|“THE PLATFORM’S SUCCESS IN SECURING PROJECTS ASSOCIATED WITH MINING COMPANIES’ ONGOING INFRASTRUCTURE REPLACEMENT AND DEVELOPMENT SPEND CONTRIBUTED TO THE PLATFORM’S IMPROVED PERFORMANCE DURING FY2016.”|
|DR ORRIE FENN | Business Platform CEO|
|The businesses within this platform are:|
|Cementation AG – Salt Lake City, Canada|
|Cementation Canada – North Bay, Canada|
|Cementation USA – Salt Lake City, Canada|
|Cementation Sudamérica – The office was closed in March 2016 and will now be serviced from North Bay, Canada|
|Murray & Roberts Cementation – Johannesburg, South Africa|
|RUC Cementation Mining – Perth, Australia|
Underground Mining’s geographic footprint is extensive and its service offering spans the project value chain including specialist engineering, shaft construction, mine development, specialist mining services including raise boring and grouting, and contract mining.
The platform is currently working on the construction of 15 shafts
and eight decline projects in Canada, USA, Australia, South Africa,
Zambia and Indonesia, and employs
50 raise and blind-hole boring machines globally; one of the largest fleets of ‘large-diameter’ boring machines in the world. The platform has also sunk the deepest single-lift shafts in South Africa (South Deep: 3 000m), USA (Resolution: 2 100m) and Canada (Kidd: 1 600m).
Notwithstanding the impact of weak commodity prices, the Underground Mining platform recorded a robust financial performance. Mining companies continued to preserve capital, which limited the number of project opportunities associated with new mines. The platform’s success in securing projects associated with mining companies’ ongoing infrastructure replacement and development spend, contributed to the platform’s improved performance during FY2016.
Revenues increased 16% to R8,8 billion (FY15: R7,6 billion), and operating profit increased 23% to R506 million (FY15: R411 million). While still strong, the order book declined to R14,2 billion (FY15: R16,8 billion), due to the cancellation or postponement of several large projects where the businesses had either been awarded the project, were frontrunners, or were one of two preferred bidders. The order book includes R4,8 billion for the Kalagadi project, which is yet to commence.
During the year, the impact of loss-making projects in Murray & Roberts Cementation was negligible, with Sasol’s Impumelelo coal mine project, after four years of posting losses, delivering a profit. Booysendal and Venetia underperformed, affected by community unrest. Murray & Roberts Cementation’s African (outside of South Africa) projects performed well.
The North American operations delivered a strong set of results with both Cementation Canada and Cementation USA exceeding expectations.
RUC Cementation Mining delivered results well above the previous year due to its service offering and geographic diversification strategies.
The Cementation Sudamérica office in Santiago was closed as part of a cost cutting initiative, and this market will now be serviced from North Bay. The closure cost, although not material, negatively impacted platform performance.
Key to the platform’s growth strategy is a focus on early engagement with clients through upstream engineering work, and establishing long-term, annuity income opportunities through downstream contract mining work. This is done with the emphasis on developing ‘life-of-mine’ relationships with clients. Including the Kalagadi Manganese project, over 50% of the platform’s order book is contract mining-based, the majority being for mid-tier mining clients. It is uncertain when the notice to proceed on the Kalagadi project will be received. The platform has contract mining contracts in South Africa, Australia, the USA and Canada and aims to grow its portfolio of contract mining projects further.
Murray & Roberts Cementation is leveraging the capabilities of the other businesses in the platform to enhance its competitive position locally and in Africa. The involvement of RUC Cementation Mining both operationally and when compiling tenders, has proven effective on trackless mining opportunities, and the objective is for Murray & Roberts Cementation to further develop its trackless mechanised mining service offering considering the pipeline of opportunities that will be utilising this mining method. In some regions on the African continent, the business is investigating partnering with local companies to improve its prospects. The Zambia office has demonstrated the success of the platform’s strategy to establish a local presence in targeted geographic regions.
Murray & Roberts Cementation is focused on improving its risk, project and commercial management to maintain and enhance project margins. To improve its project management capability, project managers and key project support employees are required to complete a certified project management programme, aligned to the Murray & Roberts Project Management and Project Assurance Frameworks, under the auspices of the International Project Management Institute. The business has also continued to develop its project management office, which drives project management excellence through increased project oversight and assurance at all levels of operation.
