Australian-based Barminco’s chief executive officer Peter Stokes had just returned from client site visits in Africa and India when MiningNews.net caught up with him. The former region has underpinned Barminco’s international growth over the past decade. India, where the company is working with global zinc major Hindustan Zinc, presents exciting new expansion opportunities.

In Australia, where Barminco has built its leadership credentials in the A$2 billion underground hard-rock contracting services sector over the past 28 years, Stokes says favourable precious and base metals prices, and markets, have lifted the tender flow. The pipeline has new projects in it, as well as sites where miners that are back in growth mode are assessing the increased operational flexibility a bigger contractor gives them versus a smaller one.

Flexibility – or agility – has been a central theme for Barminco over the past four years. The company, majority owned by Gresham Private Equity and founder Peter Bartlett, took on new management led by Stokes to increase the robustness of key performance drivers, and internal processes, as the contractor strove to maintain its international growth momentum in the face of more challenging market conditions.

The company has continued to win new high-calibre work while maintaining strong long-term alliances in the gold, nickel and zinc sectors. This is not just on the back of pricing, underpinned by high productivity and efficiency markers, but also cultural alignment. Contractors must share the same zero-harm safety goals, and corporate governance standards, as leading mining clients.

Revenues shrunk over FY2014-15 and FY2015-16, as they did across the mining services market, but Barminco maintained sound margins and profits and has continued to pay down debt.

A recent US$350 million high-yield bond issue, enabling the company to repay existing bond debt and increase working capital, was strongly backed by Asian and North American institutions. Beyond the bond take-up, Barminco CFO Peter Bryant sees solid investor support for the company.

“I do see Asia as perhaps an untapped market for both debt and equity into Australian mining services and mining more broadly,” he says.

Stokes says safety and operational performance improvements have translated into material competitive advantage, particularly evident in major contract renewals in a highly competitive environment, but also new contract wins.

“We’ve reduced our recordable injury rate by some 60% in the past three years – a significant reduction – and we’re still working towards getting down to only minor injuries,” he says.

“We have a really strong focus on living the values of the business – safety first, safety foremost – and working closely with clients to eliminate risks around safety where possible. Some of that is through really strong engagement with the workforce; some through engineering out risk.

“We’re refocusing again on near misses, assessing the potential for significant incidents and looking at how we can engineer that out of the business. And some of that is technology and some is engineering. And that’s driving part of our innovation agenda as well.”

Barminco is working closely with major equipment manufacturer Sandvik on transferring more of the proven productivity and efficiency gains being seen around fleet management in surface mines, into the underground workplace, and the pair are also collaborating on an advanced predictive maintenance program. Barminco buys a lot of its underground equipment from Sandvik and has worked with its chief supplier to ensure it bypasses long delivery lead times that can impact smaller buyers, and projects, and that it gets the best price on new machines and parts.

“We are focused on innovating to reduce our cost base and so deliver more from each piece of equipment, or from each of our operators – setting them up to work as efficiently as possible,” Stokes says.

“We can’t get away from the fact that the downward commodity cycle of the last few years has certainly put pressure on all contractors; probably more on surface contractors than underground, but we’re not immune from pressure to continue to deliver more. And the only way to sustain or improve margins is to drive productivity and reduce your costs.

“So we’re driving the same hard agenda as our customers do to us with our big suppliers and OEMs to work closely with them, and find ways to be more efficient together. If we can provide Sandvik with an order book for 12-18 months they can lock a whole lot of slots in their factory for us and that helps them to build efficiencies into their operations as well.

“We’re certainly able to leverage that safety and operational improvement both with our current clients, as we continue to roll over contracts, and at new sites.

“In the last year we’ve renewed the contract at Sukari [in Egypt] for another five years; we’ve done the same at Rosebery and Dugald River [with MMG in Australia]; at Agnew [with Gold Fields in Australia]; and we’ve just extended our contract with Western Areas [at the Forrestania nickel camp in Australia].

“There have been quite a lot of contracts we’ve been able to extend based on driving productivity in the business. You have to have very good safety performance – it is non-negotiable with big clients – and you won’t deliver that unless you’ve got the right structure and systems in place, and the commitment from the workforce.”

Stokes sees an ‘Australian brand’ of underground mine development and operation being a definite plus in a world market in which resource owners face increasing cost pressures, project delivery delays, and skilled labour and capital constraints. The market still had few truly international mining contractors, with regionally focused players lacking the business scalability – underpinned by balance sheet and experience – to work with global miners across multiple jurisdictions.

Stokes says international tenders run by big miners often have only Australian companies on the final shortlist.

“We have demonstrated in Africa that we can drive a significant lift in the productivity of [client] operations,” he says.

“That is what many of the Australian and international companies we work for have done and there is certainly a desire that we’re seeing among large and mid-tier multi-national mining companies to bring that Australian know-how into wherever it is overseas they are planning to develop projects.

“From our point of view, we do a lot of due diligence before entering [a new market]. There are parts of the world where, on a first pass, we’d pretty much say no. There are a number of countries we wouldn’t work in.

“In others – parts of Africa, for example – where we have operated successfully for a number of years we are obviously well positioned to impart that local knowledge, and provide locally developed skills.

“We are focused on building a legacy of local skills where we work, which is not only increasingly in keeping with the wishes of governments that want to see foreign companies making that investment in training and leadership development, but also serves the business needs. We have Ghanaian, and Egyptian, expats, for example, working in Burkina Faso, Tanzania and India.

“That all starts with putting in strong experience from Australia and imparting knowledge to local teams.”

On the expansion front Stokes sees further scope in the contracting world for value-accretive M&A.

As indicated, he sees the Americas as a favoured growth market for copper – a commodity field in which Barminco would like to build exposure – and other metals, while Africa, Australia and Asia continue to be investment focal points for key clients.

Bryant says Barminco remains comfortable with its level of balance sheet gearing post the refinancing of bonds that were due to mature next year, and securing of a A$100 million debt facility. New high-yield bonds priced at 6.625% (versus 9% for the previous) won’t mature until 2022.

But he concedes any future public float – most likely through an Australian Securities Exchange listing – would probably require the company to reduce overall debt and a provision in the latest bond offer, enabling Barminco to use up to US$125 million of IPO proceeds to extinguish bond debt at a negligible exit premium, was a significant positive in this regard.

“In excess of 70% of our current bondholders are coming out of Asia and we found on our most recent visits to Hong Kong and Singapore that Australia appears to be seen by Asian money as a very safe haven, and there is significant capacity in the Asian markets,” Bryant says.