Contract Mining and Plant Rental
Investor Day 2012
Erich Clarke – divisional CEO
Divisional overview – what we do
Open cast mining contractor
Coal, platinum, nickel and other base metals
Load and haul, ore recovery and rehabilitation
Drilling
Blasting
Surface blasting
Provides full range of packaged explosives, blasting accessories and
pyrotechnic/electronic initiation systems to suit requirements
Plant Hire
Best earthmoving plant at competitive prices
Commitment to service excellence
Maintained and serviced by qualified field service mechanics with a world
class workshop and rebuild facility
2
Divisional overview – the numbers…
Largest division of Eqstra – 45% of revenues and 50% of revenue producing (leasing)
assets, but currently only 24% of PBT
Primary business units - MCC Contracts and MCC Plant Hire
One of two large domestic open cast mining contractors in southern Africa
Largest plant hire fleet in southern Africa and largest grader fleet
in Africa
Targeted job range R400 million – R1 billion in capex
5 010 employees (+5.5%)
3
Safety Achievements
MCC achieved 1000 fatality free shifts in June 2012
Tharisa was nationally recognised by the DMR (Department of Mineral
Resources) and received an award : “Highest Safety Standards” within a
mining operation – this against mining giants like BHP, Exxaro and Xstrata,
among others
MCC Khutala received an award for “Best Safety Standards” throughout all
BECSA operations
4
Key points on current operations
No direct impact from national / mining sector strikes
DMO / Khutala contracts renewed / extended for three years
Previously loss making Platmin contract breaking-even
Conclusion of contract negotiations with Nkomati Nickel should stop bleed
Management changes well received both internally and externally
Improved availability has released capacity (negative impact on utilisation)
Further intervention initiatives gaining traction
5
Last reported financial results
Rm
2012
2011*
Revenue-generating assets
Inventories
Other assets
Operating assets
4 517
97
945
5 559
3 912
61
791
4 764
15.5%
59.0%
19.5%
16.7%
Revenue
EBITDA
Operating profit
Asset reversal (impairment)
Foreign exchange gains (losses)
Net finance costs
Profit before taxation
3 707
1 137
322
37
270
(277)
109
3 225
966
322
(50)
14.9%
17.7%
(221)
51
25.3%
113.7%
PBT margin
EBITDA to net finance costs
2.9%
4.1x
1.6%
4.4x
* Income statement reclassified for segment reallocations
6
% ch
Commodity diversification
16%
Commodity and regional diversification
has improved in recent years from past
high exposure to PGM’s
18%
Identified opportunities in iron ore and
copper
Revenue by commodity
Jun ‘09
84%
63%
Jun ‘10
Jun ‘11
Jun ‘12
35%
25%
0%
19%
37%
49%
25%
50%
PGM's
Energy (coal & uranium)
Other and plant rental
7
Capacity available for one sizeable
contract
28%
26%
75%
100%
Mining contracts
Mineral/
Service
Location
Monthly
volumes
Platmin - Pilanesberg Platinum
Mine
Platinum
Northam, North West
1 250 000m3 03/2014
ARM/Norilsk JV - Nkomati Nickel
Nickel
Machadodorp,
Mpumalanga
1 200 000m3 09/2014
Tharisa Minerals
Chrome
Marikana, North West
Rio Tinto - Benga Mine
Coal
Tete, Mozambique
1 900 000m3 12/2015
DMO Project
Coal
Witbank, Mpumalanga
1 200 000m3 11/2015
Khutala Colliery
Coal
Ogies, Mpumalanga
1 000 000m3 10/2014
Total Coal – Dorstfontein East
Coal
Kriel, Mpumalanga
1 600 000m3 01/2016
Coal of Africa - Vele Colliery
Coal
Musina, Limpopo
Client
8
End
date
600 000m3 06/2017
250 000m3 12/2016
Contract demand outlook
Commodity
Global climate
Project exposure
Impact on Eqstra
Platinum
Turmoil, industrial action
Platmin
• Open cast mining at lower
end of production cost curve
• No industrial action in past six
months
• Potential for increased
demand
Coal: Thermal
Demand outlook and prices
have weakened
Dorstfontein
DMO
Khutala
Coal: Metallurgical
Demand outlook and prices
have weakened
Benga
Vele
Nickel / Chrome
9
Lower steel demand has
weakened prices
• Increased demand from
Eskom
• Contracts extended /
renewed for supply to Eskom
•Steady demand from Tata
(35% Benga shareholder) for
own smelter
• Scaled down demand and kit
redeployed
Nkomati
• Contract losses due to
contract management
• Contract terms renegotiated
Tharisa
• Client has commissioned new
plant
• Increased tonnage expected
in 2013
Recent management changes
Resignations:
JC Pretorius: MD, MCC Contracts
Senior management reorganised and
structured
Trevor Adams: Projects Director
Established a Business Development Team:
Restructured into four operational areas:
Hard Rock
Tendering/Pricing
Soft Rock
Contract Management
Africa (Mozambique)
Plant Hire
10
Marketing
Contract management
A focused plan has been implemented to address all identified contract issues
Legal reviews of contracts
Matrix developed to ensure contract compliance
Continuous contract performance evaluation
Current tenders and new contracts to benefit from new improved contract
management measures
11
Platmin – at break-even
Contract accounted for significant losses in recent years
Contract renegotiated effective 1 January 2012 to exclude reefing and drilling
Labour climate has remained challenging, but no significant disruptions to
operations in recent months
12
Nkomati Nickel
Significant contract loss posted in FY2012
Took over blasting from July 2012 after poor fragmentation delivered by previous
blasting contractor
Poor fragmentation resulted in elevated wear and tear on equipment and
consequent high maintenance costs and poor productivity
Contract has remained a challenge in recent months
Revised pricing negotiated and run rate should improve
