This expansion will enable AEL to manage the deal signed by its parent company, AECI, and global explosives group, Dyno Nobel, of Norway, at the end of last year.
The agreement will see the formation of a 50:50 joint venture called DetNet International, which will focus on the international electronic detonator market.
“Dyno Nobel needed the technology, and we needed the market,” is how AEL MD Graham Edwards explains the reasoning behind the December deal.
The technology Dyno Nobel wants access to is an electronic detonator developed by AEL, found to achieve best results on surface mines and large underground operations. However, these form only a small portion of South African mines, which are often deep-level mining or narrow-reef operations. The company’s electronic detonators have succeeded in capturing about 15% of the African surface market in initiating systems, persuading mines to use these products instead of conventional methods, such as detonating cord and shocktube, the reasons being better rock fragmentation and improved accuracy, says Edwards.
Eventually AEL hopes to capture about 40% of the African surface market.
The problem the company faced, though, was that it had only a fraction of the share of the international explosives market.
In contrast to this, Dyno Nobel, one of the biggest explosives companies in the world, with operations in 35 countries and nearly $900- million in global sales, offers major exposure to this market.
And DetNet, as the new joint venture, will have access to this market.
The electronic detonator market amounts to 150-million units a year, and if DetNet were to win 20% of this market in the medium term, and between 30% and 40% within ten years, it could equal more than $300-million a year in new business.
This would be significant, given that AEL is a $300-million-a-year business.
Edwards believes that a 30% to 40% market share is possible for DetNet, since the company will have a targeted approach to convert appro- priate mines to electronic detonators.
This includes dispatching conversion teams that will attempt to convince mining operations to place the detonator on trial.
Edwards believes mines can be convinced of this one by one, if necessary.
Chasing such a large international market has manufacturing implications.
Initially AEL will be manufacturing all the electronic detonators for the DetNet joint venture, and product development will continue to reside with AEL.
Last year, AEL manufactured 2,5-million electronic detonators, clearly indicating the need to expand production capacity to meet future demands of the international market.
Edwards is cautious of ballooning figures into unrealistic targets.
“Mining is a conservative industry,” he states, which is why AEL estimates its own part of production at 20-million units a year within the first five to ten years of the joint venture.
AEL has, following consultation with European suppliers, concluded that an automated manufacturing process at its Modderfontein plant, on the East Rand, would be necessary to achieve its new manufacturing targets.
Edwards says automation enables higher volumes, cost reductions and quality improvements. Altogether, the new manufacturing outlay is set to change the face of the area.
The Modderfontein site, starting out as a dynamite factory, is more than a hundred years old and has become increasingly less suitable for explosives manufacture.
It is, however, ideal for the manufacture of high-tech initiating systems, such as electronic detonators, as it is close to research institutions and airports, says Edwards.
An automated manufacturing process at this site will affect only 30% of production at first, and is planned for commissioning in the middle of 2005.
The cost of this phase is about R60-million. The second phase, of about R30-million, will only be implemented should the projected cost reductions warrant it.
Edwards says the automation process will lead to job losses at the company, but he believes this is unavoidable in the drive to increase the company’s competitiveness. He believes AEL could be the best in the world in initiating systems.
“The size of the opportunity is there, it is up to us to take it. Our electronic detonator technology has been proved in Africa and it is now time to roll it out to the rest of the world.”