For Mining, Hit or Hiccup from Recession Was Determined By - Sector Check
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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For Mining, Hit or Hiccup from Recession Was Determined By

By Giles Lambertson

Article Date: 11-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.


Location, Location, Location...

The North American mining industry is emerging from an uneven recession. While some mining ownerships, equipment manufacturers and dealers in the U.S. and Canada recorded a deep downturn in 2009, others barely experienced a dip. All are hoping now for economic expansion, pegging their hopes on global markets and favorable decisions by regulators and government leaders.

One of the better places to have ridden out the tumbling economy was western Canada, says Mike Ranallo, vice president of sales and marketing at SMS Equipment's western office in Acheson, Alberta.

"Gold and copper and metal coal have kept western Canada hopping," said Ranallo. "That industry has held pretty strong, so we didn't feel the recession much, as bad as it was."

The Komatsu dealership benefited from proximity to several busy mining operations including the reactivated Grand Cache coal properties in the Canadian Rockies of Alberta, the expanding Gibraltar copper and molybdenum mine in British Columbia (BC) and the redeveloping Copper Mountain copper operation in BC.

These companies and others are poised to grow, Ranallo believes. "A lot of the contractors that do the work are now asking for quotes on equipment and services. In the next year or two, we'll see the expansion programs start up."

Taseko Mines Ltd. is opening yet another BC property, the Prosperity copper and gold mine. Expected to annually produce 100 million pounds of copper and 235,000 ounces of gold, it first must pass an environmental assessment. "The decision will come down shortly and will have a large influence on mining in British Columbia," Ranallo said.

And on equipment dealerships, he might have added. Prosperity's opening bodes generally prosperous times.

Yet it hasn't all been business as usual in Western Canada. The downturn slowed the mining of oil sands in northern Alberta. The U.S. is one of the largest consumers of oil from the sands, so when the economy sagged south of the border, so did production in northern Alberta. As a result, Ranallo experienced a decline in sales of Komatsu replacement trucks and shovels over the last year and a half.  The good news is that some operations reportedly are producing now at levels greater than before the recession.

The bounce-back is not as strong in Colorado. Though mines in the state produced almost 29 million tons of coal in 2009, that was four million tons less than 2008.

"In the mining business, 2009 was a very tough year," said Mark Johnson, sales manager at Power Equipment Company in Denver. "Coal mines were particularly hard hit."

Both sales and service of mining equipment suffered as coal mine operators cut costs wherever they could. This was not true of gold operations, it should be noted. The Cripple Creek and Victor Gold Mine, for example, is expanding to sell more of its product at current premium prices.

The recession stopped cold one Colorado mine. A molybdenum mine opening outside of Leadville that was projected to produce 28,000 tons a day was announced in December 2007 by mine owner Freeport-McMo-Ran. Leadville sits a mile higher than Denver and is home to the National Mining Hall of Fame and Museum, but hasn't had an operating mine of its own for a quarter century.

Unfortunately, there is no joy in Leadville: Freeport reversed itself in December 2008, blaming falling prices for molybdenum. When the project was halted, Johnson's company lost out on millions of dollars in equipment sales. There is talk again of opening the mine, but Johnson notes the mining company is expected to utilize company equipment sitting idle at other mines.

"We are impacted significantly," he said.

The Power Equipment sales executive seems genuinely discouraged by what he perceives as an "anti-fossil fuel attitude" in Washington. He doesn't see full recovery for the coal mining industry until decision-makers in the nation's capital adjust their attitude.

"Recovery is absolutely contingent upon America developing a rational energy policy," he said, "a policy that lets mining companies know what their long-term opportunities are, and lets companies and businesses know where they are going to be in terms of energy costs."

Johnson's view is echoed by Carol Raulston, senior vice president for communications at the National Mining Association. "U.S. coal mining is very concerned about the current regulatory agenda for coal," she told CED magazine. "The U.S. is blessed with an almost unimaginably abundant reserve of energy in its coal reserves. We are hopeful that policies will be adjusted to ensure we derive the full benefit of those reserves."

In the construction aggregate mining sector, production also fell in 2009, a dive parallel to that taken by the construction industry. All 50 states have producing construction sand and gravel quarries, with Texas, California and Arizona holding the top three spots. Yet 100 companies went out of business or merged in 2009, and the value of their operations fell to $6.2 billion from $7.6 billion the year before, according to a U.S. Geological Survey annual report.

The crushed stone story is similar, though with a twist: The total value of stone produced fell a billion dollars in 2009 from the year before – with 150 more companies producing it. Spreading less revenue across more companies is not the best possible economic scenario. An Economic Cliff

"The mining industry is very cyclical," said Clayton Walker, chief operating officer of Kennecott Utah Copper. Even so, the cycle's swoop in 2009 was something else.

