Canada’s mining industry has its ups and downs, but a positive value proposition will always bring workClick image to enlargeby Andrew Brooks

Canada’s mining industry has its ups and downs, but a positive value proposition will always bring work

The phrase “hewers of wood and drawers of water” is often used to describe the natural resources strengths of the Canadian economy. It’s accurate enough as far as it goes, but to describe the nation’s livelihood more accurately, the words “and miners of metal” should probably be added.

According to “Facts and Figures 2015,” published by the Mining Association of Canada (MAC), mining and mineral processing employs around 375,000 people across Canada, in one of the best paid industrial sectors in the country. Mining contributed $57 billion to Canada’s gross domestic product (GDP) in 2014 and accounted for 18.2 per cent of the value of Canadian goods exported that year.

There are more than 3,700 companies in Canada’s mining supply sector and they benefit from the fact that Canada’s mining industry is also a major, respected force on the world stage. According to Natural Resources Canada, Canadian mining and exploration companies had a presence in 107 countries in 2013.

MAC notes that Canada ranks in the top five countries for the production of 14 major minerals and metals:

  • first in potash;
  • second in uranium and niobium;
  • third in cobalt, aluminum, tungsten and platinum group metals
  • fourth in nickel, salt, sulphur and titanium
  • fifth in diamonds, cadmium and gold.

But like any resources sector, mining in Canada is also subject to market fluctuations and business cycles, and these can make business tough for mining companies and their suppliers.

“Since 2012, I would say we’ve been at what I consider the bottom of a business cycle in mining,” says Ryan McEachern, managing director of The Canadian Association of Mining Equipment and Services for Export (CAMESE), which represents Canadian exporters of mining equipment and services.

McEachern believes the downturn has been exacerbated by the fact that, globally, a lot of major, billion dollar capital projects have been coming on-stream, eroding demand and metals prices. This has made mining companies very cost-conscious and, as happens in any market, that mindset has a direct impact on the supply chain.

“Many of them have a lot of debt on their balance sheets and adopted an austerity approach,” McEachern says. “They started slashing capital projects–either stopping them if they were already underway, or taking ones that were still planned off the strategic plan. It was all about reducing debt and reining in costs, which didn’t help the suppliers. They went after the suppliers pretty aggressively. If you’re in the mining business, at this point you’re getting squeezed pretty hard because that’s the easy way to lower your costs.”

Market patterns are nothing if not cyclical, and from his vantage point, McEachern says there are now signs that a turnaround may be brewing. Metals prices have been on the rise, and as they climb, companies that squeezed every possible efficiency out of their operations during the lean times have been enjoying a boost to their profit margins.

“You can see it in the financings,” he says. “You’re starting to see money deployed by banks to support capital projects. You’re starting to see capital projects get back on to the books at least in terms of planning, so that’s a positive sign. A lot of companies have been starting to see an uptick in tender activity and quoting.”

The Mazak Quick Turn Nexus 250 turning centre at Rector's machine shop.Click image to enlargeHowever that doesn’t equate to a smooth return to the good old days. Debt-conscious managers are also using much of their newly freed-up cash flow to pay down corporate debt. “The money is coming up but a lot of it’s going to clean up their balance sheets,” McEachern says.

In spite of the hiccups, one supplier that’s been doing well in mining is Rector Machine Works, which does machining, welding and fabrication for a range of industries at its two facilities in Ontario. In 2008, says president Dave Rector, the company expanded its mining sector work following a slump in the forestry industry.

“There are a lot of similarities between work for forestry and for mining,” Rector says. “Changing a bearing, changing a belt or a shaft–the work’s pretty similar. Our guys here are confident in their abilities, so the transition wasn’t hard for us.”

Another similarity between the two is the high rate of wear on equipment. “This is hard-rock mining,” Rector says. “You can make something for them that’s bulletproof, but when it’s in the mine or the open pits it’s going to get real abuse.” Part of the company’s secret to success in mining is to be innovative in finding ways to lower downtime so that mine operators can keep their facilities productive 24/7. But it also means being willing to expand the scope of work when it’s called for.

