Mining Equipment in Australia

Market Research Report

International Business Strategies
www.internationalbusinessstrategies.com
October 2008
14 Pages

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Table of Contents

Summary ............................................................................................................. 3
Market Demand ................................................................................................... 4
Table 1: Exploration Expenditures for Key Commodities (USD million) ......... 5
Market Data .......................................................................................................... 6
Table 2: Market Size For Mining Equipment (US Dollars Millions) ................. 6
Best Prospects ...................................................................................................... 6
Key Suppliers ........................................................................................................ 7
Table 3: Major Suppliers To The Mining Sector ............................................. 8
Prospective Buyers ............................................................................................... 9
Table 4: Mining Companies by Market Share ................................................ 9
Market Entry ....................................................................................................... 11
Market Issues & Obstacles ................................................................................. 12
Trade Events ...................................................................................................... 14
Resources & Contacts ........................................................................................ 14

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SUMMARY
Australia continues to rank as one of the
world’s leading mining nations, with
substantial mineral resources. With a long
history in mining, many mining equipment
suppliers have established a presence in
Australia.
The total market size for mining equipment
is in excess of US$5 billion and the industry
imports 70 percent of its equipment.
Australia is the second-largest export
market, behind Canada, for U.S.-
manufactured mining equipment.
Companies recognize U.S. products for
their quality and will pay a premium to avoid
heavy losses associated with equipment
failure or production delays.
Increased international demand for
Australian coal and iron ore is driving up
mine production and related demand for
equipment and services. The future for
U.S. mining equipment suppliers to
Australia looks bright as industry experts
predict increasing demand for Australia’s
mining commodities and anticipate
investment in plant and equipment to grow
in the next year.
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Australia – Fast Facts
Geography
Area: 7.7 million sq. km. (3 million sq. mi.); about
the size of the 48 contiguous United States.
Cities (2007): Capital--Canberra (pop. 340,000).
Other cities--Sydney (4.3 million), Melbourne (3.8
million), Brisbane (1.9 million), Perth (1.6 million),
Adelaide (1.2 million), Darwin (117,000), Hobart
(207,484).
Terrain: Varied, but generally low-lying.
Climate: Relatively dry and subject to drought,
ranging from temperate in the south to tropical in the
far north.
People
Nationality: Noun and adjective--Australian(s).
Population (2008 est.): 21 million.
Annual population growth rate: 1.6%.
Ethnic groups: European 92%, Asian 6%, Aboriginal
2%.
Religions (2006): Catholic 26%, Anglican 19%,
other Christian 19%, other non-Christian 1%,
Buddhist 2.1%, Islam 1.7%, no religion 19% and not
stated 12%.
Languages: English.
Education: Years compulsory--to age 16 in all states
and territories except New South Wales and the
Northern Territory where it is 15, and Western
Australia where it is 17. Literacy--over 99%.
Health: Infant mortality rate--4.7/1,000. Life
expectancy--males 78 yrs., females 83 yrs.
Work force (10.8 million): Agriculture--3.0%; mining-
-4.9%; manufacturing--10.3%; services--75%; public
administration and defense--3.8%.
Economy
GDP (2007 estimate): $908.8 billion.
Inflation rate (year to June 2008): 4.5% per annum.
Reserve Bank official interest rate: 7.25% (August
2008).
Trade: Exports ($142 billion, 2007 estimate)--coal,
iron ore, non-monetary gold, crude petroleum, and
bovine meat. Major markets--China, Japan, South
Korea, U.S. ($8.6 billion), and New Zealand. Imports
($159 billion, 2007 estimate)--passenger motor
vehicles, crude petroleum, computers,
medicaments, and telecommunications equipment.
Major suppliers--China, United States ($19.2 billion),
Japan, Singapore, and Germany.
October 2008 3
MARKET DEMAND

Mining accounts for eight percent

of Australia’s GDP. Australia
has the world’s largest deposits
of lead, mineral sands, silver,
tantalum, uranium, and zinc. It
also ranks in the top six
countries for deposits of bauxite,
coal, copper, cobalt, diamonds,
gold, iron ore, manganese ore,
and nickel. There are over 700
registered operating mines
employing almost 70,000 people.

The Australian Bureau of Agriculture and Resource Economics (ABARE)

estimates that Australia’s minerals and energy exploration expenditure in 2008
will be US$6 billion, two and a half times above the average annual expenditure
on mineral exploration over the past 25 years.

ABARE also estimates that between November 2007 and April 2008, Australian
companies completed 22 major mineral and energy projects, valued at US$11
billion. Another 97 projects, valued at US$70 billion, are at advanced stages of
development.

Higher world prices for most minerals account for the large exploration increase.
Companies are focusing their expenditure on brownfield exploration to increase
output.

