Annual Integrated Report

2019

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Underground Mining + Oil & Gas + Power & Water

Overview

The Underground Mining platform operates globally and its service offering spans the project life cycle, including feasibility studies, specialist engineering, vertical and decline shaft construction, mine development, specialist mining services such as raise boring and grouting, and contract mining.
The platform’s businesses are:

1
CEMENTATION NORTH AMERICA
  • Cementation AG
    – Salt Lake City, USA
  • Cementation Canada
    – North Bay, Canada
  • Cementation USA
    – Salt Lake City, USA
  • Terra Nova Technologies
    – San Diego, USA
  • Merit Consultants International
    – Vancouver, Canada.
2
MURRAY & ROBERTS CEMENTATION

– Johannesburg, South Africa.

3
RUC CEMENTATION MINING

– Perth, Australia.

As one of the largest underground mining contractors in the world, the platform has significant market share in the jurisdictions in which it operates. It is currently engaged on projects in Australia, Canada, Indonesia, Mongolia, South Africa, USA, Mexico, Chile, and Zambia. These include 18 shaft sinking and equipping projects, 21 decline and mine development projects, eight production mining projects, 13 support and construction projects, and two major ore handling infrastructure construction projects. Of a total fleet of 56, 40 raise drilling machines are currently active globally.

Performance

Commodity prices have generally held the gains they made in the last two years. This has improved the balance sheets of many mining companies. Although few greenfield projects have come to market, companies have invested in brownfield projects on existing mines. This has been largely in commodities associated with the development of electric vehicles such as copper, cobalt, nickel and manganese. In addition, investment in gold mining operations in North America and Australia has increased.

The platform has been able to capitalise on these conditions, with meaningful growth in the order book and significant year-on-year growth in revenue and earnings. Revenue of R10,9 billion was up 36% on the prior year, and operating profit of R814 million grew significantly by 73%. The order book was R22,8 billion at year end and the pipeline of tender opportunities is strong.

Cementation North America delivered an outstanding performance, more than doubling its EBIT contribution. In the past 18 months, the business secured several large projects, including Glencore’s Onaping Depth in Canada, Nevada Copper’s Pumpkin Hollow, and Rio Tinto’s Resolution #9 Shaft in the USA. These gains were slightly offset by the client’s decision to discontinue the Hermosa decline, a South 32 project in the USA.

Murray & Roberts Cementation had a challenging year. One of its biggest contracts, a contract mining project for Northam Platinum at Booysendal, came to an end in the previous year. The business was nonetheless able to maintain its EBIT contribution, a solid performance under the circumstances. The start of the Kalagadi contract mining project midway through the previous year helped to offset the loss in earnings from the Booysendal project. Excellent project management resulted in no loss-making projects.

RUC Cementation Mining delivered a remarkable result, more than doubling its EBIT contribution. The securing of a significant shaft sinking contract for two large diameter vertical shafts for Rio Tinto at its Oyu Tolgoi mine in Mongolia supported this performance. Further scope growth in the contract with Freeport in Indonesia, and the exceptional efficiencies achieved by this project team contributed significantly to earnings. Smaller contract wins in Australia for Ramelius Resources, Edna May, Grange Resources and Savage River also contributed.

Business Model Resilience

The Underground Mining platform businesses share a common vision to deliver profitability-centered growth by safely providing services across the mining value chain and life cycle in all relevant geographies.

Three strategic objectives underpin the achievement of this vision:

Growth

The platform targets a mix of organic and acquisitive growth. Organic growth comes from improving the efficiency of project delivery, thereby optimising margins, and from growing market share. As the platform is already a significant participant in the global underground contracting market, there is only incremental potential for organic growth. More significant growth depends on mergers and acquisitions that diversify the platform’s revenue stream by geography, capability and value chain. Value chain expansion includes increasing the proportion of revenue derived from contract mining, which tends to be a more secure source of revenue during down cycles in the market.

Acquisition/joint ventures in the year included:

  • Terra Nova Technologies, specialising in the design and building of ore handling infrastructure in the USA, provides capability and geographic diversification.
  • Boipelo Mining Contractors, a coal cutting services joint venture in South Africa, provides life cycle expansion into contract mining.
  • Insig Technologies, a technology company in Australia, with in-house capability to support the implementation of digital technology, provides capability diversification.

