excellent outlook

SDM having acquired Pac rim, is looking to expand into ore crushing services and expansion off shore..

The long term outlook is excellent

"THE mining boom is stretching contractors and engineers to the limit, but newly listed Sedgman, a coal handling and processing engineering company, is determined to chase new business, last week acquiring ore crushing company Pac-Rim for $65 million.
The acquisition positions Sedgman to diversify beyond coal into the metalliferous (non-coal) mining sector, where much of Australia's future mining growth is concentrated.

And with the numerous metalliferous miners being comparatively small companies, chief executive Peter Hay expects demand to be strong for the outsourcing of the specialised engineering services offered by Sedgman and Pac-Rim.

That demand is being underpinned by the scarcity of professional engineering skills in the market, and the rush by miners to get their projects into production to capitalise on record-high commodity prices.

"In boom times, these resources are more scarce and the opportunities for individual companies to grow that capacity are probably more difficult, so for organisations like ourselves that have the capacity, (it creates) more opportunities," Mr Hay told The Australian.

And the need for speed means clients are prepared to pay to get the job done. "If we can react quickly and have the service provided in a shorter time-frame than the client can, that will make a big difference to the client," he says.

Investors have certainly backed the company, embracing the old adage that when a mining rush is on, the guys that make money are the ones selling the picks and shovels. And there is no doubt the sector is booming, as a record $25 billion is being ploughed into mining and metal processing projects across the country.

After raising $40 million through a $1-per-share initial public offer of 26 per cent of the company, Sedgman shares traded as high as $1.45 on its debut in June. On the strength of the Pac-Rim acquisition, the shares have gained almost 25 per cent, hitting a fresh high on Friday at $1.66, capitalising it at $282 million.

Sedgman has about half the market in Australia for coal processing engineering services. But it is a mature market and investment in new mines is slowing. Sedgman is now looking for growth offshore, especially in southern Africa.

In that sense, Pac-Rim is a natural fit, and Mr Hay plans to build the business backed by Sedgman's larger balance sheet. He says that Pac-Rim had passed up opportunities to take on business from smaller miners with single projects because of the higher risk they posed.

"We have a different philosophy and capacity to take that risk and analyse that risk, and we believe that is part of the market that is available to us."

Pac-Rim is also attractive because all its business comes from the actual running of crushing operations, rather than simply providing services. That means its contracts are for the long term and offer higher returns.

Sedgman is now an operator at only one location, Blair Athol in Queensland, and Mr Hay is keen to grow that side of business. After the acquisition, operations will account for 37 per cent of Sedgman's earnings before interest and tax, up from 17 per cent. There are also opportunities to use Sedgman's engineering-skills base to extend Pac-Rim's business down the engineering service chain beyond crushing and screening and into processing and grinding.

But a key challenge for Sedgman in a tight skills market is recruiting and retaining the professionals that give it an edge. And its cashed-up clients, the miners, are out poaching like there is no tomorrow.

"Building our resources base is challenging in the current market ... it is still pretty aggressive in our sector," Mr Hay said.

So far, Sedgman is more than holding its own, boasting a 14 per cent staff turnover rate compared with what Mr Hay says is a 20 per cent average in the sector. And the ability to offer share rewards to staff is another reason for floating the business.

But it can't afford to be complacent. Sedgman has opened an office in Santiago in Chile, not to build work there but to access skilled engineers. "We have a core group in Santiago that manages a number of sub-contractors to provide us with access to engineering services," Mr Hay says.

The chief executive is also looking to acquire, or partner with, engineering consultancies in Australia.