Opportunity Issue 95

ENGINEERING AND CONSTRUCTION
companies have started to use low-cost competitors as
a reference point for price setting. While those players
cannot yet compete with traditional companies on the
number of references, miners are seeing at what prices
similar equipment could be provided, escalating the
demand for tenders and negotiations. And now with
Covid-19 triggering a drop in the number of projects,
more companies are running to get a stake in a
shrinking market.
The combination of higher risk from turnkey
solutions, significant cost pressure from low-cost
players, and fewer market opportunities make
traditional mining equipment providers view capital
projects as an unprofitable business.
To counteract the escalating risk and pressure on
costs, many original equipment manufacturers (OEMs)
are de-emphasising their project business (engineering,
supply and construction of customised engineering
solutions) in favour of providing off-the-shelf products
such as mills and crushers. Successful OEMs generate
a stable high-margin aftermarket business from these
products. Key success factors for this business model
are having a large installed base of equipment in highwear
operations and being able to service the products
quickly and efficiently.
In addition to providing a stable aftermarket
business, a large installed base of equipment serves as
a credible reference and competitive advantage during
tenders and creates an opportunity to learn from the
performance of the installed equipment (machine
learning-based maintenance). Given the need for a large
installed base and a global network of service centres,
it becomes clear that scale is essential to success in the
product business.
Players that are late to the game, which means they
lack a significant number of references or those that
don’t have the resources to establish a efficient service
network to win in the off-the-shelf product business,
have to face their dependence on the unfavourable
“pure” project engineering business where there is no
physical product or aftermarket service. Their success
will hinge on a significant increase in capabilities to be
able to cope with the changing environment.
The most important skills for these players are the
ability to develop cost-optimised designs and frontend
loading of engineering resources to efficiently
source required materials and smoothly manage onsite
construction. This will allow them to compete with lowcost
competitors.
Mining engineering and construction companies
must address four strategic questions:
• What are the best technologies to bet on?
• Which differentiating short-term and long-term
factors can create a competitive advantage?
• What are the required resources to possibly gain
from the aftermarket?
• What skills can attract a positive cash flow?
Consolidate, or be acquired
M&A activities create a growing scale of competitors. Be
clear about your value proposition, market positioning,
strengths, weaknesses, opportunities and threats.
It’s better to have a clear strategy as opposed to
opportunistic moves with no clear direction.
Larger scale allows equipment providers to have a
large installed base of equipment and to sustain a global
network of service centres, both of which are vital to
generating a stable high-margin aftermarket business.
The recent M&A spike in the mining equipment
industry is no surprise.
Another reason for engineering solution providers to
increase their scale is the diversification of risk that is
inherent in single projects. Lastly, the relative impact
of one poorly executed project on a player’s profitability
decreases with scale.
In another interesting trend, Chinese players are
acquiring European companies to gain access to
Western markets. As a result, Western players will
face stiffer competition from China during tenders or a
potential acquisition from a Chinese competitor.
Covid-19 is causing economic and financial challenges
for many players in the industry, which can be a good
time to keep an eye open for potential acquisition targets
Mining engineering and construction companies must
address three strategic growth-related questions:
• What are the strategic options – either organic or
inorganic – to satisfy shareholders?
• Which partners can help bridge the strategic gaps,
and how can the company improve the perceived
value to these potential partners?
• Which attractive acquisition targets are struggling
amid the pandemic?
PUTTING STRATEGIES INTO PRACTICE
Each set of questions in the four strategies comes
with trade-offs that must be well understood before
making any decisions. But the strategy is about
more than deciding what to do. It’s also about clearly
communicating what not to do.
Defining the right strategies is a complex undertaking
that requires deep outside-in market expertise as well
as inside-out involvement from the C-suite and broader
management. Management buy-in is essential to a
successful implementation.
___ __
Be clear about your
value proposition,
market positioning,
strengths, weaknesses,
opportunities and threats.
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