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Mining consulting outlook stable to positive – consultancy

ANDREW VAN ZYL Increasingly complex deposits will require thorough and expert technical knowledge, increasing the need for mining consultants

MARCIN WERTZ Improving corporate governance procedures have resulted in a higher proportion of consulting work going out to tender

28th April 2017

By: Nadine James

Features Deputy Editor

     

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The short-term outlook for the mining consulting industry is “stable to positive”, says SRK Consulting, a firm of consulting engineers and scientists.

SRK partner and principal consultant Andrew van Zyl stresses that the South African economy is still in a transitional phase which – combined with generational transitions in management, societal changes and continued political and economic uncertainty – ensures that creating any type of forecast or outlook is extremely difficult.

Despite this, Van Zyl believes that increasingly complex deposits will need to be mined as and when simpler orebodies are depleted. This will require thorough and expert technical knowledge, increasing the need for collaboration between mining consultants and their clients.

SRK Consulting partner and mining head Marcin Wertz agrees that the immediate outlook is positive, citing encouraging improvements in the number of projects that are available in the African mining consulting space and in the amount of work SRK has secured. “We have even seen some old projects being ‘dusted off’ – such as the return of a study we did about ten years ago on a project that has now been taken on by a new client.”

Some recent mining projects SRK Consulting has been involved in include a diamond project, in Sierra Leone; an iron-ore project, in Mozambique; three base metals projects, in Iran; and platinum projects in Zimbabwe and South Africa, he notes. “We have also undertaken a number of reviews and due diligence studies.”

Wertz adds that, while mining consultants – specifically those who work in the exploration space and early stages of projects – have struggled since the fall of commodity prices in 2015, “studies related to mergers and acquisitions, such as independent engineers reports and other due diligence-type mandates, have provided SRK with an adequate amount of work during the downturn”.

Van Zyl is hopeful that this period of relatively consistent work, as well as the need for future collaboration, will lead to the establishment of long-term, mutually beneficial relationships between mining consultants and their clients, underpinning the future of the sector.

Consulting engineers often have to convince clients of their value, he states, adding that it is in mining companies’ best interest to form symbiotic relationships with the consulting industry.

“In many ways, consulting companies have more institutional memory than mining companies . . . while employees in mining companies tend to move into other roles – replaced by new employees who are not familiar with historical work – many of the people who have been consultants for mining projects remain connected to them in various roles,” he explains.

Van Zyl notes that additional value stems from consultants conducting studies on a continual basis, as “practice tends to lead to better outcomes – and this is to the benefit of the client”.

Value is also derived from consultants’ extensive technical knowledge that is gained only from extended and focused experience – which Van Zyl comments is not typically found in a career in a corporate entity.

He adds that the excessive focus on the cost of consulting “leads to a destabilising level of ‘churn’ in the industry – which reduces the value that can be added, as technical skills move out of the consulting industry and into sectors like banking, to the detriment of the industry”. This ultimately reduces the number of technically skilled consultants in the industry, further impacting on the skills dearth, specifically in mining, but in the country generally.

Besides convincing clients of their value, a frequent challenge faced by mining consultants is clients who try to take ‘short cuts’ through the project development process, highlights Wertz. “This results in pressure being placed on consultants to provide solutions that necessarily carry caveats.” While these ‘caveats’ do provide opportunities to rectify the situation when a project encounters difficulties, he notes that it is not an ideal approach to ensure smooth and sustainable projects.

Wertz also notes that the mining consulting sector has become significantly more competitive, as a higher proportion of consulting work is going out to tender rather than simply being awarded, which could be partially attributed to improving corporate governance procedures.

Recent Trends
Van Zyl comments that, in recent months, there has been some interest in less conventional minerals such as graphite.

Wertz adds that this renewed interest also covers a range of commodities as diverse as chrome, platinum, diamonds, gold, copper and iron-ore, noting a likely increase in the interest in coal based on activity in countries such as Tanzania and Swaziland.

From a project perspective, “there is certainly a general uptick in interest. Significantly, our projects are more ‘positive’ in nature – with more companies looking to explore, study and invest, rather than sell or cut costs,” he emphasises.

Van Zyl explains that, globally, there is an economic need for mining companies to replace and grow production, as current production is not forecast to meet rising demand. “This is particularly the case for large companies that need to retain the size and scope of their operations to support their overheads.”

He concludes that the creation of new mines is inevitable, as they “are also required if companies want to remain cost competitive, as ageing mines are associated with rising costs because of increased stripping or their depth, distance from infrastructure and lower grades”.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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