Engineered Excellence

This philosophy is a major driver of efficient project delivery. Sharing best practices supports platform-wide efficiency improvements in critical areas, focusing on:

Safety and rist management standards
  • Best-in-class systems and practices across the Group, as well as in the broader industry, are assessed and customised for application in the platform.
Asset performance
  • We are applying technology to improve overall asset management by developing fit-for-purpose asset maintenance systems, implementing advanced predictive maintenance models, gathering and analysing asset performance data and implementing machine learning and automation.
Strategic procurement
  • We continue to capitalise on the platform’s global presence for favourable procurement terms.
Productivity enhancement
  • Achieved through leadership and technical training for management and supervisors, enhanced operator training and the introduction of technology to improve machine performance and enable remote operation and automation.

Innovation

The platform is driving several innovations to commercial maturity and continuously monitors technological innovation. The following applications are being explored:

  • Mechanical blind sinking
  • Mechanised sidewall support for shaft sinking
  • Remote control and automation
  • Battery powered equipment
  • Virtual and augmented reality.

CONTRACTOR OF CHOICE

Towards Zero Harm

The platform delivered an excellent safety performance and completed the year with no fatalities. Murray & Roberts Cementation has operated for three years and nine months without a fatality, Cementation North America has operated for four years and six months without a fatality and RUC Cementation Mining for 20 months without a fatality. The LTIFR for the platform improved by 43% to 1.08 (FY2018: 1.89). TRCR improved by 19% to 6.41 (FY2018: 7.91).

The MAP/CRM programme has been rolled out to all projects and the quality of implementation is audited regularly. The platform participated in the Group safety culture survey which indicated a positive shift towards a more interdependent safety culture among the businesses.

The focus in the year ahead will be to:

  • Complete the Neuroleadership programme pilot at the Kalagadi project and determine a platform-wide implementation plan.
  • Effect improvements identified during the safety culture survey.
  • Continue leadership and supervisory training.
  • Reduce the project-level safety risk profile by continuously assessing work practices, equipment and the role of technology.
  • Emphasise risk assessment and pre-work hazard identification and planning among supervisors and work teams.
  • Improve the frequency of incident reporting.
CONTRACTOR OF CHOICE

Project delivery

Murray & Roberts Cementation
Cementation North America
RUC Cementation Mining
South Africa:

DE BEERS VENETIA MINE

Project to construct the required infrastructure to transition the mine from an open cast to an underground mine. The sinking of two 1 080m shafts is progressing well, with both approaching final depth. The production and service shafts are underway.

KALAGADI MANGANESE MINE

Project to construct the mine’s underground infrastructure, ore development, production ramp-up and contract mining for the first five years of operation. The first period of the contract presented challenges and required the de-bottlenecking of the existing underground and surface ore handling infrastructure. As a result, the ramp-up is slightly behind schedule, but good progress is being made.

PALABORA MINING COMPANY’S PALABORA MINE

The project is to sink a 1 000m ventilation shaft. Progress is on schedule with the ground consolidation work and surface civils completed.

A CHROME MINE ON THE EASTERN LIMB OF THE BUSHVELD COMPLEX

Contract awarded to construct the decline shaft access infrastructure, ore development, production ramp-up with contract mining for five years. Work is set to commence in September 2019.

Canada:

GLENCORE ONAPING DEPTH SHAFT

Project involves the detailed design and construction of headworks, sinking plant, permanent hoisting plant, shaft, furnishings and conveyances. This is a sub-vertical shaft that has its collar elevation at 1 150m below surface and will be sunk to a depth of 1 480m below collar. Progress is slightly behind schedule with the headworks excavation nearing completion, and the equipping of the headworks and installation and commissioning of the hoisting plant to follow before the main sink commences.

USA:

RIO TINTO RESOLUTION COPPER #9 SHAFT

Project involves the detailed design of the sinking plant, surface infrastructure, shaft, furnishings and conveyances, as well as the reconditioning and deepening of the shaft to a depth of 2 134m below surface. Work is progressing on schedule with the rehabilitation portion of the work complete and deepening begun.

NEVADA COPPER PUMPKIN HOLLOW SHAFT

The project entails a 36-month construction and operation period with potential to extend production mining services. Scope includes the sinking of the main shaft to a depth of 655m below surface, sinking a ventilation shaft from surface to a depth of 580m, equipping and commissioning the main shaft, ore development and production mining. The project is progressing well with the main shaft having reached the loading pocket and development towards the orebody having commenced on the two main production levels. Good progress is being made on the sinking of the ventilation shaft.

Australia:

DACIAN GOLD MOUNT MORGANS MINE

Project to develop three underground declines, ore development and production mining, as well as mining support services. This operation has proven challenging, but the client mining plan has been optimised to address the challenges.