North America has been identified as an attractive region for future growth. Cementation Canada carries out work from coast-tocoast, operating from its base in Ontario with offices in Quebec and British Columbia. To bolster organic growth, Merit Consultants International was acquired in November 2015. Based in Vancouver, Merit Consultants International provides a full range of project and construction management services to the global mining industry, and establishes a Canadian west coast presence for Cementation Canada to provide further access and support to the mining industry in British Columbia and surrounding provinces.
Cementation USA is now established as one of the USA’s leading mining contractors. A new services business, Cementation Above Ground (Cementation AG), was formed in March 2015 to serve as an entry point into the mining and minerals bulk material handling sector. Operating out of Salt Lake City, the business is actively involved in several projects.
In South America, progress in growing the platform’s regional footprint has been slow. After minimal opportunities over the past four years the office in Santiago was closed. Raise boring, engineering and other speciality work in the region is still being tendered with support from both Cementation Canada and Cementation USA.
|Revenue||3 640||3 770||1 392||830||3 756||2 965||8 788||7 565|
|Order book||9 731||11 877||1 924||1 812||2 603||3 058||14 258||16 747|
|Segment assets||955||1 170||809||620||1 867||1 613||3 631||3 403|
|Segment liabilities||944||1 064||205||119||724||596||1 873||1 779|
|People||5 407||5 745||919||659||1 048||1 168||7 374||7 572|
“THE PLATFORM IS
CURRENTLY WORKING ON
THE CONSTRUCTION OF 15
SHAFTS AND EIGHT DECLINE
PROJECTS IN CANADA, USA,
AUSTRALIA, SOUTH AFRICA,
ZAMBIA AND INDONESIA, AND
EMPLOYS 50 RAISE AND
MACHINES GLOBALLY; ONE
OF THE LARGEST FLEETS OF
MACHINES IN THE WORLD.”
RUC Cementation Mining continues to expand and promote its mine development service offering, driven by a new brand and market positioning strategy, and is actively exploring opportunities to further expand into the Asia Pacific region where the majority of its revenue is now generated.
David Meyer, previously Murray & Roberts Group corporate finance executive, was appointed as platform chief financial officer, succeeding Daniël Grobler who was appointed managing director of Murray & Roberts Cementation in June 2015.
Leadership development remains a priority in line with the Group’s Talent Management Framework. Talent reviews were conducted to assess the strength for leadership and senior management succession. Developmental plans are in place to ensure the platform’s leadership is empowered to deliver on its strategic objectives.
Transformation and diversity remain key focus areas in the South African operation, which retained a Level 4 rating under the current Construction Sector Charter. It is expected that this rating will move to Level 5 when assessed against the new codes.
Ongoing collaboration among the Underground Mining platform businesses provides a competitive advantage. The mechanised mining skills and expertise of the Australian operations, and specialised shaft sinking skills of the North American operations, continue to complement the South African operation’s capabilities, particularly during the tendering process.
The platform’s ‘life-of-mine’ strategy, which is to work with clients to provide a service over an extended period of time, is a key component underpinning platform performance, as is evident in FY2016 results with respect to the increasing contribution from contract mining.
Maintaining positive employee relationships contributes significantly to project performance. Good progress was made in the implementation of specific components of the Employee Relations Framework in the South African operations. The framework aims to understand and address issues that inhibit performance as well as issues that influence morale and organisational culture within the business. A three-year wage agreement between Murray & Roberts Cementation and its industry unions was concluded.
The shortage of production, engineering and technical skills in South Africa continues to be a major concern, as is the movement of skilled staff between employers. To address this, Murray & Roberts Cementation is focusing on retention, skills development and establishing a strong succession pipeline. It also participates in the annual Deloitte Best Company to Work For survey to understand and implement what is required to qualify as an employer of choice. RUC Cementation Mining participated in the survey for the first time and received positive feedback from its employees. Cementation Canada has been recognised six times as one of Canada’s Top 100 Employers by Mediacorp, and twice as one of The Financial Post’s Ten Best Companies to Work For.
The company has also been recognised as one of the safest employers in Canada over the last two years.
Skills development is undertaken through the platform’s worldclass training facility at Bentley Park, Carletonville. The facility is ISO 9001, ISO 14001 and OHSAS 18001 certified, and is accredited by the Mining Qualifications Authority to provide training in engineering, mineral extraction and occupational health and safety, and to offer Adult Basic Education and Training. It is also a member and approved training provider of the British Safety Council in the areas of health, safety and risk.
