The spark for mining services?
Deloitte Access Economics’ Employment Forecasts March 2014 report hit the nail on the head. It found employment in mining-related segments close to stagnant, with miners’ focus on cost mentality driving mining services from rapid growth to rapid decline.
That said, Gina Rinehart’s US$10b dollar bet on iron ore through her Roy Hill project indicates that the longer term story remains a positive one. But is there any scope for the Roy Hill benefits to flow through to service providers over the short term?
Resource sector advocates have hailed the Roy Hill funding approval as the spark to (temporarily) reignite mining services, with national recruitment agency DFP identifying the project’s increased hiring activity as one of the major drivers of the first positive result for 2014 in its May period Mining and Resources Job Index.
The project is now fully paid up, with minority equity holders (Marubeni Corporation, POSCO and China Steel Corporation) contributing their final $284.8m in May, after the finalisation of the largest debt financing for a mining project in the world (a US$7.2b raising from five export credit agencies and 19 commercial banks) was completed in March. The funds have been put to good use according to Roy Hill Holdings Chief Executive Barry Fitzgerald, who said the project was spending $10m per day to build the mine and associated rail and port development, which is currently around 40 per cent complete.
The project site, approximately 115km north of Newman, has kicked into high gear with the first high grade ore mined in April, and export expected to start in September 2015.
A contract for new processing plant construction awarded to Thiess by Samsung Construction and Training (C&T) under a $330m contract in late May will a require an additional 1,000 workers on top of the roughly 2,500 already employed across the greater project. The contract includes structural, mechanical, piping, electrical and instrumentation works currently being designed and to be supplied by Samsung C&T.
As the engineering procurement and construction contractor, Samsung has also awarded NRW Holdings a $200m contract for the construction of Package One works, including concrete and detailed earthworks for the processing plant, stockyard, overland conveyors and crushing areas, with a duration of 12 months, and a contract to utilise Saleem Technology’s Track’em system to manage all materials for the duration of the project.
Other contracts awarded since the debt funding was secured in March include:
- Ranger Drilling, to provide grade control drilling for 2-3 years valued at $18m
- Executive Risk Solutions, for a two-year, $30m contract to provide emergency response services
- Alinta Energy, which holds a long-term power purchase agreement with the Roy Hill project, has subcontracted UGL under a $136m contract to design, procure and construct the high voltage power system, with work to be completed by mid-2015.
Roy Hill will build, own and operate a 344km single line, heavy haul railway to transport the processed iron ore from the mine to a dedicated port stockyard facility located south-west of Port Hedland.
Gina Rinehart used her International Lifetime Achievement Award acceptance speech at the Chartered Institute of Logistics and Transport convention in early June to reveal that the rail project was on time and nearly half complete.
Contractor John Holland began to lay track in early May, building on previous and ongoing work including Central System's construction of rail bridges, NRW Holdings' civil work, Calibre Group's early design work and Ansaldo STS' communications and signalling systems. John Holland, a Leighton subsidiary, inked a 12-18 month, $4m deal with Engenco’s Perth-based Momentum business to supply rail workers and train drivers for the project.
Roy Hill’s world-class, purpose-built iron ore port facility at Port Hedland will be constructed to receive, stockpile, screen and export 55Mtpa (wet) of direct shipped iron ore as lump and fines and will be designed to accommodate possible future expansion.
On the land side, BGC Contracting has engaged around 500 people since September 2013 under a $420m contract for its involvement in Package Three of the Roy Hill project, which includes civil earthworks, concrete works and general infrastructure for the port. Meanwhile, the $455m marine works were tendered to McConnell Dowell for engineering procurement, design and construction of the two-berth load out wharf and elevated overland conveyor to the ore stockyard.
So, yes, the Roy Hill project may just be remembered as the spark the mining services community desperately needed, but with Hancock Prospecting declaring its intention to be owner-operator of the project, it seems unlikely the spark will ignite any long-term flame.