Kennecott Utah Copper operates 107-year-old Bingham Canyon open pit mine, which has produced more copper than any other mine in the world. Falling into the gigantic pit is akin to what Kennecott executives say they experienced in 2008.

"I've seen some other economic troughs," said the 15-year mines veteran, "but this one came very, very quickly. Instead of a general decline, it was an abrupt hole. The change in the price of copper in just over a twomonth period was very significant. Our biggest concern was that no one knew how far it was going to fall. We wondered, 'Where is this going?'"

A chart of the price fluctuation for the period indeed resembles a cliff, with the price more than halving as demand for copper plunged. Walker says Kennecott's ability to react quickly staved off a budgetary crisis, but challenges remain, nevertheless.

"The best way I can say it is that all of our operations around the world are at full production," Walker said. "Going forward, we are going to see some price volatility, and we are not out of the woods yet – but it is much better than the last few months of 2008."

Kennecott – a division of Rio Tinto – has announced plans to push back the south wall of the Bingham Canyon mine and sink the pit another 300 feet to reach an estimated 700-million-ton ore deposit. The mine's size already is Herculean. Deep enough to swallow up two (formerly named) Sears Towers stacked end to end, the mine is nearly three miles across. Kennecott's 70 haul trucks rumble up and down Bingham Canyon mine roads which, if straightened out, would extend for 500 miles.

Walker notes that the Bingham Canyon expansion is typical of the capital-intensive and long-term nature of mining, which is aggravated by economically puzzling times. "We typically have to start stripping seven years before we get down to ore," he said, "so our planning horizon is quite long. Everyone is looking for projects. What is keeping us from doing more is uncertainty in the economy.

"We think the future is positive over the long run," he added, "but in between, there are going to be some ups and downs."

At Molycorp Minerals, the view only is up. Molycorp is a Colorado firm with a single California mine. However, its mine at Mountain Pass is the only one in the Western Hemisphere producing rare earth element minerals. The 17 rare earth element (REE) minerals are not a recent discovery, but they are increasingly valuable to modern technology. Think superconductors, hybrid car batteries, lasers and cathode ray tubes.

The Mountain Pass surface mine opened in 1952 and produced 20,000 tons a year for 50 years. To isolate the elements more efficiently, the previous owner of the mine reformulated the process and came up with a "truly groundbreaking" chemical process, says Jim Sims, Molycorp's director of public affairs. Instituted by Molycorp, the process squeezes 3,000 tons a year of REE minerals just from old tailings.

Molycorp will build a $250 million processing plant over the next two years. The new plant and reopened mine will deliver the full spectrum of REE production, from oxides to metals and magnets. It annually will turn out a minimum of 20,000 tons of the nine most valuable minerals, more than enough to satisfy domestic demand.

"The U.S. will completely flip from near 100 percent dependency on China for rare earth minerals to virtual 100 percent independency," Sims said. To date, just 55 of the 2,200 acres at Mountain Pass have been disturbed.

Molycorp nearly has a monopoly on REE mining in the country. Most identified sites contain 2 percent ore or less, with 4 percent being the minimum developable concentration, according to Sims. Mountain Pass's ore is rated at more than 8 percent, one of the more concentrated deposits in the world.

As for the impact of the recession on the mine's timetable, there was none, says Sims.

Bucyrus International knows the feeling. Fortune magazine calls the Milwaukee-based manufacturer one of the world's 100 fastest growing companies, citing the company's growth in the troubled year of 2009. In February this year, the 130-year-old company even acquired Terex Mining division and strengthened its position in the mining market.  With 70 percent of its business abroad, Bucyrus was minimally affected by interrupted coal production in the Powder River Basin of Wyoming or in the metallurgical coalmines of Appalachia. Its global presence also lets it welcome the world's new economic powerhouse, China. While some U.S. mining firms and companies are wary of China becoming either a powerhouse industrial competitor or a usurper of commodities, firms like Bucyrus see only the bright side.

"China is going to be great for us," said Amy Malingowski, senior coordinator for global communications at Bucyrus. "It has a lot of people who are going to require a lot of goods and services for which our equipment helps produce the commodities. It is a very positive thing for a lot of our product lines."

Chinese mining equipment generally is a generation or two behind Western equipment, a lag that Bucyrus and other manufacturers hope to remedy. "With their high demand for commodities, the bigger mines want to get it out of the ground as fast as they can," noted Malingowski.  Furthermore, China's rapidly growing market for commodities can't be met entirely by domestic Chinese output, which means commodity producers in Australia and elsewhere also will need new equipment. Some Lessons

The recession officially is over, though recovery is not uniform. Because bad times can be instructive, some management lessons have been chalked up in the last two years.

"I think people learned to be more diverse," Mike Ranallo said from his western Canada redoubt. "We are a full-line Komatsu dealer and we all know the construction division went down in the recession. But the mining cycle stayed strong and profitable for the period. 'Get diversified' is the lesson."