RAMELIUS EDNA MAY GOLD MINE

Project to develop an underground decline shaft, ore development and production mining, as well as mining support services. Site establishment and the initial phase of contract execution has progressed well and is currently ahead of schedule.

Indonesia:

FREEPORT OPERATIONS

Project entails the shaft operation & maintenance and construction & installation of support and rail chutes at the Grasberg Block Cave operation, shaft operation & maintenance and production mining at the Big Gossan operation. The scope of work on these contracts increased further in the year, based on the project team’s excellent performance in safety, quality and efficiency.

Mongolia:

RIO TINTO OYU TOLGOI MINE

Part of the GCR JV contract to construct the surface infrastructure, sinking and associated infrastructure for two large-diameter shafts and the construction of underground crusher and ore flow infrastructure. Surface infrastructure was successfully completed during the year, with the other works progressing well.

CONTRACTOR OF CHOICE

Technology

The acquisition of 30% of Insig Technologies provides preferential access to their consulting and advisory services, big data acquisition and analytics, IoT platform services, and technical and industry solutions. The partnership agreement with Insig aims to accelerate the application of digital technology for competitive advantage. The partnership has already delivered a successful proof of concept in Australia, where RUC Cementation are executing a full production mining contract. This has enabled multi-machine remote control from the surface and Wi-Fi coverage to underground works. The success of this project provides the credibility to expand the utilisation of digital technology, first within RUC Cementation’s domestic mining operations and then further afield across the platform. We have begun the process of identifying projects in Africa and North America where these technology solutions can be applied.

Other examples of the application of digital technology include the use of virtual reality for training purposes, the use of augmented reality to present engineering designs to clients and to conduct constructability assessments on engineering designs.

EMPLOYER OF CHOICE

Leadership and succession

Platform chief financial officer, Trevor Naidoo, resigned at the end of July 2019 to pursue an international opportunity. A process to find a successor for Trevor is underway.

Leadership development is critical to Engineered Excellence. To this end, businesses have development programmes for all levels of management. A robust talent management process is in place to identify high-performing employees. A personal development plan is then formulated and progress is monitored through regular engagement with senior executives. The development plan is reinforced by an effective mentorship programme which supports talented employees to advance to executive level.

Best people practices

Training and coaching ensures that employees are equipped to work effectively. A structured Group-wide performance management system is in place. Employees and their managers or supervisors agree on performance contracts and development plans which are evaluated twice a year and linked to appropriate performance-based rewards.

The strong recovery in mining activity in Australia and North America over the past few years has led to increased competition for skills in these regions. In Southern Africa, shaft sinking and mechanised mining skills are scarce. These factors, together with the demand for mine owners and contractors to employ from communities in close proximity to mines, make effective training and development essential.

The platform has a strong training and development ethos and its two world-class training facilities, one in South Africa and a recent addition in Mongolia, have been recognised for their significant contribution to skills development in their respective regions.

Employee relations are sound in all business units. In South Africa, where the workforce is unionised, management have professional and constructive relationships with union representatives and officials. Wage negotiations were concluded during the second quarter of the financial year, notwithstanding a protracted strike by the National Union of Mineworkers at the Venetia project. An agreement was reached for the next three years.

REPUTATION

Diversity and localisation

The business units employ diversity policies appropriate to their regions of operation.

In South Africa, Murray & Roberts Cementation met its transformation targets for FY2019, achieving a Level 4 BBBEE score and HDSA representation of 50% in senior management, 22% in middle management and 51% in junior management.

The Department of Minerals and Energy in South Africa recently published Mining Charter III, the legal framework for BBBEE in the sector. The most material impact on Murray & Roberts Cementation is that it will be contractually obliged to meet the local employment and procurement targets required of its clients. For single-asset junior companies, Murray & Roberts Cementation provides the only means for them to meet their charter obligations.

In North America, Cementation Canada has joint ventures with First Nations groupings, which tender for work in the territories where they are resident. The business has a diversity policy with a diversity work group established to identify barriers that inhibit diversity in the organisation.

In Australia, RUC Cementation has also developed a diversity policy. Their workforce is diverse and where the company operates outside of Australia, for example in Indonesia and Mongolia, a high percentage of the workforce is comprised of local residents.

PROSPECTS

Capital expenditure forecasts for mining and mining services show that after the recovery period from 2017 to 2020, expenditure is set to level off until 2022. This will limit prospects for organic growth. Growth in commodity prices should be reasonable for gold, platinum, diamonds, copper and nickel, but price growth will be more subdued in other commodities. The platform therefore expects to maintain earnings at current levels for the medium term, with upside potential for modest growth.