contract mining and plant rental investor day 2012 erich clarke – divisional ceo
TRANSCRIPT
Open cast mining contractorCoal, platinum, nickel and other base metalsLoad and haul, ore recovery and rehabilitationDrillingBlasting
Surface blastingProvides full range of packaged explosives, blasting accessories and pyrotechnic/electronic initiation systems to suit requirements
Plant HireBest earthmoving plant at competitive pricesCommitment to service excellenceMaintained and serviced by qualified field service mechanics with a world class workshop and rebuild facility
Divisional overview – what we do
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Largest division of Eqstra – 45% of revenues and 50% of revenue producing (leasing) assets, but currently only 24% of PBT
Primary business units - MCC Contracts and MCC Plant Hire
One of two large domestic open cast mining contractors in southern Africa
Largest plant hire fleet in southern Africa and largest grader fleetin Africa
Targeted job range R400 million – R1 billion in capex
5 010 employees (+5.5%)
Divisional overview – the numbers…
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Safety Achievements
MCC achieved 1000 fatality free shifts in June 2012
Tharisa was nationally recognised by the DMR (Department of Mineral
Resources) and received an award : “Highest Safety Standards” within a
mining operation – this against mining giants like BHP, Exxaro and Xstrata,
among others
MCC Khutala received an award for “Best Safety Standards” throughout all
BECSA operations
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No direct impact from national / mining sector strikes
DMO / Khutala contracts renewed / extended for three years
Previously loss making Platmin contract breaking-even
Conclusion of contract negotiations with Nkomati Nickel should stop bleed
Management changes well received both internally and externally
Improved availability has released capacity (negative impact on utilisation)
Further intervention initiatives gaining traction
Key points on current operations
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Last reported financial results
Rm 2012 2011* % ch
Revenue-generating assets 4 517 3 912 15.5%
Inventories 97 61 59.0%
Other assets 945 791 19.5%
Operating assets 5 559 4 764 16.7%
Revenue 3 707 3 225 14.9%
EBITDA 1 137 966 17.7%
Operating profit 322 322
Asset reversal (impairment) 37 (50)
Foreign exchange gains (losses) 270
Net finance costs (277) (221) 25.3%
Profit before taxation 109 51 113.7%
PBT margin 2.9% 1.6%
EBITDA to net finance costs 4.1x 4.4x
* Income statement reclassified for segment reallocations
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Commodity diversification
Commodity and regional diversification has improved in recent years from past high exposure to PGM’s
Identified opportunities in iron ore and copper
Capacity available for one sizeable contract
Revenue by commodity
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Jun ‘09
Jun ‘10
Jun ‘11
Jun ‘12
Mining contracts
ClientMineral/Service Location
Monthlyvolumes
Enddate
Platmin - Pilanesberg Platinum Mine
Platinum Northam, North West1 250
000m3
03/2014
ARM/Norilsk JV - Nkomati Nickel NickelMachadodorp, Mpumalanga
1 200 000m3
09/2014
Tharisa Minerals Chrome Marikana, North West 600 000m306/201
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Rio Tinto - Benga Mine Coal Tete, Mozambique1 900
000m3
12/2015
DMO Project Coal Witbank, Mpumalanga1 200
000m3
11/2015
Khutala Colliery Coal Ogies, Mpumalanga1 000
000m3
10/2014
Total Coal – Dorstfontein East Coal Kriel, Mpumalanga1 600
000m3
01/2016
Coal of Africa - Vele Colliery Coal Musina, Limpopo 250 000m312/201
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Contract demand outlookCommodity Global climate Project exposure Impact on Eqstra
Platinum Turmoil, industrial action Platmin •Open cast mining at lower end of production cost curve•No industrial action in past six months•Potential for increased demand
Coal: Thermal Demand outlook and prices have weakened
Dorstfontein
DMOKhutala
•Increased demand from Eskom
•Contracts extended / renewed for supply to Eskom
Coal: Metallurgical Demand outlook and prices have weakened
Benga
Vele
•Steady demand from Tata (35% Benga shareholder) for own smelter
•Scaled down demand and kit redeployed
Nickel / Chrome Lower steel demand has weakened prices
Nkomati
Tharisa
•Contract losses due to contract management•Contract terms renegotiated
•Client has commissioned new plant•Increased tonnage expected in 2013
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Resignations:
JC Pretorius: MD, MCC Contracts
Trevor Adams: Projects Director
Restructured into four operational areas:
Hard Rock
Soft Rock
Africa (Mozambique)
Plant Hire
Recent management changes
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Senior management reorganised and structured
Established a Business Development Team:
Marketing
Tendering/Pricing
Contract Management
A focused plan has been implemented to address all identified contract issues
Legal reviews of contracts
Matrix developed to ensure contract compliance
Continuous contract performance evaluation
Current tenders and new contracts to benefit from new improved contract management measures
Contract management
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Contract accounted for significant losses in recent years
Contract renegotiated effective 1 January 2012 to exclude reefing and drilling
Labour climate has remained challenging, but no significant disruptions to operations in recent months
Platmin – at break-even
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Significant contract loss posted in FY2012
Took over blasting from July 2012 after poor fragmentation delivered by previous blasting contractor
Poor fragmentation resulted in elevated wear and tear on equipment and consequent high maintenance costs and poor productivity
Contract has remained a challenge in recent months
Revised pricing negotiated and run rate should improve
Nkomati Nickel
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Benga (Mozambique) update
