Consolidation the key

THE well-documented decline in exploration drilling is one of a variety of reasons behind the recent trend towards consolidation in the mining industry.

While consolidation is a huge source of investment in the Goldfields, it is prompting consolidation among many supply and service companies, as they seek a share of an ever-dwindling client base.

Businesses involved with engineering and equipment servicing are among those experiencing good economic times. Because the mining industry uses specialised, high-tech equipment, companies tend to outsource most of their major mechanical and maintenance work to experts.

On the other hand, small operators in the Goldfields’ drilling industry have almost disappeared. From the September quarter 1997 to mid-2000, expenditure on mining exploration fell in each quarter, forcing consolidation among medium and larger drillers and leaving many smaller companies unable to either find work, or to offer sufficiently competitive prices.

Delays in the processing of Native Title claims has been a factor in the decline in exploration drilling, though some progress on negotiations has been made in the past year.

Consolidation within the mining industry itself, however, is a crucial issue. According to Tom Cole, president of the Kalgoorlie-Boulder Chamber of Commerce and Industry, the effects of this consolidation will continue to be felt for some time.

Among locally operating miners, two major operators – Delta Gold and Goldfields and the smaller Croesus Mining and Central Norseman – have merged in the past few weeks, and there is constant speculation that one or the other of these merged entities will become a takeover target for a larger company.

Mr Cole said merged companies were focused on ensuring the production side of the business was optimised, while exploration work was less of a priority.

Greg Johannes, acting chief executive officer of the Chamber of Minerals and Energy expressed concern that exploration drilling was at unsustainable levels.

“It’s now continuing at a rate where you have to question where the mines of 2015 are going to come from around the Goldfields,” Mr Johannes said.

“The bottom line is there’s not enough exploration currently being performed to replace operating mines when they reach the end of their lives.”

He said many of Western Australia’s and Australia’s small exploration companies were now able to choose to explore across the world, whereas 20 years ago “WA was in many ways the only game in town”.

One positive factor many Goldfields businesses are confronting, however, is that they are becoming much more efficient operators.

Retail operators, in particular, are in a highly competitive environment, and this is forcing them to examine their cost structures and management practices to eliminate as much waste as possible. They now await the (hopefully) inevitable turnaround in exploration and mine construction in the region.

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