13
Benga (Mozambique) update
Contract continues its satisfactory performance
Mine is now at full production of around 1.9 million tonnes per month
Future logistics constraints to export high volumes of coal remain a concern
Tyre management is proving to be a
challenge due to shortages
Tata Steel’s 35% ownership of concession
ensures sustainability of demand
Plant hire activities gathering momentum
14
Labour relations climate
Industrial relations is a key operational and strategic risk
Marikana has changed the labour relations landscape
Labour unrest in the Rustenburg region mainly affected underground mining
operations
Initiatives implemented have improved labour relations and interaction with unions
MCC has “weathered” the unrest storm
No illegal or legal strikes
Cost increases due to negotiations and industry concessions
15
Excess equipment on balance sheet
Fleet optimisation and availability improvement exercise has identified excess
equipment:
R80m held for sale
R50m spare drilling capacity
R115m incorrect sizing
Optimisation of approximately R150m required
Contract renewals will correct this
16
Capital expenditure outlook
Expansion capex decreased from R931m in FY2011 to R477m in FY2012
Benga project capex R645m in FY2011 and R450m in FY2012
Limited expansion capex forecast in FY2013
Replacement capex in FY2013 expected to be below R500m
Excess equipment extracted from optimisation exercise will be used as
replacement
17
Availability
Equipment availability is measured according to how many hours a specific item of
equipment actually was mechanically available to work per shift i.e. the % of time
mechanically able to work per shift
Poor levels of availability often lead to poor utilisation as equipment work in teams
Poor availability addressed:
Increased maintenance spend
Increased focus on preventative maintenance
Clarification of reporting lines – technical managers assigned for specific products
Monthly engineering meetings – focus on availability, costs etc.
Increased artisan headcount
Increased Midrand workshop capacity
Introduced Service Level Agreements with major suppliers
Introduced monthly site, production and plant, meetings contributing to improved
conditions to increase availability (Site Severity Audits)
18
Fleet utilisation
Utilisation is measured according to how many hours a specific item of equipment
actually “worked” as a % of the available hours it could have worked i.e. was
mechanically able to work
Utilisation rates have increased in the past two reporting periods
Factors impacting utilisation:
Contract negotiations
Inclement weather
Equipment replacement cycle lag
Project transitions
Bad scheduling practices
Bad mining practices e.g. excessive tramming
Operator availability
19
Addressing under utilisation
Daily continuous focus on monitoring cubic metres moved per hour of all “major movers”
Comparisons to benchmarks
Improve training through innovative technology
Utilisation targets to include moving average analysis to ensure a focus on continuous
improvement
Production incentives
Reduce expansion capital expenditure
Tender for additional projects with existing equipment
Supervisor training and exposure
20
Plant Hire overview
10-15% of divisional revenues
Current markets:
Infrastructure development
Government and parastatals
Construction and Mining
Branches in Windhoek, Namibia and in Tete, Mozambique performing stronger
than branches in RSA
Domestic construction market remains depressed, little signs of life
Africa opportunities continue to hold promise
21
Training and development
There is normally a shortage of suitably skilled workers in communities surrounding mine sites
Technical training:
MCC operates its own formal technical training academy in Benoni, Gauteng
The academy is fully accredited by industry training bodies
Offers the following trades:
Earthmoving
Boilermaker
Auto Electrical
Operator training:
Advanced simulator technologies increases operator skills in a short period of time
The Centre is fully accredited by: Construction SETA (NQF Level 3); Services SETA (NQF Level
4), MQA (Evaluations and assessments) and the Independent Examinations Board (ABET
Level 4)
The Centre includes moderators and assessors
International Award: The Centre received the international award from
Immersive Technologies for “Best Results in Operator Simulator Training” – this
Centre competed against 23 countries with results assessed for a total of 240 000 operators
22
ERP Project Implementation
SAP ERP system selected
Go live date: 4 March 2013
Advantages:
Enhanced functionality
Production monitoring
Equipment life cycle monitoring
Detailed cost analysis
Management Reporting &
variance analysis
23
Commodity outlook
MCC does not take direct commodity risk, however, increases are being
linked to commodity price recovery
Targeting other commodity opportunities to diversify commodity and country
risk i.e. copper, iron ore and Africa
24
Priorities
Business model requires at least a 14% operating margin to achieve 20%
targeted ROE
Operating margin negatively impacted by:
low plant utilisation
high planned preventative maintenance expenses
new contract start-up costs
staff costs
Cost control:
Labour costs have increased due to SAFCEC determination
Correction of normal working hour
Union demands i.e. Medical aid, bonuses, etc
Efficiency improvements
Utilisation drive
Improved maintenance / availability drive
SAP implementation – project on track
Order book – increased scope on existing contracts
25
QUESTIONS?
26