The past few years have created a difficult environment for many consulting firms, but the skills of consultants are still vital to the industry
The last three years have been pretty rough for the mining industry; and when mining companies sneeze, the mining services sector catches a cold. But what happens to mining consultants when the mining companies have chronic pneumonia and it lasts for three years with no end in sight? Let me share the Snowden experience and how we have adapted.
In 2011, the downturn from the GFC did not last long enough for any lessons to be learnt and embedded. China was growing rapidly, demand for commodities such as iron ore and coal was at an all-time high, and all resources (labour, equipment, consumables) were scarce and increasing in price.
The mining consulting sector was trying to service this booming industry and expanding to meet the increasing demand for their services. Growing the business and increasing staff levels to keep pace with the industry demand drove most plans. Increases in revenue were eaten up by spiralling cost increases in wages and overheads. The boom encouraged consultants to move away from their core skills and offer a full spectrum of services to the industry.
The perfect storm
The high disappeared as fast as it had come. Exploration was first to suffer, so there were no new resource estimates or feasibility studies. Operations decided to put a freeze on consultants, software and training, quickly stifling new opportunities. Clients were running out of money or refusing to pay. Consultants, who only a few months earlier had been overstretched, were now without work. Young professionals who had entered the mining business in the previous ten years had a rude introduction to the concept of boom and bust. The old hands, who had seen it all before, set themselves to ride out a difficult 12 to 18 months.
Hidden structural change
The boom hid an important structural change in the consulting industry. In the 1990s, the few mining consultancies that existed at the time supported the entire industry: majors, mid-tiers and juniors. Consultancies held skills (particularly around evolving technology) and intellectual property that was limited in supply. During the early to mid-2000s, the skills of the industry as a whole were quickly catching up and the market was maturing. The majors, realising the strategic importance of this work, hired their own teams.
While there was still work available, the departure of the majors from the consulting market increased the exposure of mining consulting companies to the whims of the junior market and the flow of investment capital for new projects. In hindsight, this is ultimately what set up the mining consulting market structurally for such a large fall.
The grieving process
They say there are five stages to the grieving process; denial, anger, bargaining, depression and acceptance. It is fair to say that the mining consulting market went through all of these. Particularly, the denial stage was strong. After all, one day things were great and the next, everything was different. The GFC barely had an impact; surely this downturn couldn’t be too bad.
Most consulting service providers held on to staff, resources and property for as long as possible, expecting (or hoping) that things would turn around. They didn’t. The longer it lasted, and the longer the bad news continued, it became apparent that there wasn’t going to be much change in sight.
The previous rapid growth in consultancies also meant that we had employed a number of staff to meet the industry demand who, whilst capable of doing work, lacked the ability to attract and retain clients and work.
The inevitable cuts were deep and painful. Companies lost half their consultants and shed non-core capability while many simply closed offices. Full-time staff were moved to an associate model to reduce the fixed costs.
At Snowden, we sadly had to retrench valuable staff and close three offices. These were some pretty tough times, but we focused on retaining as many of our key personnel and as much intellectual property as possible.
Now we have moved through the process and accepted that we are in a ‘new normal’. We have stabilised the business, reduced any unnecessary overheads and retained an experienced core team in our key discipline areas.
Are mining consultancies still relevant and necessary?
These are the thoughts that must occur whenever there is structural change. After some deep reflection, the answer to this is resoundingly ‘yes’. Firstly, consulting and technology companies drive innovation in the industry. The intellectual property they develop is available for the benefit of all businesses. Innovation developed and held within a single company does not advance the industry. Secondly, there needs to be an independent view of process and risk within the industry to protect investors – even if it is only from themselves.
I joined Snowden from a research background believing that a consulting company provided the best platform to innovate. Being around like-minded individuals, and being exposed to a wide variety of problems helped to put everything in perspective. Every innovation we developed had to work in the real-world and had to be effective (and had to be done yesterday)!
The loss of mining consulting businesses would stunt innovation and independence, the two things needed to help the industry recover from this prolonged downturn.
The lessons learnt
When you are thrown overboard during a raging storm, everything becomes about survival. Most of your ‘needs’ now become ‘wants’. This goes for both mining companies and their service providers.
Mining companies learnt:
- many operational costs were add-ons and that the same, if not more production, could be gained with fewer resources
- that in order to get a project financed, it was necessary to optimise the project; not just any old plan would do.
At Snowden, we learnt:
- To focus on what clients needed rather than wanted. By doing this, we were able to reduce costs and get them to the destination faster.
- To do our work faster; developing our own custom tools to ensure accuracy
- To adapt our payment structures to work for both parties.
Fighting back: embracing innovation
With an acceptance of the new normal, we can now focus on how to be successful in this changed environment. We are luckier than most, having a supportive owner in Downer.
We are in the process of implementing a strong strategic plan to survive and thrive in this new normal.
The largest gift to the mining services industry right now is technology, the one new thing in a sea of ‘sameness’. And it is the way that we can provide benefit to those that have in-sourced capability: we can give them the tools and knowledge to improve what they do.
We are embracing cloud technology and mobile devices. We, and our partners at MiPlan, are innovating in the data capture and analytics space with the development of easy to install and implement tablet applications to help drive operational improvement. We are building our list of Reconcilor users, and they are benefiting from understanding and adapting to variations from their business plans to drive productivity and quality improvements.
We are developing an exciting software technology platform. We have developed a range of useful tools that help us do our work more efficiently and achieve higher quality results for our clients. We are going to make this available for all. The platform will be home to a range of ideas developed by others but have been starved of development capital in recent years. The platform will leverage all the best of breed, up-to-date technology including no installation, and cloud distributed computing.
We continue to provide independent technical advice and training to the industry, supporting juniors in mine development and financing, and larger businesses with operational planning and quality audits. We are backed by a strong stack of intellectual properties, and we back ourselves to get better outcomes in shorter periods of time.
We strive to improve with each project, to reduce the time we take to do tasks, and to provide clearer insights to
We are here to support the industry in their time of need, and we will continue to be there when things improve. We have not forgotten those that have lost their jobs in the downturn. Like the AusIMM Member Assistance Program, Snowden is offering heavily discounted professional development to unemployed professionals to help them get back on their feet.
One thing is for sure: unlike the GFC, the lessons of this downturn will be long-remembered, and the innovations developed to deal with the change will put the industry in a better place to take advantage of any upturn that occurs.
Stay up-to-date with all the latest news and analysis by joining minerals industry professionals in the AusIMM LinkedIn community.