appendix 1 of this report, while a high-level breakdown of survey respondents in provided in Appendix 2).

Figure 1: Industry, Government & Academia solution matrix



• Consultation workshop – A consultation workshop was conducted as part of the South Australian Government’s Northern Economic Plan initiative. The workshop was held on 5 July 2016, and was attended by approximately 30 Mining & Energy Services businesses based in the northern suburbs of Adelaide. The workshop addressed the issues and opportunities facing the sector as a whole and highlighted issues specific to businesses located in northern Adelaide;

• Mining Industry Participation Office (MIPO) Advisory Council Strategy Meeting – The MIPO Advisory Council provides guidance and oversight to the development of South Australia’s resource sector and consists of executives from the mineral and energy resources sector, industry associations and State Government. The meeting was held on 2 August 2016; and

• Individual one-on-one consultations – Individual consultations were conducted with Mining & Energy Services businesses and key sector stakeholders by members of the Mining Industry Participation Office of the Department of State Development between June and October 2016. The consultation outcomes were documented for inclusion to this report.

These four activities provided South Australia’s Mining & Energy Services businesses and key industry stakeholders the opportunity to provide feedback on current industry initiatives, issues confronting businesses and the opportunities that may be beneficial for government, business and academia to address together.

In total, across the full range of engagement activities, over 250 Mining & Energy Services sector businesses representatives provided contributions that were analysed and captured in this report.



Survey Outcomes Figure 2: Survey outcome infographic Part 1



Survey Outcomes (cont.) Figure 3: Survey outcome infographic Part 2



Survey Outcomes (cont.) The survey included an opportunity for free text responses in relation to the activities that could be undertaken for South Australia to become a leading Mining & Energy Services hub for the nation.

Themes and responses considered to be within the scope of the South Australian Government more broadly, but not confined to the Mining & Energy Services sector are provided below:

• “Reduce overall cost of running a business in this state”

• “Remove government red tape”

• “Lowering utility costs (electricity and water)”

• “Infrastructure improvements that support the mining industry”

• “Assist the retention of graduate skills in South Australia”

Themes and responses considered to be within the scope of the Industry Development Office, business and/or academia have been incorporated in the following sections.



Key Themes The major findings to emerge from consultation with Mining & Energy Services sector businesses and key industry stakeholders relating to the biggest challenges for the industry are:

Please note: All quotes and statistics provided below have been sourced from the online survey.

• Insights into operator issues, problems and priorities

Consultation identified that South Australian businesses active in the Mining & Energy Services sector have difficulty accessing senior decision makers, and do not have the time to invest in developing these trusted relationships. They subsequently struggle to have an in-depth understanding of the issues, problems and priorities of Tier 1 suppliers and resource companies. This means that they do not see opportunities in a timely manner and do not prepare their businesses to respond.

“ (Our business is) not known to key decision makers in prospective organisations and/or staff changes in mining/energy companies is causing loss of contact”

Survey Result - 23.0% of survey respondents had difficulty accessing senior level decision makers and understanding current needs.

Consultation also indicated that Tier 1 suppliers and resource companies are perceived by suppliers to be conservative and reluctant to adopt new technologies and innovations.

“There is also a reluctance to embrace different ways to design”

Survey Result - 15.9% of survey respondents listed a reluctance by miners to trial new innovations as a challenge when trying to engage with resource companies.

• Procurement reform

Feedback indicated that the biggest challenge for businesses trying to engage with mining or resource companies is the restrictive nature of procurement processes, including pre-qualifications and divergent approaches by individual companies. Respondents indicated that there are opportunities to improve processes and reduce time, duplication and costs for all parties involved.

Survey Result - 26.4% of survey respondents identified restrictive procurement processes as the biggest challenge when trying to engage with mining and resource companies.



• Collaboration and Clustering

Feedback from Mining & Energy Services businesses and key stakeholders raised concerns around the difficulties that SMEs face when seeking to enter collaborative ventures. Respondents indicated that limited networks and knowledge of other businesses is the greatest barrier to partnering.

