Eight years ago, former trucking and mining contractor Michael Kiernan found himself about $2.5 million out of pocket when manganese miner Valiant Consolidated collapsed.
Eight years ago, former trucking and mining contractor Michael Kiernan found himself about $2.5 million out of pocket when manganese miner Valiant Consolidated collapsed.
Some people would have cut their losses and waited for a pay-out from the liquidator, but Mr Kiernan set about rebuilding the business and trying to recover some of his money.
From that inauspicious start, he has proceeded to build a mining company that today is valued at more than $600 million, making it one of Western Australia’s 10 biggest companies.
Consolidated Minerals’ major asset continues to be the Woodie Woodie manganese mine in the Pilbara, but unlike a succession of previous owners, including Valiant, ConsMin has extracted full value from the asset.
It has built on that base, opening the Coobina chromite mine, also in the Pilbara.
Both operations have benefited mightily from the booming world steel industry, giving ConsMin the financial capacity to aggressively pursue further expansion into iron ore and nickel.
The growth strategy has a mixed record, with the failed push for a merger with iron ore miner Portman the biggest setback.
ConsMin is having more success on the nickel front, with its current $76 million takeover bid for Reliance Mining considered certain to succeed.
The irony of ConsMin’s success is that Mr Kiernan’s very first job was at Woodie Woodie, in the days when the Bell’s pit was operated by trucking company Bell Brothers.
He went on to establish his own trucking business, which serviced a range of mining operations, including Valiant’s manganese mine, and then diversified into contract mining.
When Valiant collapsed, Mr Kiernan had sold his business but was still owed money for work done in the past.
Hence, he found himself running a small mining company applying the lessons he had learned as a transport and mining contractor.
First among these was an unrelenting focus on costs.
“It’s not rocket science,” Mr Kiernan said. “You do management 101 at any university.
“Identify your costs, control your costs, report against your budgets … if there is any variance you find out why.
“We spend most of our time focusing on costs.”
He said Valiant clearly failed to heed this lesson.
“They failed because they were a high-cost producer and couldn’t control their costs,” Mr Kiernan said.
“When I sold my business, their costs just went through the roof.”
Stories abound of Mr Kiernan enforcing his standards with an iron fist.
He has a no-nonsense approach to business and doesn’t always observe the niceties.
“He is unlike anybody else I’ve dealt with,” one professional adviser told WA Business News.
However there is wide respect for his achievements and recognition he is not one dimensional in his approach.
Two anecdotes illustrate this.
In once case, ConsMin aggressively took on the stevedores union to get what it wanted.
“We were having difficulty with the stevedores so, at great pains, and [despite] threats from the wharfies union, we got to be our own stevedores. We started loading our own boats. The stevedores then became more realistic,” Mr Kiernan said.
In a second case, ConsMin granted concessional terms to a haulage contractor to ensure their continuity, in contrast to many businesses that screw every last cent from their suppliers.
“I don’t want someone to start a job and then fail, so on this particular job we have given him another 7 or 8 per cent more than he tendered on,” Mr Kiernan told WA Business News.
“Everyone has to work on a reasonable profit.”
There is no shortage of business lessons from ConsMin’s revival of the old Valiant business.
Mr Kiernan said Valiant’s problems included “abysmal” quality control.
“We operate from three or four pits at any particular time. We blend at our processing plant to ensure we have a consistent quality of product.”
Another big change is that ConsMin markets its product to a range of customers, taking advantage of its status as an independent supplier of high grade manganese and chromite.
“We deal with global markets where sometimes one market is stronger than the other,” Mr Kiernan said.
“The Chinese know that if they beat us up we can send it in to Europe and the Europeans know that if they beat us up, we can send it to China.”
Another innovation was the replacement of in-house marketing staff with agents who have exclusive tenure under long-term deals.
Noble Resources (in Asia) and Decometal (in Europe) are also major shareholders, and they have taken financial risk away from ConsMin
“One of the risks the previous operators had was that they weren’t getting paid by the Chinese. I wanted to mitigate that risk.”
ConsMin continues to take a prudent approach to hedging its currency risk
“That’s the single largest area of risk so we have a three-year rolling hedging program.
“We work on the basis we protect our currency, we don’t speculate.”
While cost cutting is a major focus, Mr Kiernan sees the need to balance that with other goals.
ConsMin has invested in exploration at Woodie Woodie to ensure the mine has a long-term future.
The company has also recently completed a $6.5 million expansion at Woodie Woodie and is aiming to lift annual output from 600,000 tonnes to one million tonnes.
The strong global demand and rising prices for manganese and chromite have been reflected in rapid growth in ConsMin’s reported profits.
Its net profit in 2003-04 was $25 million and in the first-half of the current financial year it has already nearly matched that, with earnings of $22 million.
(This excludes a $19 million net profit on the sale of its Portman shareholding.)
Patersons analyst Alex Passmore is tipping a full-year net profit of $53.7 million, while Bell Potter analyst Matthew Ward is more bullish, forecasting a net profit of $68.3 million.
Amidst all the good news, Mr Kiernan is clearly disappointed by the failure to achieve a merger with Portman last year.
“Very annoying. It was blocked because of personal enmity to the proposal,” he said.
“George Jones the chairman was very strongly in favour of it. The managing director [Barry Eldridge] did everything he could to block it.”
“It was just a lost opportunity.”
Looking ahead, Mr Kiernan said ConsMin was focused on three things in 2005: bedding down the expansion of Woodie Woodie; refining operating costs at Coobina and Woodie Woodie; and bedding down the Reliance acquisition.
“If we do these we are doing okay.”
Looking further ahead, he is already planning the management succession after agreeing to sign a new five-year contract.
“I did think about retiring, because I’ve had cancer [but] I’ve been through it, I’ve got rid of the scare.
“[The directors] were keen for me to commit for five years, and I’ve agreed that I will.
“I’d like to think for another three years I will be actively involved in day-to-day management but after that I’d like to pass it on.”
CONSMIN SNAPSHOT
- Manganese: Output expanding at Woodie Woodie mine to 1 million tonnes annually.
- Chromite: Coobina mine has capacity of 250,000 tonnes a year.
- Nickel: $76m Reliance Mining takeover offer wins backing.
- Nickel: Joint ventures and farm-in deals with five companies.
- Iron ore: Mindy Mindy prospect, in joint venture with Fortescue Metals.
- Iron ore: Portman stake sold for profit after merger rebuffed.
