Management reviews > Review of operations

 

1: Haul road into Phoenix Nickel Mine Pit, Botswana, 2: Iduapriem gold mine, Ghana.

     
  2009  
Rm  
2008  
Rm  
Revenue     3 016,4     2 397,1    
Capital expenditure     1 578,7     782,9    
Major markets     Southern Africa     Southern Africa    
Employees     4 010     3 700    

  • Strong revenue growth of 26% to R3,0 billion.
  • New contracts secured in South Africa and West Africa.
  • Operating profit increased to R314,3 million, an improvement of 66%.
  • The operating margin widened to 10,4% from 7,9%.
  • Capital expenditure of R1,6 billion was incurred to equip Moolmans for new contracts.
  • Two year order book of R6,4 billion.


Operating environment

Against the trend of falling demand for resources resulting from the global economic downturn, Moolmans enjoyed record levels of deal flow during the year in spite of a market characterised by less consistent opportunities, as well as longer decision-making and evaluation processes. With these adverse market conditions, contract mining is becoming more attractive for mining houses because of the inherent flexibility and lower capital commitments associated with outsourcing to a third party.

Moolmans’ philosophy of spreading client engagements across a number of commodities and currencies is paying dividends in the present environment:
  • Gold has held up well, and remains a commodity to which Moolmans will strategically increase its exposure.
  • Demand for uranium is benefiting from increased demand in the nuclear energy sector which is gaining global favour as an environmentally responsible energy source. The sector will continue to present good opportunities.
  • In South Africa, coal prices have been negatively affected by the economic downturn and the stronger Rand which is putting pressure on local coal exporters. The strain is inevitably translating to the contract mine service providers and although the commodity represents a small portion of Moolmans’ overall portfolio, it is an area which the operating group will continue to monitor.
  • Base metals appear to have bottomed out and the market is showing signs of improvement.
  • Platinum will continue to be tracked carefully.

Following a period of heavy investment in capital equipment during the construction and commodity boom in South Africa, there are indications of relative over-capacity in earthmoving and mining equipment and consequently Moolmans is seeing evidence of tighter pricing as service providers are compromising on price to support utilisation.

Outside of South Africa, Moolmans’ track record of operating under challenging conditions in remote areas is a competitive advantage. Moreover, management carefully assesses country and other risks, which are priced into the contracts.

Safety

Moolmans has embarked on a step-change to further promote excellence in safety and occupational health practices throughout its business. The operating group achieved its 2010 DIFR target of 0,16 in 2009 and has set the objective of a 0,10 DIFR which is considered to be world-class.

Performance

Against a challenging backdrop, Moolmans performed ahead of expectations, showing revenue growth of 26% to
 R3,0 billion (2008: R2,4 billion), as recent deal flow came to fruition. Operating profit increased by 66% to 
R314,3 million (2008: R189,5 million), reflecting an improved operating margin of 10,4%, compared to 7,9% in the previous year. Depreciation for the year amounted to R314,4 million (2008: R205,7 million).

With its strong growth in revenue during the year, Moolmans also faced some challenges, as the additional skills which were required to service the new contracts were in short supply. This situation was exacerbated in South Africa by an exceptionally rainy summer and late procurement of equipment. Moolmans started to address these challenges by spreading its core of long-standing and experienced team members across the new projects, to ensure that new workers on these contracts were trained and up-skilled without undue delay. As a result of these issues and tighter pricing, the South African operations performed below expectations, although results in the last quarter were much improved.

During the year, Moolmans made further capital investments amounting to R1,6 billion (2008: R783 million) to increase its capacity in line with the new contracts concluded during the year and the ongoing recapitalisation of its equipment fleet. New contracts included two new five-year gold contracts at AngloGold Ashanti’s Iduapriem Mine in Ghana and SAG AngloGold Ashanti’s Siguiri Mine in Guinea, as well as a number of coal mining contracts in South Africa.

Having caught up with historic under investment Moolmans has improved the average age of its fleet which will enable the Company to further deliver on its commitments and increase its margins.

Although Moolmans enjoyed strong deal flow during the period, the operating group was not completely immune to the downturn in commodities. Its contract at the Mowana Copper Mine in Botswana was terminated when mining operations became unviable and were put into care and maintenance. This was particularly disappointing because Moolmans had made positive strides in localisation and training in this part of Botswana. This equipment has subsequently been redeployed to other contracts and
no material loss was incurred.

Objectives

Moolmans’ strategic imperatives are focused on growth, improving profitability and diversifying its revenue streams.

In order to improve margins, Moolmans will continue to focus on growing its contract base to further enhance the utilisation of its fleet of heavy equipment. The operating group will concentrate on opportunities which will further diversify its exposure across commodities, countries, clients, currencies and climates, with positive risk/return payoffs.

While Moolmans’ contract base is well diversified, the operating group has identified opportunities to extend its activities within the mining value chain to introduce further diversification into its business model. Although its activities are currently niched within the contract mining value chain, based on its skills and experience, there is potential to extend its services, thereby enhancing Moolmans’ ability to accelerate returns and provide additional value to its clients.

Continuous improvement efforts are integral to Moolmans’ strategy in terms of its ongoing initiatives to fine-tune equipment efficiencies and maximise utilisation.

Training and development remains a priority and is a core component of Moolmans’ objective to be the “Contract Miner of Choice” in Africa. A climate survey conducted in 2009 showed steady progress in aligning the culture and values of employees with those of Moolmans, resulting in a lower staff turnover at the professional and technical levels.

Outlook

During its 40-year history, Moolmans has demonstrated its ability to trade through contracting markets and the current environment will be no exception. With its two-year order book of R6,4 billion, Moolmans is positioned to succeed despite potentially difficult economic times.

Brian Wilmot
Managing director: Moolmans

1: Block being prepared for drill and blast at Smaldeel, Mpumalanga, 2: Siguiri
Gold Mine Pit, Guinea, 3: Komatsu PC3000 loading a Cat 777F, Sishen.