Bankwest Future of Business: Focus on Mining Services 2018
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Bankwest Future of Business: Focus on Mining Services 2018
2
Contents
Key insights 4
Focus on mining services 5
Industry overview 6
What’s driving
industry growth? 7
Spotlight on Australia 8
Spotlight on
Western Australia 9
What does the future hold? 10
Where do the
opportunities lie? 11
Forecasted industry growth 12
3
Key insights
Foreword
Understanding factors impacting your industry, for the next 15 years. Gold mining recorded
and how other businesses in your industry are the largest rise in direct Western Australian
performing, can be a great gauge for how your employment across the sector, increasing by
business is tracking. 15.1% in the year to June 2017.
The Bankwest Future of Business: Focus on The recovering sector’s huge shift in focus
Mining Services Report is designed to give towards productivity and innovation magnified
you a snapshot of the current and expected in 2017. Rising costs and slowing returns have
future state of your industry, which could help created a need for businesses to cut costs
you plan and spark ideas. The report covers by leveraging new technologies to improve
Australia’s mining and support services sector, bottom lines. Technological advances such as
summarising trends based on statistics from self-driving vehicles and drones have bolstered
IBIS World, the Australian Bureau of Statistics productivity and reduced errors from manual
and other reputable sources. inspection.
Rising commodity prices across the resources Western Australia’s 15-year marriage between
sector in the latter half of 2017 has been a iron ore prices and interstate migration could
boon for employment with a 66.7%1 increase in be coming to an end, with recent activity
mining job vacancies in the year to November suggesting a divergence between the two. In
2017. Coupled with the falling exchange the 2016-17 financial year, some 39,419 people
rate, Australian exports have become more migrated interstate from WA, yet the iron ore
attractive to international buyers, bolstering price rose from $69 to $92 per tonne2. While
mining exports and industry revenue. prices have risen, production and exploration
Although 2017 marked an uptick in industry has continued to fall, likely accounting for the
performance, figures are still subdued inverse relationship.
compared to heights reached in 2012.
WA’s mining story could be starting a new
Furthermore, the long-term trend of declining chapter, however, with prelude and icthys
iron ore prices has seen exploration investment large-scale LNG projects and Kalgoorlie’s
pivot towards gold as commodity prices are planned Super Pit extension likely to be a
expected to hold around USD$50 or (AUD$65) drawcard for people in the sector moving back
to the state.
44 ABS 6354.0
1
2
http://bcec.edu.au/assets/BCEC-Quarterly-Economic-Commentary-Dec-2017.pdf
Focus on Mining Services Mining support
services employees
The mining sector boasts $214.7 billion in total revenue, and is the second biggest sector in the
nation in terms of trade volume. The mining industry includes many
employees with diverse roles. These
What makes up the mining sector? include miners, kitchen staff, cleaners,
occupational health and safety officers,
nurses, employee relations, legal advice,
$63.3 bn workers compensation, IT support,
$59.7 bn occupational hygiene (testing air quality,
gases, water quality) and security.
Mining services businesses
2017: 7,102
2016: 7,293
$34.0 bn
Mining support services
businesses
2017: 1,641
$16.1 bn
2016: 1,680
$5.7 bn Mining services employees
$1.8 bn $1.4 bn 2017: 177,630
2016: 163,480
Iron ore Black coal Nickel ore Gold ore Copper ore Oil and gas Petroleum
extraction exploration Mining support services
Source: IBIS 2017
employees
2017: 38,710
Mining support services recorded an additional $10.2 billion in revenue, while contract mining
2016: 37,582
services contributed a slightly lower $9.9 billion.
Source: IBIS 2017
5
Mining sales and Industry overview
service income
The mining services sector includes coal, copper, gold, iron ore, nickel ore, oil and gas extraction,
Billion ($) petroleum and lithium as well as mining support and contract services.
