Struggling to move beyond the niche

Perth software company Surpac Minex Group is not well known outside the mining technology sector but its value is clearly appreciated by Canada’s Gemcom Software International.

Gemcom has agreed to pay $34 million for Surpac, which is one of a handful of companies that dominate the global mining software market.

The deal instantly makes Gemcom the market leader and also delivers a very tidy return to Surpac’s shareholders, led by former Hartley Poynton boss Tim Moore and property investor Tony Packer, who jointly hold a 54 per cent stake.

More fundamentally, it continues a trend whereby control of some of Perth’s best and brightest mining services companies has been taken out of the state.

Swedish engineering giant Sandvik is another international company that spotted value in the mining services sector.

It recently completed the $106 million acquisition of drilling equip-ment firm SDS Corporation, which has substantial operations in Perth.

Sydney company Downer EDI, which owns contract miner Roche Mining, has also been acquisitive.

Last year, it bought two Perth success stories – international mining consul-tancy Snowden and Otraco, the leading global supplier of earthmover tyre maintenance and consulting services.

The recent deals are not exceptions.

Software company Fractal Graphics merged its geoscience consulting arm with a Canadian company and listed on the TSX Venture Exchange last year so that it could pursue its growth plans.

And Dutch group Fugro owes much of its Australian profile to the acquisition of two Perth companies, Aerodata Holdings subsidiary World Geoscience Corporation and Seismic Australia, in 2000.

These transactions suggest that mining services companies owned and run from Perth struggle to move beyond market niches.

Exceptions could include engineering group GRD Minproc and drilling services firm Ausdrill, which have won big international contracts from some of the world’s largest mining companies.

The sale of a local company to an interstate or international buyer is not necessarily a bad thing.

Snowden managing director Phil Snowden said Downer EDI “have left us to get on and run and grow the business”.

Similarly, Gemcom president Rick Moignard believes there will be new opportunities for Surpac staff and products under new ownership.

“This is about establishing a global company that can service companies in every single part of the world,” he said.

Other industry players have questioned the merits of the deal, including the supposed product synergies, and suggested Gemcom had moved on Surpac because it struggled to build market share organically.

Mr Moignard acknowledged that “Gemcom has not penetrated as deeply into the Australian market as we would have hoped”, but said the deal was bigger than that.

“If you combine the two, you can really up the level of our service into the mining industry,” he said.

“We can deliver the products they really want and do more research and development than we are able to do today.”

With Surpac and Gemcom each having about 130 staff and annual revenue of $20 million, Mr Moignard said it was a merger of equals.

“It’s much more a merger of two companies as opposed to an acquisition, except we’re a listed company in Toronto and this (transaction) makes more sense from a listing perspective and a capital markets perspective.”

Mr Moore said the transaction was structured so that Surpac shareholders, led by himself and Mr Packer, would end up with a large (28 per cent) stake in the combined business.

“From Tony and my perspective, we bought into Rick’s vision and saw this as an opportunity to continue to participate in the business,” he said.

Gemcom’s acquisition of Surpac is sure to be followed by more takeovers.

Brisbane company Mincom, which is considered Australia’s biggest software developer, is looking for more opportunities.

Mincom strengthened its position in the mining sector by acquiring Adelaide firm Comlabs earlier this year, and chief executive Richard Matthews is keen for more.

“We will probably be the consolidator in the technical side of the mining industry,” Mr Matthews said.

“There is nobody with the same product breadth as us.”

With big players such as Mincom looking for takeover targets, smaller specialist players will be looking for new growth opportunities.

In the mine-site software sector, the main competitors for Surpac and Gemcom are Adelaide company Maptek and Datamine, which was established in Australia but is now run from England.

These four companies supply about 80 per cent of mine site software tools globally, according to Canadian broker Clarus Securities.

Challenging their lead is private Perth firm Micromine, founded by chief executive Graeme Tuder in 1986.

Commercial manager Alan Fenelon said the company was very strong in exploration and was building its presence in the mining sector, helped by the continued development of its products.

Its latest big project, costing in excess of $5 million, was the development of its DOME software, which was jointly funded by the company and a federal government AusIndustry grant.

“We would rather add functionality to our existing products than buy a competitor,” Mr Fenelon said.

Micromine has also invested significant funds in building a global support network.

Staff numbers have grown from 60 to 100 over the past two years and Mr Fenelon said Micromine expected to have at least 130 people by June 2007.

Other emerging Perth companies in the oil and gas and mining technology sectors include Neptune Marine, Immersive Technologies, Essa Australia and ISS Group (see page 15). Osborne Park-based Immersive is a specialist developer of mining equipment simulators for operator training.

Neptune Marine is run by Christian Lange, who was formerly chief executive at SDS Corporation.

Neptune’s core technology is an underwater welding system and it is seeking to leverage that base to build a sub-sea maintenance business for the oil and gas and marine sectors.

The latest step in that strategy was the recent $2.1 million acquisition of a diving contracting business.

Essa Australia is a specialist in the design and manufacture of proprietary sampling and sample preparation equipment.

It completed a $2.5 million initial public offering in 2004 and formed a partnership with Danish company FLSmidth Automation in 2005 for the development of robotic laboratory systems for the minerals industry.