A lack of understanding of best practice legal and governance structures was also flagged as a barrier to partnership. Many respondents simply don’t have the time or resources available to invest in creating or building these relationships or to seek educational opportunities around JV structures and frameworks.

“Limited knowledge of our offering by potential partners”

“As a technology supplier there are always concerns over confidentiality and other legal frameworks”

Survey Result - 39.5% of survey respondents identified lack of networks/knowledge of other businesses as the greatest barrier to partnering.

Survey Result - 21.6% of survey respondents identified lack of understanding of best practice legal and/or governance structures as a barrier to partnering.

• Industry-led research and policy

Through the consultation process feedback suggested that research and policy development could benefit from a greater contribution from industry, both in terms of resource industry operators and SME contributions. Despite many respondents indicating that they currently have a form of partnership with researchers or academics, there was a view that more could be done to direct research towards more commercially driven outcomes that are more relevant and useful to industry.

Feedback also indicated that businesses are often hesitant to enter partnerships with research and academia because of limited certainty around Intellectual Property (IP), risk and profit sharing arrangements. The consultation process additionally identified that research funding often isn’t aligned with the research and development or commercialisation outcomes that businesses are focussed on achieving. Knowledge of the funding mechanisms that underpin research was also flagged during feedback as a constraint to successful partnerships with research and academia.

“Lack of (a) platform for collaboration with industry”

“Researchers often lack the commercialisation skills to take ideas and concepts and turn them into products saleable into the mining industry.”

Survey Result - 23.9% of survey respondents indicated a lack of a tangible result that can be used in industry as constraint to a successful partnership with research and academia.

Survey Result - 28.2% of survey respondents indicated that uncertainty around IP, risk and profit sharing issues as constraint to a successful partnership with research and academia.



• International competitiveness of South Australian SMEs

Feedback from Mining & Energy Services businesses and key stakeholders highlighted the importance of South Australian SMEs maintaining or reaching levels of international competitiveness, in terms of both service offering and business skills. It was seen as an imperative to many of the growth opportunities for the Mining & Energy Services industry in South Australia. Internationally competitive SMEs in South Australia ensures that a greater percentage of supply chain work stays in South Australia and enables the development South Australia as a recognised hub for Mining & Energy services.

This connects to the broader issues of cost, red tape, skills and infrastructure raised on Page 9.



Future Focus Opportunities The consultation undertaken identified a number of future focus opportunities that can be pursued by government, academia and business together. These opportunities provide a high-level direction for future prosperity for the Mining & Energy Services sector in South Australia.

The opportunities have been themed against either increase, maximise or decrease.

• Increase

• Opportunities for SMEs to access mining and resource operators and Tier 1 suppliers and increase understanding of their business needs



Maximise



• Opportunities for SME businesses to collaborate by increasing SME understanding of Joint Venture (JV) and other frameworks for partnering and lower barriers to collaboration

Decrease

• Duplication, time and costs associated with procurement processes by taking more innovative approaches around procurement and pre-qualification

• Cost of compliance and state based regulation




Increase

• Opportunities for SMEs to access mining and resource operators

Feedback suggested that it would be beneficial to increase opportunities for SMEs to access key decision makers from resource operators and tier 1 suppliers. Increased interactions broaden SME networks and provide a vehicle for greater understanding of supplier needs, issues and priorities.

“The ability to get access to decision makers…” ”More networking (opportunities)”

“Further assistance in arranging face to face meetings with buyers of services”


Respondents suggested that there would be value in adopting a more collaborative and targeted approach to research and development. Specific opportunities highlighted by respondents include encouraging researchers to work with industry to solve their problems, opportunities for PhD students to be placed in industry and a pilot facility/hub, or a virtual or physical centre of excellence, where researchers and academia can trial industry ideas and research.

“Education, innovation and become the specialists / brains trust at an international level”

“…Foster the formation of a (real and virtual aspects) SA Resources Innovation Research and Development cluster/hub"

“Both sides (industry and research) contribute equally to setting the research agenda”

In addition, increasing opportunities for exchanges between industry and academia was considered by respondents to be a valuable opportunity for the sector in the future. Notably 80.2% of respondents not currently partnering with researchers or academics would consider doing so in the future. Strengthening relationships among research and industry will improve the transfer of research from universities to the sector and increase the speed of new product development.