“We try to be a one-stop shop for our customers,” Rector says. “For example, we now do a lot of relining on Caterpillar injection boxes through a couple of our customers, to the point where we’re doing engineered, certified rebuilds.”

The Hypertherm plasma cutting system in action at Rector's shop.Click image to enlargeIn doing the work, Rector always looks for ways to make the equipment tougher. “We try to increase the lifespan of these boxes by at least half. If they’re getting 8600 hours out of them now, well, I want them to get 12,000. We want to push the envelope to see how good we can be in order to decrease their downtime.”

In 2012, Rector began a program of investment in new equipment to increase its capabilities. It made a deliberate choice not to follow the competition, but adopted its own strategy. “We noticed that a lot of companies were going ‘bigger and badder’ with new CNC machines,” Rector says. “We could have done the same, but if we did that we were also going to have to go out and drum up the business to support the investment. We thought it made more sense to focus on becoming more efficient with the work we already had in-shop.”

The company took on a 20 X 40 ft Hypertherm burning table and two smaller-scale CNC machines–a Mazak Vertical Center Smart 430A machining centre and a Mazak Quick Turn Nexus 250 turning centre. The efficiency turnaround was an impressive 15-18 per cent, as Rector explains.

“With the Mazak dual-spindle machine, the operator doesn’t have to stop the machine to flip the part around. You just grab it with one, grab it with the other and there’s no need to stop the machine. If we can cut four or even two minutes off the time, that’s where we get that percentage improvement. So the smaller Mazaks have really worked out for us.”

Better times ahead?
Even at the bottom of the slump, companies that were making spare parts for mining customers continued to do well as customers who couldn’t afford new equipment maximized the useful life of existing assets. “I call it the duct tape method of operating,” says McEachern. “But it only works for so many years, and then critical assets have to be replaced.”

Areas where new assets are perhaps in greatest demand include high wear mobile equipment, and equipment used at the mining face–also a high wear environment. “Companies know that if they have a critical failure in that environment they’re going to have a real problem with their whole operating process,” McEachern says.

Naval brass wear liners machined on Rector's Takumi Seki CNC vertical milling centre.Click image to enlargeThe other major opportunity for suppliers to the mining sector is in the area of efficiency and cost savings. “If you can show mining companies that you can lower their energy costs or increase their productivity, there’s business to be done with them, because that’s exactly what they’re looking for,” McEachern says. “But you need a clear ‘line of sight,’ by which I mean you have to have a proven product, not just an idea or some R&D project. You have to be able to show them that it’s actually in use somewhere, delivering the improvements and efficiencies. You’ll get business that way.”

The mining supply chain is extensive and diverse, and it’s hard to predict where exactly the next surge in demand will first make itself felt. But McEachern says that in the initial stages of any turnaround, it’s natural to expect that the first investments will come in mining infrastructure.

“As things turn up, you’re going to start seeing capital projects be built, and with that comes all the infrastructure. There’s going to be a whole growth component in the build, as opposed to the operational piece. The operational piece is always there but this will be at the forefront. We’re starting to see the financings happen, so we expect to see a lot more activity in 2017.”

CAMESE data show that there are about 80 different mining operators in Canada, managing about 4000 active projects. Of those, McEachern says around 470 are actually ready to go into production now. And mining companies are definitely looking at smaller suppliers.

“What we’re hearing from the executive level at fairly large companies is that they’re looking for the agility that a larger supplier can’t offer them,” McEachern says. “So don’t think that because you’re a small company you don’t have a chance against the big multinationals competing with you. That’s not the case anymore.”

Mining companies are eager to do business with anyone who can offer a benefit–and these days the main benefit they’re looking for is lower energy cost and increased productivity. “Even if you’re a small supplier, your solution might provide that.” SMT

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