44.1 Coal mining Mining services businesses entries and exits, Australia, 2015 - 2016
34.6 Oil and gas extraction Operating at the Operating at the
Percentage
start of the end of the
change
financial year financial year
54.9 Iron ore mining
Coal mining 387 353 -8.8%
5.4 Copper ore mining Oil and gas extraction 387 366 -5.4%
Iron ore mining 129 110 -14.7%
15.0 Gold ore mining
Copper ore mining 63 59 -6.3%
2.6 Mineral sand mining Gold ore mining 588 573 -2.6%
Silver/Lead/Zinc Nickel ore mining 38 34 -10.5%
4.9 ore mining
Other nickel ore mining 125 120 -4.0%
7.3 Total metal ore mining Petroleum exploration 581 556 -4.3%
Exploration and other Mineral exploration 2,117 2,082 -1.7%
90.4 mining support services
Source: ABS 8165
188.9 Total mining
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 output represented 6.9%
of Australia’s GDP in 2015-2016 at
$114.9 billion3.
3
ABS 5204
6
What’s driving industry growth? Performance drivers
Increase in commodity price
Industry growth is being driven by commodity prices (iron ore, gold and bauxite), demand
of iron ore USD$71.76/
from overseas buyers and the exchange rate, which impacts the price foreign countries pay for
tonne (AUD$88.74), annual
Australian commodities.
return up 22.8% however
down compared to 20124
Overseas demand remains strong
(Australia’s commodities exports) Rise in commodity price
of gold USD $1,257.56/
ounce (AUD $1555.48),
annual return up 1.0%5
AUD increased against the
South Korea USD, up 5 cents to 0.77
during 20176
China
Japan
India
Other
Source: IBIS 2017
4
http://www.worldbank.org/en/research/commodity-markets
5
http://www.worldbank.org/en/research/commodity-markets
6
https://www.exchange-rates.org/Rate/AUD/USD/12-30-2016
7 7
Spotlight on Australia
Iron ore and gold production continued to rise in 2017, likely due to growing international
demand and exports.
Base metals and bulk commodities price index 2007 - 2017
300.0
Bulk commodities price** Base metals price*
250.0
200.0
150.0
100.0
50.0
0.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: RBA 2017
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%.
Mining commodity prices
declined in 2017 however
prices recovered in the
+35% +64% +33% +41%
latter half of the year,
showing an uptick from July
to December 2017 of 8.8%7. Capital expenditure Debt repayments Operating cash flow Dividend repayments
Across Australia’s largest 50 ASX listed companies with a market capitalisation less than $5 billion,
* Base metals refers to aluminium, lead, copper, zinc and nickel
**Bulk commodities refers to iron ore, metallurgical coal and cash flow generated from operations increased by 33% in the year to June 2017. Higher operating
thermal coal 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.
88 7
RBA I2 Commodity Prices
Spotlight on Western Australia
Western Australia remains a large global player in mining services, accounting for:
world iron ore world gold world liquid
37.5% production 6.0% production 9.0% natural gas
WA mining exports by country
UK Germany
3.8% 1.3%
Sth Korea
5.5%
Japan
13.0%
China
49.7%
Taiwan
1.5%
India
1.5% Hong Kong
8.0%
Singapore
2.2% Indonesia
2.0%
*Other
11.4%
Source: WA Department of Mines, Industry Regulation and Safety
Despite mining investment continuing to fall, WA recorded8:
4.0%
rise in mining employment
18.1%
rise in exploration
15.1%
rise in gold employment
expenditure
8
Government of Western Australia: Department of Mines, Industry Regulation and Safety 2017 9
What challenges does What does the future hold?
the industry face?
In the future, we are likely to see an increased industry focus on9:
Mining for efficiency:
Production
Falling revenue in Efficiency through automation
some sectors
Outsourcing
Artificial intelligence
Forecast low iron Environmental sustainability - increased
ore prices until 2031 need to comply with government regulations
reinforces the need for
increased productivity
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.
Potential rising interest
rates may weaken While global economic growth is expected to improve, concerns remain about China’s GDP with
international demand revised forecasts in 2018 0.4 percentage points lower than previously estimated as the government
for mining exports 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
Weak capital raising operations, maintenance, software development, data processing and data
environment will create analytics expected to curb labour costs while bolstering efficiency and
greater barriers to entry decision-making capabilities.
9
IBIS 2017
10 10
BDO Energy 2020 Vision ReportWhere do the opportunities lie? Technology paves
the way
The evolving car industry is fuelling a lithium boom:
There is an opportunity for mining
tech support services or start-ups to
Australia is the world’s largest lithium producer increase efficiency in the sector. The
onus, however, is on these start-ups to
Growing use of batteries for portable devices, tools, vehicles, as well as having grid communicate their value proposition to
storage applications to fuel the industry the established companies considering
adopting these new technologies.