Respondents identified that increased exchanges between industry and academia could be underpinned by open innovation initiatives and IT infrastructure.

“Fostering a genuine, relevant, collaborative environment and making 'catalyst' funding available to bring together service providers/global distributors, innovators and

appropriate researchers”




Respondents considered increasing the competitiveness of local Mining and Energy Services SME businesses as an important requirement if South Australia is to become a leading mining and energy services hub for Australia. Relationships are a key part of access to international markets and it was identified that exposure to knowledge of new markets and networking are important to this.

“Expose METS sector start-ups and SMEs to overseas best practice (in both technology & business models)”

Maximise


Feedback identified that Mining & Energy Services businesses and key stakeholders would like to see greater industry input into government policy development. Some respondents acknowledged that the government is doing a good job in this area but have suggested more opportunities for collaboration between government and the private sector.

“More communication and government sponsored information forums”

“Form cross industry groups that focus on delivering solutions that meet the mining and energy resources sector client needs”


Feedback indicated that early stage foreign market export opportunities for SMEs should be maximised. Access to foreign markets can assist SMEs to grow quickly, but importantly servicing diverse markets allows businesses to diversify revenue streams and be more resilient to the cyclical nature of local mining and resource commodity pricing and market responses. Respondents placed value in supporting SMEs to access and build relationships in foreign markets.

• Opportunities for SME businesses to collaborate by increasing SME understanding of Joint Venture (JV) and other frameworks for partnering and lower barriers to collaboration

Feedback from Mining & Energy Services businesses and key stakeholders identified that opportunities for SME business to collaborate should be maximised. Respondents expressed strongly that collaboration opportunities can be increased through assisting SMEs with networking opportunities and education around partnership governance structures. A pilot facility or hub focussed on research and development in the Mining & Energy Services industry would also provide more collaboration opportunities for SMEs.

“Engaging collaborative approaches across operators and services to come up innovative solutions”.



“I think fostering a community of collaboration is the best approach, where technologies and services across multiple businesses can be complementary to provide a range of

opportunities for services businesses.”

Feedback indicated that providing assistance to SMEs to understand JV or Alliance formation and the legal frameworks that support these relationships may reduce one of the significant barriers to collaboration and partnering.

“Collaboration, IP management assistance”

Decrease

Duplication, time and costs associated with procurement processes

Reduction of duplication, time and costs associated with procurement process is closely linked with the future focus opportunity to maximise innovative thinking and solutions around procurement and prequalification. Feedback specifically identified the increased burden of procurement processes on SMEs compared to larger suppliers, due to a smaller resource pool and increased net cost of procurement requirements. Respondents indicated that more can be done by Tier 1s and resource companies to reduce the burdens of procurement for SME businesses.



• Cost of compliance and state based regulation by taking more innovative approaches around approvals, procurement and pre-qualification

Feedback from Mining & Energy Services businesses and key stakeholders identified that decreasing the cost of compliance and state based regulation would have positive impacts for the Mining & Energy Services sector in the future. Respondents highlighted the costs associated with complying with a range of different schemes that differ project to project.

“Stop fiddling with the approvals process… Speed project pathways and associated cost”

“We have spent many hours complying to different schemes (ICN, Achillies, ISO9001, AS4801, ISO14001, SCA CC2 even TenderSA, BidContender, DPTI PreQual etc.)”

Respondents encouraged government and resource companies to consider innovative thinking and new solutions that can reduce time, duplication and costs for all parties around procurement and pre-qualification processes. Specific feedback included suggestions to standardise compliance such as prequalification and state-based regulation, promote projects and opportunities for companies to work together and provide a framework that promotes collaborative joint tenders between Tier 1 suppliers and SMEs.

Feedback also suggested that procurement policy reform should focus on encouraging the use of local South Australian companies.