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The following table presents estimated exploration expenditure associated with
key commodities:

Table 1: Exploration Expenditures for Key Commodities (USD million)

Commodity Exploration Percentage Reason for increase
expenditure in increase from
2007-08 2006-07
High contract prices and
Iron ore US$500 million 76% strong demand from
China.
Higher gold price
Gold US$650 million 40%
forecasts.
Base metals US$940 million 66% High global prices for all
metals, particularly
nickel and copper
Source: Australian Bureau of Agriculture and Resource Economics

Like the rest of the world, Australia’s mining industry is facing difficulties in
sourcing capital equipment such as grinding mills, draglines, and locomotives.
The supply of mining equipment has come under pressure as a result of
increased mining activity worldwide. Some capital items are delayed for 12
months or more. Rio Tinto recently indicated that lead times for obtaining large
haul trucks and tires have increased from three months in 2006 to two years in
2008.

In response to the long lead times for obtaining key items of equipment, some
Australian mining companies are funding the procurement of items in advance of
final investment decisions. By doing this, companies hope to avoid delaying
expected project start-up dates.

Skilled-mining staff, such as mining engineers and operations staff are in short
supply. Products that reduce labor will remain in high demand.

Australian mining companies place a priority on the health and safety of the local
work force. Stringent regulations, organized union (CFMEU) activity, and modern
company practices all help to maintain the importance of mine-worker safety.
Products or services that enhance this aspect of mining enjoy strong demand.

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Increased regulatory and public pressure for environmental responsibility in
mining operations has created a demand for technologies that can reduce or
remove contaminating materials from operations. A number of mines must also
maximize limited water supplies. Many Australian mining companies now provide
detailed reporting on their environmental activities in annual reports.

MARKET DATA

Table 2: Market Size For Mining Equipment (US Dollars Millions)

2006 2007 2008
Total Market Size 4,230 4,650 5,110
Total Local Production 1,692 1,860 2,044
Total Exports 338 372 409
Total Imports 2,876 3,162 3,475
Imports from the U.S. 1,007 1,107 1,216
The above figures are unofficial estimates.

BEST PROSPECTS

Mining companies and suppliers have expressed interest in the following

products:

Coal-loading equipment and associated infrastructure machinery.

Rail equipment for ore transport.

Safety equipment for underground mines.

Heavy duty truck and loader consumables, especially tires.

PC/Windows-based design products and other mining software.

Products or services that resolve personnel, safety, and environmental

issues and problems.

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KEY SUPPLIERS

Australian mining equipment manufacturers are competitive in the areas of:

Fine-coal benefication (coal cleaning) and process control, which covers

systems developed for screening, separating, dewatering, and fine-coal
handling.

-Strata-reinforcement technology, including monitoring systems, hydraulic

and pneumatic drilling equipment, reinforcement systems, rapid-set
materials for anchors and bolts, and a range of drilling consumables.

-Software systems. These tend to be Windows-based and cover mine-

plan drafting, structural interpretation, 3-D ore body visualization, open-pit
planning, ventilation, dragline simulation, and production scheduling.

Australian companies manufacture the following consumables:

-Mill liners, crusher liners, slurry pump impellers, and continuous miner
trim chains.
-Composite carbide overlay-wear plates and castings.
-Rotary screw air compressors.
-Industrial heating equipment and carbon-reactive kilns.
-Gearboxes and couplings used for conveyor and rail applications.
-Ammonium nitrate, bulk explosives, and packaged explosives.
-Roof-bolters.
-Metal and polyurethane screens and mesh.
-Pneumatic safety hose couplings.
-A range of valves, seals, and gaskets.
-Oil lubricants.
-Spare parts for earthmoving equipment.

Australian mining equipment manufacturers export an estimated 20 percent of

their total production.

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U.S. suppliers hold approximately 50 percent of the capital-goods market and 35
percent of the total-goods (capital equipment and consumables) market in
Australia. Other major supplying nations are: Japan (16 percent market share),
Germany (9 percent), the U.K. (4 percent), and Italy (4 percent).

The following table lists major suppliers to the mining sector, sorted by number of
employees:

Table 3: Major Suppliers To The Mining Sector

Company Product range Employees Website
Bradken Resources Earthmoving and rail 2,800 www.bradken.com.au
(Australia) Equipment
Caterpillar (U.S.) Mining trucks 2,500 www.caterpillar.com.au
Komatsu (U.S./Japan) Mining trucks 1,300 www.komatsu.com.au
Boart Longyear (U.S.) Drilling equipment 1,000 www.boartlongyear.com
Ludowici (Australia) Seals 588 www.ludowici.com.au
Weir Minerals (U.K.) Pumps and 520 www.weirwarman.com
processing equipment
Joy Mining (U.S.) Continuous miners, 500 www.joy.com
longwall shearers, and
shuttlecars
Sandvik (Germany) Mining tools 420 www.sandvik.com
P&H Minpro (U.S.) Mining shovels, 400 www.minepro.com
draglines, and Drills
Metso Minerals Crushing, screening, 350 www.metsominerals.com
(Finland) and materia handling
equipment

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PROSPECTIVE BUYERS

Table 4: Mining Companies by Market Share

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Many mining companies use EPCM (engineering, purchasing, construction,
management) companies to operate their mines or develop projects. The major
EPCMs are:

Aker Kvaerner (Norway) - www.akerkvaerner.com

Calibre Projects (Australia) - www.calibreprojects.com.au

Clough (Australia) – www.clough.com.au

Connell Wagner (Australia) - www.conwag.com

Fluor Australia (U.S.) – www.fluor.com

GDH (Australia) – www.ghd.com.au

Hatch Associates (Canada) – www.hatch.com.au

Humboldt Wedag Australia (Germany) - www.humboldt-wedag.com

Maunsell Australia (U.S.) - www.maunsell.com

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MARKET ENTRY

Most Australian mining companies maintain a procurement manager or team to

manage sourcing. For larger companies, the procurement office could be
located centrally at a head office, or at each mine site. There has also been a
strong trend, among both small and large mining companies, to outsource mine
operations to EPCMs (engineering, procurement, construction, and management
contractors).

Mining companies delegate the decision to purchase consumables, such as

connectors and valves, down the management line to the mine-site manager,
purchasing manager, or maintenance manager. Sources advise that
consumables show little product differentiation and are very price sensitive.

Overseas OEMs sell consumables through general-stocking distributors. As in

the U.S., it is important for consumables to be close to the mine site. Established
agents and distributors usually locate near key mining regions, allowing them to
make regular site visits. Some mines hold consumable stock on site.

Specialist retailers and wholesalers, rather than general suppliers, market more
specialized products such as drilling supplies and consumables.

Mining companies purchase capital or processing equipment through a tender

process. These tenders can vary from widely-publicized, open tenders to pre-
qualified, closed tenders.

For large-scale projects, mining companies use EPCMs to assist in project

design and development. U.S. companies that bid for tendered projects should
have knowledge of local technical requirements and may have to submit to
several levels of qualification.

Australian mining companies will stress the importance of local support and
service. U.S. companies will need to establish a local sales presence to succeed

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in the market. For capital equipment, U.S. companies may also need to form
strategic alliances with EPCM contractors.

American companies should visit Australia to meet prospective partners and to

demonstrate ongoing support, as this is the common practice of their European
competitors.

MARKET ISSUES & OBSTACLES

In 2005, Australia and the United States enacted a Free Trade Agreement (FTA).
The FTA eliminated duties on more than 99 percent of tariff lines, including
mining equipment. Prior to the FTA, the maximum general tariff on most
products was five percent.

Australia requires testing and approval of mining products and equipment.

Various state governments, through their respective mine departments, regulate:
exploration, mining leases, mine technology approval, and safety issues. Testing
and approval requirements differ from state-to-state, so approval in one state
does not automatically permit a mining company to use the technology in another
state. Key departments that are responsible for approving the use of mining
equipment are:

Department of Primary Industries (New South Wales)

http://www.dpi.nsw.gov.au

Department of Mines and Energy (Queensland)

http://www.dme.qld.gov.au

Department of Primary Industries (Victoria)

http://www.dpi.vic.gov.au

Department of Industry and Resources (Western Australia)

http://www.doir.wa.gov.au

The Australian government imposes a Goods and Services Tax (GST) on both
imported and locally manufactured equipment. The GST is a broad-based tax of
ten percent on the supply of most goods and services consumed in Australia. It is
akin to the value-added tax systems in Canada and Europe.

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Foreign companies providing consulting and other services specifically within the
market are required to register for an Australian Business Number (ABN). By
registering for an ABN, the Australian Tax Office is able to ensure that the
Australian customer pays GST on the service it receives. U.S. firms who are
exporting products to Australia, as opposed to providing in-country services, do
not need an ABN number.

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TRADE EVENTS

Event name: Goldfields Mining Expo 2008

Date: October 28-30, 2008
Location: Kalgoorlie, Western Australia
Website: http://www.goldfieldsminingexpo.com.au

Event name: Diggers and Dealers Mining Forum

Date: August 14-16, 2008
Location: Kalgoorlie, Western Australia
Website: http://www.diggersndealers.com.au

Event name: Mining and Energy Exhibition (M&E) 2009

Date: September 2009
Location: Hunter Valley Region, New South Wales
Website: http://www.me.reedexhibitions.com.au

Event name: Asia-Pacific’s International Mining Exhibition (AIMEX) 2011

Date: September 6-9, 2011
Location: Sydney Olympic Park, New South Wales
Website: http://www.aimex.reedexhibitions.com.au

RESOURCES & CONTACTS

Austmine: http://www.austmine.com.au

Australian Coal Association: http://www.australiancoal.com.au

Australian Institute of Geoscientists: http://www.aig.asn.au

Australasian Institute of Mining and Metallurgy: http://www.ausimm.com.au

Australian Drilling Industry Association: http://www.adia.com.au

Mineral Council of Australia: www.minerals.org.au

Mining Industry and Services Council of Australia: http://www.mesca.com.au

Construction and Mining Equipment Industry Group: http://www.cmeig.com.au

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