Mark Johnson at Power Equipment in Colorado says he learned something about contractual obligations. "We had contracts in place that were noncancellable but we had to void them," he recalled. "We had to work through that. In the future, when they sign noncancellable contracts, they will understand in spades what that really means."

The sudden drop in the price of copper reaffirmed for Kennecott COO Clayton Walker how important it is to be in control of your costs. "One of the other lessons is to know just what your strategy is. Are you staying true to your strategy? You have to understand where you want to go long term."

These realizations and others guide industry leaders as they continue to dig their way out of this recession. Mining equipment expenditures were down perhaps 20 percent in 2009 from 2008, when $7.6 billion was spent on new and used equipment, according to the National Mining Association.  Caterpillar's summer announcement of new investment in U.S. mining equipment plants could signal that an upward cycle has begun in earnest.

Giles Lambertson
is a retired journalist and freelance writer whose interest in the construction industry goes back to his carpentry days. He can be reached at geepeela@yahoo.com.

The Never-Ceasing Pursuit of Mine Safety
By Giles Lambertson

Working on giant loaders eight stories high, or in tunnels under millions of tons of rock and earth next to rumbling conveyors and rock-grinding machines is, in a word, hazardous. "Safe mine" is an oxymoron, as any veteran miner readily admits. Still, equipment manufacturers, mining associations and most mining companies keep battling to protect the men and women who go underground or work the slopes and flats of giant surface mines.

"Fatalities are not an inevitable consequence of mining," Joseph Main, the U.S. assistant secretary of labor for mine safety, declared in September. "We must all work together to send miners home safe and healthy after every shift."

In October, the world reveled in sending 33 miners home from Chile's San Jose Mine where they had been entombed for 70 days, the record for survival underground. On the other hand, an explosion in April at West Virginia's Big Upper Branch Mine killed 29 miners, the largest death toll in a U.S. mining accident in 40 years.

That tragedy ended two successive years of record-low numbers of American mining fatalities – bottoming out at 34 in 2009. So far, 57 have died in 2010. Everything is relative, of course. In China last year, some 2,600 miners died at work.

"We are not satisfied with our current safety performance despite the overall improvements that have been made over the last decade in both nonfatal and fatal injury rates," said Carol Raulston, senior vice president for communications at the National Mining Association (NMA).  "Our membership is dedicated to achieving zero injuries in U.S. mining."

Mining equipment is part of the solution. Technology is credited with helping reduce fatality rates through machinery that increase productivity and operate more autonomously, as well as in innovative safety devices such as roof bolters.

Manufacturers sometimes roll out equipment whose chief advancement is in the realm of safety. And while, yes, safety sells, the less cynical perspective is that equipment manufacturers and dealers truly are partners with companies – and individuals – that operate their equipment. This mutually beneficial partnership led to an alliance three years ago between the U.S. Department of Labor's Mine Safety and Health Administration and the Association of Equipment Manufacturers.  Its aim was to "provide miners who operate and maintain equipment with information, guidance, and access to resources that will help protect miner health and safety."

"The mining industry as a whole has stepped up its game," said Clayton Walker, chief operating officer of Kennecott Utah Copper, where the current all-injury-frequency rate is considerably less than the national average for mining. "Ergonomics is light years ahead of where it used to be. The ability of getting on and off the equipment is much better. There's no one single thing, but we are pushing in the right direction and still can do better in making the equipment safer."

Equipment fatalities range from the horrific entangling of human limbs and moving machinery to the simple "slip-trip-and-fall" accident. The National Institute for Occupational Safety and Health has produced innumerable surveys and studies closely examining the many hazards of mining, like continuous mining and tramming, as well as rudimentary issues such as the ergonomics of cramped work stations and placement of ladders on multistory equipment. Frequently, manufacturers have responded with safer models. 

"Clearly significant strides have been made in equipment, both in surface and underground mining, that have led to big safety payoffs," acknowledged Raulston at the NMA. She believes that individual mine operations could benefit from the same kind of fine-tuning scrutiny. "Much as product manufacturers weed out imperfections in their products by making constant adjustments, U.S. mines that have taken a risk assessment approach have been successful in weeding out practices and behaviors that cause injuries. We are particularly concerned that historic causes of accidents that had been trending down for several years are now re-emerging. We've brought those to the attention of our membership for increased diligence."

In the end, safer machines and safe standards of mine operation are rendered moot when regulations and operating guidelines are ignored. In 2006, Mine Safety and Health Administration rescue team member Ron Hixson reached the only survivor of a mining accident in a West Virginia mine where 12 others died of carbon monoxide poisoning. Hixson speaks from experience when he says more regulatory language is not the answer.  "We have the regulations to deal with the situations we have," Hixson told an interviewer shortly after April's Big Upper Branch Mine accident. "What we need is to enforce the regulations, and for companies to comply with the regulations – not only when we're there, but when we're not there."
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