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Aussie miners need IT transformation

Australia's mid-tier mining companies need to consider undertaking IT transformations to survive, with their best times likely behind them, according to PricewaterhouseCoopers.
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Written by Suzanne Tindal on

Australia's mid-tier mining companies need to consider undertaking IT transformations to survive, with their best times likely behind them, according to PricewaterhouseCoopers.

A research report from the consulting firm published last month said that although local mid-tier miners had been clocking up impressive financial achievements, they were likely to face tougher times ahead.

"While it seems the industry will continue the strong run of the past five years, several indicators suggest that the rate of growth may slow. Declining margins caused by rising costs, procurement constraints, power shortages and ongoing skills shortfalls have made the environment far more challenging," Australian and global mining leader for PricewaterhouseCoopers, Tim Goldsmith, said in a statement.

PWC classifies mid-tier mining firms as being those with a market capitalisation of under AU$5 billion. For example, Iluka Resources, Jabiru Metals, Jubilee Mines, Macarthur Coal and Mid West Coal would fall into this category.

Goldsmith said mining firms were scrambling to get minerals out of the ground while prices were high, leading to mergers and acquisitions to increase capacity.

Steve Woolley, partner in the firm's advisory practice told ZDNet.com.au that such conditions could often lead to IT revamps.

The drop in growth would cause miners to take a fine tooth comb to their costs, Woolley said, which until now hasn't been necessary. "They've really not had to look at their cost base much," he said.

The firms would turn to cost reduction actions such as introducing shared services and outsourcing, he said.

Those who have undergone multiple mergers would most likely have only integrated their front end systems, he said, meaning back office systems will still have a high level of duplication and cost savings are begging to be realised.

In one "big bang", consisting of standardisation of systems and then outsourcing of non-core capabilities, some miners could cut their total costs by 15 to 20 per cent, Woolley said, potentially enough to offset rises in energy and employment costs. Leaner companies looking for incremental improvements could achieve five to seven per cent per year, he said.

"You can't take for granted that you have a resource price that's always going to go up," he said. "It's all about having a cost base that's sustainable. It might be fundamental as to whether they can survive or not."

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