Caution is the Watchword for Metals & Minerals Project Activity

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Low commodity prices have put companies that supply equipment and services to the Metals and Mining Industry in a "wait and see" mode, according to exhibitors at the joint annual meeting of the Colorado Mining Association (CMA) (Denver, Colorado) and the Society for Mining, Metallurgy & Exploration (SME) (Englewood, Colorado). No exhibitor interviewed in Denver had an outright "gloom and doom" outlook, but the yearning for a return to higher commodity prices was evident in nearly all conversations.

"We just need people to spend some money," said a representative of a major engineering, procurement and construction (EPC) company. "But we know that's hard when prices are where they are now." This company said some of its best prospects were in Chile, a sentiment shared by another large EPC firm.

"We are seeing projects get stretched out a bit, and given a second look," said this other EPC representative. "Rather than commit $50 million to a capital project, companies are spending $300,000 to take a more detailed look. Analysis is cheaper than actual spending."

"Business is slow," said a third exhibitor, a major equipment provider. "Since companies aren't buying new equipment, we're trying to showcase the life-cycle benefits of maintaining the equipment they have. The watchword today is, 'lifetime cost of ownership.'"

Lower commodity prices have caused metals and minerals companies to push back on the cost of equipment and services, leading to a thinning of suppliers. Tires for the industry's largest haul trucks are down about 50% to about $45,000, reported one supplier.

"When those tires were going for $100,000 each, Michelin [Clermont-Lorrand, France] and everyone else thought they could get a piece of the action. But they're gone today."

"There's a lot of bidding going on, but not a lot of deciding," said a fourth exhibitor, who represents a major equipment supplier. "People are passing up some markets that have good prospects, but undesirable risk profiles--like Russia and Ukraine--to prospect for work in more established and stable markets, like Chile and the U.S." This source said extensions of existing mines are more likely than greenfield mines. "Commodity prices are weighing on everyone. We're hoping some things will pop up in 2016."

Not all exhibitors were revising their expectations downward. A representative of the 3M Company (NYSE:MMM) (St. Paul, Minnesota) said the company is at 100% of its sales target for the first quarter. However, he cautioned that the upcoming second quarter is when mining companies will have to make commitments for planned projects. So he's not prepared to declare victory yet.

An Australia-based exhibitor detailed how falling natural gas prices have helped one of that country's largest industries: powdered milk. "Powdered milk producers use a lot of gas to dry their product, and they're delighted with falling commodity prices," this exhibitor said. "Bigger picture, a slowdown in mining as well as oil & gas production is probably not all that bad--it takes some of the more questionable projects off the board."

Exhibitors, whose equipment and services lower operating costs, increase operating efficiencies and handle environmental remediation, said business was going well. Representatives from TDH Slurry (Humble, Texas) and Tons Per Hour Incorporated (Loomis, California) said lowered commodity prices are forcing mining executives to focus on projects that will improve throughput, lower costs and minimize environmental outlays. All of that plays to those companies' sweet spots.

Companies that sold equipment and services to coal mines were in a downbeat mood, as was to be expected. Diversifying into other industries appeared to be their main strategy for surviving in a contracting industry.

Environmental regulators, a familiar foil for this audience, came under fire at the event, both on the exhibit floor and the speaker's podium. "In contrast to mining companies, regulators never have a down year," cracked one speaker. "They're always growing. They never contract."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.