A pick-up in mining brownfield investment underpins Weir Group’s positive outlook for its large mineral processing equipment business, CEO Jon Stanton said on the company’s latest results call with analysts.
“That’s the sweet spot for Weir,” Stanton said.
Citing Rio Tinto’s planned US$920 million Kennecott copper expansion in Utah, USA, the $1.2 billion Antofagasta Minerals/Barrick Gold Corporation proposed spend at the Zaldivar copper operation in Chile, Northern Star’s recently confirmed $1b Kalgoorlie mill expansion, and Vale’s new $2.5b iron ore investment in Brazil, Stanton said mining industry spending on large greenfield projects was slow, but “we are seeing a pick-up in brownfield expansion activity which, to me, is really encouraging and underpins our view of the outlook from here”.
“We do have a positive view on high levels of activity in the second half of the [current] year. Commodity prices over the past few weeks have nudged up, which sets a nice tone as we go into the second half of the year.”
Scotland-based Weir reported total revenue of £1.3 billion for the first six months of 2023, up 19% year-on-year. Orders increased marginally yoy in the period to £1336 million.
Net profit climbed 37% yoy to £126m.
“Since becoming a mining-focused group back in 2021 Weir has been on a journey of continuous margin expansion,” Stanton said, adding the company was on track to achieve its 17% operating (EBIT) margin this full year. It was aiming to go “well beyond 17%” in future on the back of £30m of planned run-rate savings by (and through to) 2025, “very nice operational leverage” from an expanded installed base of original equipment (OE) and aftermarket growth, and price realisation.
“I expect the price-cost environment will moderate next year, so we’re more likely to be in a position of low single-digit price increases next year,” Stanton said.
“It does depend on the inflationary environment. But as you’ve seen over the last few years we’ve done a great job across the business of maintaining our gross margins.
“We feel very comfortable about going beyond 17% next year.”
Asked about an above-guidance OE contribution in the sales mix this year, and potentially in the second half, Stanton said selling new equipment and broadening the OE installed base would always be welcomed by a manufacturer.
“I’ll take that every day of the week,” he said.
Stanton and outgoing Weir CFO John Heasley, who is joining Anglo American Corp as finance director, agreed aftermarket gross margins were circa-three-times those of OE.
“OE is good for us,” said Heasley. “It creates larger future annuities for the business.”
“We’ve got the tools within our box to be able to manage margin.”
One of those tools is increasing technology sales. Weir’s mining equipment peers say sensor, automation, digital and other technologies are increasing their product differentiation and market penetration, and opening up new aftermarket opportunities.
Stanton said global decarbonisation was driving growth in demand for critical energy-transition metals and producers’ focus on more sustainable extraction and processing techniques necessitated the adoption of new technologies.
“The long-term structural growth in mining, and our technology led strategy, underpins our ambition to deliver through-cycle mid-to-high single-digit percentage revenue growth,” he said.
In the first half of 2023 Weir made “excellent strategic progress”.
“We increased our investment in projects on our technology roadmap, including the field trials of our proprietary ore characterisation technology, and built our sales pipeline for sustainable solutions, including for our Redefined Mill Circuit and Motion Metrics offerings,” Stanton said.
“We saw very encouraging interest from customers [in the] Redefined Mill Circuit, secured orders from large copper mines in South America for coarse particle flotation [CPF] pilot circuits, in partnership with Eriez. Through this strategic alliance we have integrated CPF technology with our latest generation Warman mill circuit pumps and Cavex cyclones to provide significantly improved recoveries and process efficiencies for our customers.
“Once operational in the third quarter, these plants will be important reference sites for the industry.
“We also launched our new, proprietary digital intelli-solutions for pumps, cyclones and HPGRs which, coupled with our Synertrex 2.0 platform, captures critical machine health data and enables remote condition monitoring.
“Field trials of our proprietary [in mine] ore characterisation technology were successfully completed during the first half. Tests enabled critical data to be collected and validated the performance of the technology in a real-world environment.
“Development has progressed to the next phase which is focused on exploring novel illumination technologies to enhance minerals characterisation.
“New Motion Metrics capabilities and functions were launched during the period, including an upgraded lens cleaning solution that enhances machine vision capability and improves response times.”