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Mining equipment orders ‘rebuilding’ after slump – Barloworld

10th March 2017

By: David Oliveira

Creamer Media Staff Writer

     

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Orders from Russian and Southern African mining customers are starting to rebuild for JSE-listed Barloworld, following a period of limited capital expenditure (capex) as a result of commodity prices, steadily declining since 2012, having shown signs of recovery last year.

Former Barloworld CEO Clive Thomson, who is currently serving in a short-term advisory role for the company, tells Mining Weekly that this was the sentiment expressed last month at a trading update by the industrial conglomerate.

“I think it is still early stages. We are definitely not back in a boom period, but I think we are through the worst and, if commodity prices remain at current levels, I am confident there will be a recovery in equipment demand this year and increasing in the 2018 financial year.”

Thomson points out that a number of shelved brownfield projects are being put back on the table, resulting in increased equipment enquiries from contract miners and mining houses.

He explains that the surprise commodity price drop of 2012 placed significant pressure on the balance sheets of mining companies, particularly those that had committed significant capex to brownfield projects to take advantage of the last commodity supercycle, which started at the turn of the century.

“Many mining companies go on acquisition sprees during the good times, so their balance sheets were stretched when the commodity price slump kicked in, resulting in curtailed capex spend, which continued into the next four years,” Thomson says.

Thomson, who was appointed CEO of Barloworld in December 2006, was at the helm of the company during the 2008 global economic crisis, as well as the 2012 commodity price drop.

He recounts that, prior to the 2008 economic slump, Barloworld was projecting 60% growth in its Russian revenue, in line with Caterpillar sales projections in the country. In the next financial year’s results, Barloworld recorded a 65% deliveries decline for its Russian business.

“This confirmed that we were in a very cyclical business, particularly with the Caterpillar business, which supplies equipment to large mining and infrastructure projects,” Thomson notes, adding that Caterpillar’s global sales fell by a larger percentage following the 2008 economic crisis than at any time since the Great Depression in the 1930s.

“It was an extreme period, which was a significant challenge,” he recounts, adding that his focus for the company had to change from increasing profit margins and returns to a focus on managing cash flows.

“Companies survive with cash flows, not with profits. Profits are nice for the good times, but when things get tough, it is all about cash and debt levels,” Thomson says.

He explains that his goal was “to generate as much cash as possible”, which was achieved by maintaining tight control over inventory levels and receivables while reducing debt levels as much as possible.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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