Coogee Chemicals chairman Gordon Martin has the rare distinction of building a large Australian manufacturing business that is internationally competitive. Mark Beyer reports.
Coogee Chemicals chairman Gordon Martin has the rare distinction of building a large Australian manufacturing business that is internationally competitive. Mark Beyer reports.
Coogee Chemicals traces its origins back to the early 1970s when a group of farmers pooled their money to build a copper-sulphate plant in Kwinana.
The farmers were helped by an embargo on the raw material and high tariffs on the finished product yet they were still not successful.
Gordon Martin bought into the business, moved to full ownership and proceeded to build a large and diversified manufacturing business that deliberately does not seek tariff protection or other forms of government support.
Coogee Chemicals manufactures at 10 sites in Australia and Malaysia, owns and operates four port terminals and is the operator and 50 per cent owner of two producing oil fields.
It has succeeded against the odds, in an industry dominated by major companies like Orica, Nufarm and Wesfarmers subsidiary CSBP.
“By comparison we are a midget. We are very small but along the way we have managed to find niche markets and grow,” Mr Martin said.
Speaking at a joint CEDA-University of Western Australian forum this month, Mr Martin repeatedly came back to the theme of finding niche opportunities.
“We look for niche markets where we can minimise the competition,” he said.
In some cases, this comes from logistical and technological advantages.
It has also been achieved by locking in long-term supply contracts or investing in businesses with large sunk costs, effectively blocking out competitors.
Ironically, Coogee has partnered with bigger companies to pursue some of its most successful ventures.
It partnered with CSBP to establish Australian Gold Reagents, which operates a sodium-cyanide plant at Kwinana.
Mr Martin said the joint venture with CSBP was one reason Coogee was able to borrow $7 million some 15 years ago to fund its original 25 per cent investment in the plant.
Since then, capacity has risen more than four-fold, purely from reinvesting cash flow, to the point where the plant is now one of the largest in the world.
Last week AGR announced plans to lift production by a further 8,000 tonnes per annum to more than 70,000 tonnes, to meet increased demand from the mining industry.
Coogee’s second joint venture partner is Australian Stock Exchange-listed Nufarm.
In the late 1980s, they invested $25 million in two separate chlor-alkali plants at Kwinana and Kemerton, specifically to supply titanium dioxide producers Tiwest and Millennium Chemicals (which is currently being taken over by Lyondell, another big US chemical company).
Mr Martin said the original business opportunity flowed from the desire of Tiwest and Millennium to outsource the supply of secondary raw materials.
The joint venture locked in long-term contracts with the two big players, making it very difficult for any competing suppliers to enter the market.
And the deals were underpinned by Tiwest and Millennium being internationally-competitive producers.
“We make sure the fundamentals are sound. We look for internationally competitive industries.”
Coogee’s chemical plant at the Century zinc mine in Queensland, commissioned in 1999, was based on a similar business case.
Coogee locked in a 15-year supply contract with the mine, which has effectively outsourced all of its chemical requirements.
The plan almost came unstuck in 2001 when mine owner Pasminco went into voluntary administration, but it was reborn this year as Zinifex and continues to trade successfully.
Coogee’s Super White Hydrate plant at Kwinana, commissioned early last year, illustrates the use of technology to gain a competitive edge.
“The basis of the niche is that Sumitomo supplied their technology and gave us a take or pay contract.”
Mr Martin said the different priorities of big companies could create opportunities for smaller firms like Coogee.
“There are areas where a small company can make good money when the big companies aren’t interested, they want to outsource, they want to get out of it.”
Coogee’s interstate interests include majority ownership of Australia’s only methanol plant, in Victoria.
The plant, originally constructed by BHP Petroleum to research and develop offshore methanol production, supplies approximately 80 per cent of Australia’s methanol requirements.
Mr Martin said the plant was very small by world standards but was helped by the nearby location of its major customers.
Coogee’s main competitive edge came from the amount of money BHP invested in the technology.
“They key was that BHP had sunk $80 million into it.”
As reported in last week’s WA Business News, Coogee’s long-term aim is to commercialise the floating methanol technology to its gas fields in the Timor Sea.
Coogee is already the operator and 50-per cent owner of two producing oil fields (Jabiru and Challis) and plans to develop the Montara oil and gas field.
Mr Martin believes Coogee’s low cost base gives it a competitive edge in this sector.
“Most of the players are majors and their costs are considerably above ours.”
He acknowledges the Montara development, with a capital cost of US$180 million – equal to A$250 million – is too big for Coogee to handle on its own.
“We will not risk the company on one project.”
As a result, it is on the process of selling a 50 per cent interest in the project.
Coogee Chemicals growth over the past 30 years has not all been smooth sailing.
Mr Martin said his mistakes included investments in an aerosol plant, petrol retailing and betacarotene production.
In these cases, there were no barriers to entry, no market protection, no purchasing power and no contacts with end customers.
These examples illustrate a popular lesson in management texts.
All business people make mistakes, but good business people learn from their mistakes to achieve future success.
Success Tips
- Find market niches offering a competitive edge.
- Don’t rely on government protection.
- Motivate staff with incentives.
- Create a sense of excitement.
- Foster innovation and a can-do attitude.
- Ensure a strong customer focus.
- Don’t risk the company on one project.