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Contract continues its satisfactory performance
Mine is now at full production of around 1.9 million tonnes per month
Future logistics constraints to export high volumes of coal remain a concern
Tyre management is proving to be a
challenge due to shortages
Tata Steel’s 35% ownership of concession
ensures sustainability of demand
Plant hire activities gathering momentum
Industrial relations is a key operational and strategic risk
Marikana has changed the labour relations landscape
Labour unrest in the Rustenburg region mainly affected underground mining operations
Initiatives implemented have improved labour relations and interaction with unions
MCC has “weathered” the unrest storm
No illegal or legal strikes
Cost increases due to negotiations and industry concessions
Labour relations climate
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Excess equipment on balance sheet
Fleet optimisation and availability improvement exercise has identified
excess equipment:
R80m held for sale
R50m spare drilling capacity
R115m incorrect sizing
Optimisation of approximately R150m required
Contract renewals will correct this
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Capital expenditure outlook
Expansion capex decreased from R931m in FY2011 to R477m in FY2012
Benga project capex R645m in FY2011 and R450m in FY2012
Limited expansion capex forecast in FY2013
Replacement capex in FY2013 expected to be below R500m
Excess equipment extracted from optimisation exercise will be used as replacement
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Availability
Equipment availability is measured according to how many hours a specific item of equipment actually was mechanically available to work per shift i.e. the % of time mechanically able to work per shift
Poor levels of availability often lead to poor utilisation as equipment work in teams
Poor availability addressed:Increased maintenance spend
Increased focus on preventative maintenance
Clarification of reporting lines – technical managers assigned for specific products
Monthly engineering meetings – focus on availability, costs etc.
Increased artisan headcount
Increased Midrand workshop capacity
Introduced Service Level Agreements with major suppliers
Introduced monthly site, production and plant, meetings contributing to improved conditions to increase availability (Site Severity Audits)
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Fleet utilisation
Utilisation is measured according to how many hours a specific item of equipment actually “worked” as a % of the available hours it could have worked i.e. was mechanically able to workUtilisation rates have increased in the past two reporting periods
Factors impacting utilisation:
Contract negotiations
Inclement weather
Equipment replacement cycle lag
Project transitions
Bad scheduling practices
Bad mining practices e.g. excessive tramming
Operator availability
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Addressing under utilisation
Daily continuous focus on monitoring cubic metres moved per hour of all “major movers”
Comparisons to benchmarks
Improve training through innovative technology
Utilisation targets to include moving average analysis to ensure a focus on continuous improvement
Production incentives
Reduce expansion capital expenditure
Tender for additional projects with existing equipment
Supervisor training and exposure
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Plant Hire overview
10-15% of divisional revenues
Current markets:Infrastructure developmentGovernment and parastatalsConstruction and Mining
Branches in Windhoek, Namibia and in Tete, Mozambique performing stronger than branches in RSA
Domestic construction market remains depressed, little signs of life
Africa opportunities continue to hold promise
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Training and development
There is normally a shortage of suitably skilled workers in communities surrounding mine sites
Technical training:
MCC operates its own formal technical training academy in Benoni, Gauteng
The academy is fully accredited by industry training bodies
Offers the following trades:
Earthmoving
Boilermaker
Auto Electrical
Operator training:
Advanced simulator technologies increases operator skills in a short period of time
The Centre is fully accredited by: Construction SETA (NQF Level 3); Services SETA (NQF Level 4), MQA (Evaluations and assessments) and the Independent Examinations Board (ABET Level 4)
The Centre includes moderators and assessors
International Award: The Centre received the international award from
Immersive Technologies for “Best Results in Operator Simulator Training” – this
Centre competed against 23 countries with results assessed for a total of 240 000 operators
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ERP Project Implementation
SAP ERP system selected
Go live date: 4 March 2013
Advantages:
Enhanced functionality
Production monitoring
Equipment life cycle monitoring
Detailed cost analysis
Management Reporting &
variance analysis
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Commodity outlook
MCC does not take direct commodity risk, however, increases are being linked to commodity price recovery
Targeting other commodity opportunities to diversify commodity and country risk i.e. copper, iron ore and Africa
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Priorities
Business model requires at least a 14% operating margin to achieve 20% targeted ROE Operating margin negatively impacted by:
low plant utilisation high planned preventative maintenance expensesnew contract start-up costsstaff costs
Cost control:Labour costs have increased due to SAFCEC determinationCorrection of normal working hourUnion demands i.e. Medical aid, bonuses, etc
Efficiency improvementsUtilisation driveImproved maintenance / availability drive
SAP implementation – project on trackOrder book – increased scope on existing contracts
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