LONDON/MELBOURNE Nov 26 (Reuters) – Mining companies, compelled to cut yet more costs as metal prices fall, are ratcheting up pressure on suppliers of everything from diggers to diesel, forcing them to agree to financing deals and even loss-making sales to secure business.
The mining sector’s huge supply chain — which builds equipment, maintains machinery and even feeds and clothes workers — has benefitted from the industry’s decade-long boom. But commodity prices have worsened almost relentlessly since their 2011 peak, thanks to weaker demand and growing output, and that has meant tough times for both miners and their suppliers.
Shares in mining equipment and services firms have plunged 22 percent this year, worse than the 13 percent fall experienced by metals and mining companies overall.
“Traditionally, the industry has taken all the risk and service providers have had a jolly good time. Now we demand that they partner in our risk,” said Mark Bristow, chief executive of Africa-focused gold producer Randgold.
Competition among suppliers has been stiff for the last few years, as mining firms began to come under pressure from investors to cut back. They have already slashed a total of $20-25 billion in costs, according to Ernst & Young.
But a further plunge in prices this year has made the pressure relentless — just at the time when the oil sector too is suffering, forcing its own suppliers to consolidate.
“For everyone, it is not life as usual anymore,” said Russell Hallbauer, Chief Executive of Taseko Mines. “If we are buying something for a buck and we think we can get it for 75 cents somewhere else, then we are going to do that.”
For service companies, the shift to value has been devastating, given the high cost of many of the supply deals involved, often to provide or maintain expensive equipment in remote areas.
“The company… finds itself competing more often on a pure price basis,” said Francis McGuire, president and CEO of Major Drilling Group International, one of the world’s largest drilling service providers, which swung into a loss in the first quarter.
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