The economic crisis and maintaining mining equipment

Times have been tough lately for those of us in the maintenance game.

I work predominantly for Mining, Steel, Oil and Gas and Infrastructure firms. I have done some stuff for Beer producers, food producers and others in the manufacturing sectors, but predominantly I am in the sectors above.

Take the Nickel industry as a case in point. I like Nickel as a commodity. I believe in the long term story around Stainless Steel and its market prospects. But the last year has seen it drop dramatically, while the stockpiles listed on the LEX have grown inordinately.

Demand down, driving prices down, driving stockpiles higher. Even if things pick up tomorrow there will still be a lag on profitability for my client organizations.

In Australia we have seen BHP close Rocky's Reward, sell off the Yabulu smelter (Possibly for different reasons) and recently announce lay offs at Mt Keith. There is a long road ahead for Nickel...

On the other side of the coin are the Gold Producers. Newmont, Barrick, Newcrest and Lihir Gold. These guys were doing okay under the boom conditions of the past few years. But as always, when everything else turns south Gold shoots through the roof.

As always there are purchases, acquisitions, new ventures and projects everywhere.

Somewhere in the middle is Iron Ore and Coal. Sure these guys have been hit with reductions in market prices recently, but they were enormously profitable industries in any case. Pricing is another issue that is different with these industries, but we will leave that to one side for now.

But just as Nickel has a long way to go, these other industries (Gold, Iron Ore and Coal) will soon find themselves under increasing pricing pressure regardless of what happens with the settlement price?

Why? projects coming online. I grew up in Iron Ore provinces, it is literally everywhere. And there are a raft of "juniors" who are entering the market, challenging pricing levels and threatening to create a panoply of providers instead of the few that are in the game now. Coal is similar, and Gold mines always spring up when the money is good.

The lesson here is to avoid the boom and bust of the past. Not on the pricing side, that is a little hard for any one company to control, but on the costs side.

When times are good resources companies tend to bloat up, filling themselves with additional staff, departments and functions within the company. When times are bad it all ends in tears with many promising careers cut short and general disarray facing the organization.

The lesson in all this is simple. Establish the minimum safe cost for maintaining mining assets from the word go, and then stick to it.

And the way to do it is to continually think as an entrepreneur thinks. Focus on what your business is, how you earn money. And push everything else out to the side. Out to where it becomes somebody else's problem, and where it can easily grow or shrink to match corporate requirements.