“Government to move faster with approval processes. Consistency between states and territories”

“Procurement policy that encourages use of SA companies”


Feedback collected through the consultation process identified that there may be scope to reduce a number of impediments to ongoing industry attraction, specifically attraction of resource companies and new large scale mining and energy projects to South Australia. Many of the impediments identified by respondents are outside the scope of the Industry Development Office of the Department of State Development, these were called out earlier in this report.

“The South Australian Government needs to create an environment where mining and energy companies want to come and set up. To create a tax environment and an energy

cost environment that encourages these companies to want to set up.”



Appendix 1: Survey Questions 1. Does your company currently supply to the mining and energy sector?

a. If yes, for how long? b. If no, would you like to become a supplier to the sector?

2. Does your business currently export?

a. If yes, approximately what proportion of your business is export focused? 3. Question 3. was a business identification question

4. Do you face any of the following challenges when trying to engage with mining and/or resource companies? (Select only 2)

• Restrictive procurement processes by major miners • Reluctance by miners to trial or adopt new innovations that disrupt

current operations • Difficulty in accessing senior level decision makers and understanding

current needs (problem identification) and long term technology roadmaps of miners

• Cost of engaging with large miners too high for SMEs • Cyclical nature of industry limits sustainable growth and development of

scale • Lack of management and skills capability in areas such as finance, sales,

marketing and global strategy • Limited access to finance – both early stage and patient capital • Non – harmonisation of state based (and company based) regulations

imposes costs on supplier and miners impeding productivity • Other, please specify

5. Would you consider partnering with other (SMEs/suppliers) to work with Tier 1 suppliers or mining and/or resource companies?

6. What would you consider to be the barriers to partnering?

7. Which of the following do you believe to be the most important role for Government in supporting your business?

• Supporting project collaboration opportunities with Tier 1s, operators and researchers

• Access to global expertise and knowledge, including information on best practice and new business models

• Assistance with connections to Tier 1s and operators to help identify operators business needs and constraints

• Assistance with developing commercial skills, eg. sales, marketing, accounting

• Other, please specify

8. Do you currently partner with researchers or academics?

a. If no, would you consider doing so in the future? 9. What would you consider to be the constraints to successfully partnering with

research and academia? (Select all that apply)



• Lack of responsiveness from researchers • Lack of a tangible result that can be used in industry • Lack of access to research networks (aligned research) • Lack of knowledge or access to funding mechanisms/models • Uncertainty around Intellectual Property/risk and profit sharing issues • Other, please specify

10. What growth strategies are you currently pursuing? (Select all that apply)

• Expanding into new market segments and industries • International growth, export expansion • Development of new technology and products • Growth of customer relationships and project pipelines • Domestic expansion • Diversifying product service range • Industry collaboration and partnerships • Internal business improvements • Improving workforce skills and training • Moving operations offshore • Other, please specify

11. What action could be taken in order for South Australia to become a leading mining and energy services hub for the nation?

12. Question 12. was a business identification question



Appendix 2: Survey Respondents Total Responses: 197

Complete Responses: 167

n = 197 n = 173

n = 197



Appendix 3: Glossary

DPTI Department of Planning, Transport & Infrastructure

DSD Department of State Development

ICN Industry Capability Network

IDO Industry Development Office

IP Intellectual Property

IT Information technology

JV Joint Venture

MIPO Mining Industry Participation Office

NEP Northern Economic Plan

PhD Doctor of Philosophy

SA South Australia

SME Small & Medium Enterprises

USG Upper Spencer Gulf



Contact

Rowan Roberts Director/SA Government Lead, Management Consulting +61 8 8236 3430 [email protected]

The information contained in this document is of a general nature and is not intended to address the objectives, financial situation or needs of any particular individual or entity. It is provided for information purposes only and does not constitute, nor should it be regarded in any manner whatsoever, as advice and is not intended to influence a person in making a decision, including, if applicable, in relation to any financial product or an interest in a financial product. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. To the extent permissible by law, KPMG and its associated entities shall not be liable for any errors, omissions, defects or misrepresentations in the information or for any loss or damage suffered by persons who use or rely on such information (including for reasons of negligence, negligent misstatement or otherwise). © 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. October 2016

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