Contract mining division has overcome challenges, expects to increase revenue

25th November 2011 By: Sinette Goosen

Eqstra’s contract mining and plant rental division, of which MCC is the major business unit, reports that business is doing well, with a steady stream of projects.

MCC CEO Erich Clarke says the company is currently under- taking 11 opencast mining contracts and has been successful in diversifying into other commodities from a previous high exposure to the platinum industry.

“Five of our mining contracts are in the coal sector, and two in platinum, with the rest in other commodities, such as nickel and chrome, and services, such as materials handling and drilling.

“We will, in future, diversify our portfolio to include about 40% platinum and 40% coal, with the remaining percentage focused on commodities such as gold, iron-ore and copper,” he says.

He adds that the division is experienced in the sub-Saharan African region and is ready to expand further afield should a project’s scale and risk profile warrant it. It already operates in Mozambique, Botswana and Namibia, where it regards the risk as being manageable.

MCC is currently in the ramp-up phase of the Benga coal project, in Mozambique, for Riversdale Mining, which was taken over by Rio Tinto earlier this year, and the long awaited Vele project for emerging miner Coal of Africa.

Meanwhile, the company is investing in an additional heavy equipment repair centre at its head office in Midrand, Gauteng. Earthworks are under way and the facility will be completed in the next 18 months.

Challenges
Clarke explains that poor weather conditions and industrial action will always be a challenge in the opencast mining industry in which it operates.

“In 2010, we had above-aver- age rainfall patterns, which thwarted operations but, with better planning and preparations, even the fluctuating weather conditions can be better dealt with in future,” he adds.

Further, he notes that the sensitive South African labour and political environments pose many challenges.

“Illegal industrial action affected three of our mining sites, stifling growth and earnings during the last financial year. An illegal strike at junior miner Platmin’s Pilanesberg Platinum Mine, in the North West, in June, resulted in extensive damage to mining equip- ment and the division incurring a net impairment charge to its assets of R50-million,” says Clarke.

Production at the mine has returned to normal since the June strikes.

In addition, the Coal of Africa Vele project was delayed for 18 months owing to environmental objections and was finally given the green light in October with the award of an integrated water use licence.

Clarke adds that monthly volumes mined at the Vele colliery might double within the next year. “This is good news for us, as more of our existing equipment will be used,” he notes.

Meanwhile, Clarke says that taking on projects in sub- Saharan Africa can be chal- lenging, as many countries lack the infrastructure to move heavy mining equipment and the mined commodities.

“These days it is relatively easy to do projects in Southern Africa, but other regions further north are not really a priority for us at this stage.

“We had to establish all the infrastructure for our Benga coal mining project, in Mozambique, and it was a large investment; but the project scale and duration justified it,” says Clarke.

Further, the company reported a fatality-free year. The lost-time-injury frequency rate reduced by 36% to 0.16 injuries for every one-million working hours.

Project Updates
Looking forward, the com- pany expects to benefit from the full impact of new coal mining projects, which includes diversified energy company Total Coal South Africa’s Dorstfontein East coal-mining project, in Mpumalanga, which is expected to produce 18-million tons of coal by 2016.

“Australian mining company Riversdale Mining’s Benga mine project, in Tete, Mozambique, which was recently taken over by global miner Rio Tinto, is in its ramp-up stage and is faring well. We will be working on this project until 2015 and 20-million tons of coal is expected to be recovered from this mine,” says Clarke.

He notes that this project will bring significant investment into Mozambique, creating jobs and ensuring the upliftment of the community.

Financials
MCC reports that its revenue marginally improved to about R3.2-billion, in the financial year ended June 30.

Owing to higher preventive maintenance costs, lower asset use and new contract start-up costs, operating profit decreased by 9.5% to R323-million.

Expansion capital expenditure increased to R931-million, as equipment for the Benga project was delivered, which should make a significant contribution to revenues in coming years.