Murray & Roberts Cementation progressed its Africa strategy through the Kitwe office in Zambia, completing the shaft sinking and equipping at Mopani Copper’s Synclinorium mine and making good progress on the shaft sinking and mine development at their Mufulira mine. In South Africa, two projects performed below expectation: De Beers’ Venetia mine project (where the Canadian mechanised method of shaft sinking is being used for the first time in South Africa), and Northam Platinum’s Booysendal mine, which were both affected by community unrest, impacting productivity. Initiatives are underway to restore tendered margins on both projects.
Market conditions in Australia improved, particularly in the gold mining sector and for large-diameter raise boring work. There were further increases in the scope of work at the Freeport project in Indonesia where RUC Cementation Mining has been successful in transferring skills to the local workforce. The Saracen Minerals Karari gold mining project received a one-year contract extension. Here, contract mining has commenced, Load Haul Dumpers are being used. Automated production drilling is under consideration.
Raise boring activity was significantly up on the prior year with fleet utilisation approaching 70%. Key raise boring work secured included projects at Newmont Mining’s Callie mine, Sandfire’s Degrussa mine, Western Areas’ Spotted Quoll mine and at Freeport and Karari. The order book for FY2017 currently exceeds FY2016 revenue. RUC Cementation Mining was unsuccessful in securing work at Rio Tinto’s Oyu Tolgoi in Mongolia.
Cementation Canada posted strong returns driven by good performances from Compass Minerals’ Goderich shaft rehabilitation and Rio Tinto’s Diavik contract mining projects, among others. It was also awarded a contract to develop Pretium Resources’ Brucejack gold mine in Northern British Columbia. Cementation Canada continued to make inroads into the European market with engineering-led projects including Sirius Minerals’ York Potash mine, but despite being one of two shortlisted contractors for the shaft sinking work, failed to secure the downstream construction work.
Cementation USA continued to perform well at Lundin’s Eagle mine and Rio Tinto’s Kennecott mine. Cementation USA's work at Lundin's Eagle Mine includes a best-in-class safety record, bringing the mine into production three months ahead of schedule, and exceeding targeted production rates. Based on this performance, Cementation USA has recently been awarded a ‘life-of-mine’ production contract at Eagle and will continue to carry out all underground development and production operations associated with the orebody.
Regrettably, one fatal incident was recorded during the year when Mike Mwenda sustained fatal injuries at the Mufulira shaft sinking and development project in Zambia. Murray & Roberts Cementation has extended its condolences to the family of the deceased.
The platform fully subscribes to the Group’s HSE Framework, measuring its safety performance by focusing on both lag and lead indicators. LTIFR at year end was an industry-leading 2.1, despite the negative impact on Murray & Roberts Cementation of disruptions caused by community unrest at certain projects. RUC Cementation Mining’s 30-month run without a LTI ended in January 2016. On a positive note, there was a three-fold reduction in high potential incidents recorded during the year, while the platform commenced rollout of the MAP programme designed to prevent serious incidents and fatalities on projects. The platform continually seeks to address differences in safety performance between the South African and international operations by identifying and sharing best practices.
Murray & Roberts Cementation, Cementation Canada and RUC Cementation Mining are OHSAS 18001, ISO 9001 and ISO 14001 accredited. No environmental issues were encountered during the year.
Each business has its own risk register which is reviewed and updated monthly. The platform chief executive officer also reviews the platform’s overall risk profile on a quarterly basis for discussion at Murray & Roberts Limited’s risk committee. All project opportunities are logged on the Opportunity Management System, which tracks and processes opportunities and subjects them to a series of risk tolerance filters to develop a project-by-project risk profile. Projects that do not meet the requisite risk profile are presented to the risk committee for approval. With the focus on managing concentration of risk in the client base, the overall project portfolio is based on a wide spread of commercial and contractual arrangements. In South Africa, the lack of specialised contracting and shaft sinking skills, which directly impacts the platform’s ability to deliver on projects, and the ongoing threat of industrial action, are considered key risk areas.
The platform anticipates demand for commodities to increase in the medium term as the commodity cycle bottoms out and demand and prices increase. There is a large investment pipeline of underground projects in regions where the platform has a presence, while mining companies’ ongoing infrastructure replacement spend to sustain their operations will continue. With its global footprint, and the ability to pool and leverage its resources, the platform is well-placed to win and execute work for its clients when market conditions improve. Most key commodities are represented in the current portfolio of projects and significant opportunities for organic growth will arise when mining activity picks up.