Potential to grow other industries such as battery manufacturing as Australia mines
all minerals required in battery production
Lithium mine production by country (metric tonnes)
Australia
Chile
Argentina
China
Zimbabwe
Portugal
Brazil
0 3,000 6,000 9,000 12,000 15,000
Source: Investing News Metric tonnes
11
11Forecasted industry growth
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.
Forecast revenue growth by sector, 2017 - 2022
Iron ore mining 2.2%
Black coal mining -21.6%
Oil and gas extraction 65.4%
Copper ore mining 19.7%
Gold ore mining -1.8%
Nickel ore mining 25.2%
Petroleum exploration 22.6%
Mining support services -12.4%
Source: IBIS 2017
Projected commodity prices (USD)
Heading? 2019
2018 Heading?
2020 Heading? 2030
2025
There are signs of recovery as Coal 70.0 60.0 55.0 57.4 60.0
the market saw a subtle uptick Aluminium 1,968 1,987 2,005 2,100 2,200
in growth in the 12 months to Copper 6,118 6,187 6,257 6,618 7,000
November 2017. Oil and gas
Iron ore 57.0 50.0 50.8 55.2 60.0
sits well ahead of the broader
Lead 2,500 2,483 2,465 2,381 2,300
industry with the strong
Nickel 10,559 11,039 11,541 14,413 18,000
forecast likely due to growth
in LNG (liquefied natural gas) Tin 20,426 20,629 20,834 21,890 23,000
export volumes to Asia12. Zinc 3,000 2,945 2,890 2,634 2,400
Source: World Bank 2017
11
IBIS 2017
12 12
IBIS 201713 13
Sources
Aravanis, J. Contract Mining Services in Australia, Australian Bureau of Statistics 8155.0 (May 2017),
IBISWorld, October 2017 Australian Industry, 2015-16, Mining operations,
available at:
Aravanis, J. Black Coal Mining In Australia, IBISWorld, http://www.abs.gov.au/AUSSTATS/abs@.nsf/
September 2017 DetailsPage/8155.02015-16
Allday, A. Copper Ore Mining in Australia, IBISWorld, Australian Bureau of Statistics 6354.0 (November
October 2017 2017), Australia, Nov 2016 to Nov 2017, Mining,
Table 4, available at:
Allday, A. Gold Ore Mining in Australia, IBISWorld, July http://www.abs.gov.au/AUSSTATS/abs@.nsf/
2017 DetailsPage/6354.0Nov%202017
Allday, A. Iron Ore Mining in Australia, IBISWorld, Government of Western Australia, Department of
January 2017 Mines, Industry Regulation and safety, Economic
Indicators, 2017
Aravanis, J. Mineral Exploration in Australia, IBISWorld,
September 2017 McHugh, B. Mining jobs increase across Australia
on the back of surging commodity prices, Australian
Allday, A. Mining in Australia, IBISWorld, November Broadcast commission, July 2015
2017
Reserve Bank of Australia, Index of Commodity prices,
Aravanis, J. Mining Support Services in Australia, January 2017
IBISWorld, November 2017
Padhy, S. 8 Top Lithium-producing Countries, Lithium
Allday, A. Oil and Gas Extraction in Australia, Investing News, August 2017
IBISWorld, January 2017
PWC, Aussie Mine 2017, 2017
Aravanis, J. Petroleum Exploration in Australia,
IBISWorld, August 2017 Yao, K. China’s economy seen growing 6.8% in 2017
and 6.4% in 2018: Reuters Poll, Reuters, October 2017
Australian Bureau of Statistics 8165.0 (February 2017),
Counts of Australian Businesses including Entries and World Bank Group, Commodity Markets Outlook,
Exits, Jun 2012 to Jun 2016, Table 1, available at: Washington, October 2017
http://www.abs.gov.au/AUSSTATS/abs@.nsf/
DetailsPage/8165.0Jun%202012%20to%20Jun%202016
14At Bankwest, we know
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is about more than just
financial solutions.
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.
Speak with one of our Business Banking
Specialists today. Call us on 13 7000.
15The 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.
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