Global Market Outlook on Contract Mining

  • High demand for contract mining, coupled with advanced technology and work force from Australia, will provide the impetus to contract mining market, in terms of growth prospects, until 2018
  • A constant rise in commodity demand, coupled with increasing mineral output, and declining high grade ore heads are the key drivers for contract mining
  • Global economic slowdown, coupled with the Chinese slump, has prompted the fall in commodity prices. This has adversely affected the miners, thereby affecting the demand and profit margins of contractors

contract-mining-market-size

 

  • The global contract mining market is expected to grow despite the weak commodity market, as mining companies are preferring outsourcing over new investment to reduce their capital spend and optimize their expenditure
  • Changing mining conditions with the increase in mining activities, due to heavy equipment usage on account of lower grade of mines, forces the mining companies to concentrate on their core capabilities such as exploration, sales and marketing while engaging specialist contractors for rock breakage, raw materials preparation and materials handling
  • Coal, iron ore, gold and copper account for approximately 70 percent of contract mining globally
  • Australia is the largest contract mining services consumer with around 50 percent share in global market, followed by Africa (16.8 percent), North America (12.2 percent) and Asia (11.4 percent)

  • The contract mining market, until 2018, is expected to grow at a CAGR of 4 percent, mainly driven by Africa and Australia, at 4 percent and 7 percent, respectively

  • South Africa, which accounts for two-thirds of contract mining in Africa, is expected to grow by 6 percent, followed by Ghana (7 percent), Mali (7.5 percent), Tanzania and Guinea (8 percent), owing to lower mining costs and higher untapped mines

  • Increasing commodity demand, along with the expected rise in commodity prices (except, coal), will provide the impetus for the increase in demand for contract mining

Global Contract Mining –Drivers and Constraints

Drivers

Lower, defined mining costs

  • Reduced capital expense for mine owner, which allows them to better utilize their cash and also focus on the company’s other core capabilities, which may be exploration, sales, and marketing

Depleting ore grades in mines

  • Depleting ore grades in surface mines have influenced miners to perform deeper mineral extraction, which has increased the demand for contract mining

Large pool of machinery and skilled employees

  • The contractor has flexibility in equipment and always deploy modern machinery to compete with other contractors
  • Deploying employees from the contractor means that the mine owner has smaller workforce and brings effective performance management systems

Constraints

Slump in demand for commodities

  • Fall in commodity prices, as a result of decrease in demand, would deter mining investments, thereby leading to mine expansion stoppages
  • This would affect the demand for contractors in the mining market

High dependence on labor

  • Mines are characterized by low degree of mechanization. Labor spend constitutes around 35 to 40 percent of the direct mining cost
  • Mine mechanization has been increasing steadily, there still remains a large number of mines, where drilling and clearing are performed manually
  • The primary reason for this is narrow shafts in mines, which make mechanization unprofitable

Degree of mine mechanization

  • Underground mining is experiencing a shift toward mechanization, which is decreasing the need of contract workers

Market Driver-Commodity Price

  • Prices of key commodities are the best indicators of mining activities and which in turn evinces the demand for mining equipment
  • In Q4 2018, from October 2018 to November 2018, apart from iron ore and copper (which is expected to increase by an average of 5-6 percent, average commodity prices for the rest is expected to decrease by an average of 3-4 percent as compared to last quarters average
  • Demand for commodities increased tremendously as the economy recovered from the economic recession in 2009. 2010 and 2011 saw a boom in mining activity due to high demand for raw materials
  • Late 2013 and 2014 witnessed a slowdown in mining, resulting in the reduced demand for HME
  • Again, 2014–2015 witnessed reduced demand; however, it is expected to uptrend in the coming years. The average commodity prices for the rest is expected to decrease by 8-9 percent in H1 2019 when compared to same period in the previous year