One of the world’s largest mining contractors sees scope to grow its North American underground business four or fivefold over the next five years, sans any acquisitions in that period.
Perenti leaders said at this week’s strategic outlook and briefing session they hoped to increase the circa-A$100 million-a-year Barminco underground hard-rock division to $400-500 million in the next “three … to five years” having identified a $4.4 billion pipeline of new work opportunities.
“North America is the potential growth engine for Barminco over the next decade,” contract mining division head Paul Muller told the meeting.
“We have a distinct [competitive] advantage in North America.
“We’ve come a long way in a short period of time … and there’s lots of reasons to be confident that we can grow, organically, a $400-500 million-a-year business over the next three to four to five years.
“That’s our default position.
“Clearly we’ll be alert to other opportunities: inorganic opportunities.
“But our default position is, as I’ve said, a very good organic growth market for us.”
Perenti CEO Mark Norwell said the company overall would pursue “programmatic acquisitions … and they will be moderate in scale”.
“We’ve been pretty overt with our target of getting leverage to sub-1.0 [net debt to EBITDA ratio],” he said.
“That’s an acceptable level for the investment community.
“We also then want the headroom to do M&A and organic growth.
“We’re not going to do a transaction that is so large that it is a challenge for the business and locks us in for a number of years.
“We won’t take our leverage to an uncomfortable level.”
Perenti had net debt of A$566.5 million at the end of 2022, up from $553.3m six months earlier, and 1.1-times net leverage on rising EBITDA. It has revised its FY23 leverage guidance down to c1.0x.
Smallish North America M&A opportunities that marry with Perenti’s operational and cultural needs are scarce. But actual competitive elements on the ground have been building.
The world’s largest underground hard-rock mining contractor, Redpath, controlled by Germany’s Aton GmbH, is based in Canada, while Peru’s Stracon (via Dumas), controlled by UK-listed Ashmore Group, and Canada’s Procon Mining & Tunnelling, owned by China’s CAMC Engineering, are aggressively pursuing growth in the Americas.
Perenti’s major rival, though, is fellow Australian underground hard-rock major, Byrnecut, which similarly sees North America as a growth market.
Muller said high-speed decline development with jumbos and efficient trucking had been shown over the past 30 years in Australia to be simpler, more flexible and lower cost than shafts and hoisting gear, but was still not commonplace elsewhere.
“Consequently, Barminco enjoys a substantial productivity advantage over our global competitors and can rightfully claim to be leaders in high-speed development,” he said.
“Increasingly, mine owners seek lower capital costs, flexibility and rapid access to ore and cashflow from truck haulage.
“High-speed development is a crucial factor in the success of a truck haulage operation.
“Perenti’s competitive advantage is [in] efficiently hauling material to surface via rapid decline development versus shafts and hoisting.”
While it’s fair to say Barminco’s “distinct” competitive advantage extends only as far as Byrnecut – in Australia, sub-Saharan Africa, Canada or anywhere else they line up against each other – the former has grown its annual underground contracting revenue from A$750 million in FY19 to circa-$2 billion this year.
That’s with two of seemingly many potential North American contracts in the bag.
“North America is the world’s largest hard-rock underground mining market,” Muller said.
“North American projects are larger and lean towards future-facing metals and minerals.”
Perenti has put its FY23 and FY24 revenue guidance at $2.9 billion and is aiming for $3b in FY25. FY23 EBITA guidance is now at $260-265m and forecast capital expenditure has been lowered from about $330 million to $290 million.
Asked about the potential to repeat a recent contract renewal with Newmont in Ghana that saw the gold major take on capital equipment ownership, allowing Perenti to focus on mine development and production over five years for A$630 million, Norwell said: “[We’re] happy whether it’s West Africa or any other part of the world where a client wants to take on the capital [burden and risk].”
Muller said a mine owner owning equipment “which we operate and maintain like we own it, is a good model”.
“In just about every tender submission we’ll make that proposal,” he said.
But it remained an option that was seldom taken up.