Market Drivers, Technology Trends
Lars Josefsson, president and CEO of Sandvik Mining and Construction (SMC), and Björn Rosengren, president of Atlas Copco Construction and Mining Technique (CMT) and senior executive vice president of Atlas Copco, identified a number of significant market influences and trends affecting their businesses, not least the continuing consolidation and globalization of mining entities.

Currently driving the mining equipment market are generally high levels of commodity demand and mineral exploration activity, while worldwide investment in infrastructure is fuelling an overall increase in sales of construction equipment. Customers are increasingly demanding solutions rather than machines and turning to supplier provided maintenance with performance guarantees.

As well as a swing from surface to underground mining in terms of output, technical trends include the development of intelligent products to enhance productivity as well as further mechanization and automation, a focus on ergonomics and industrial design as well as greater use of modular machine construction, the use of continuous mining systems instead of drill-and-blast, and the use of flexible and mobile units, for example in crushing and screening. Rosengren mentioned that CMT is working with Outokumpu’s Kemi mine to implement automated loading and hauling, which presumably means that Atlas Copco will join Sandvik and Caterpillar in offering this technology. According to Josefsson, there is a growing management focus on total cost optimization.

Rosengren highlighted the importance of aftermarket activity. Rising customer demand for supplier support has made this a huge operation, with the aftermarket accounting for between 45% and 57% of CMT revenues in recent years. Within the overall scope of aftermarket provision, Atlas Copco has been developing a key customer strategy, he said, aimed at providing the organization needed to support these companies and take more responsibility for their equipment.

Josefsson drew attention to the growing shortfall in the availability of skilled people, which he said is now a universal limiting factor. Not only are construction and mining companies and their suppliers competing with each other for similarly skilled and qualified people, but this pool is itself being limited by competition with other branches of industry. Mining has been losing out in this battle to attract would be engineers and technicians and the industry must renew efforts to show young people its positive side. Sandvik has adopted the motto “Retain, Train, Recruit” and has taken the practical steps of creating Training Academies and the Sandvik International Mining School.

Operating Strategies
While Sandvik Mining and Construction will celebrate its first 10 years in business in 2008, parent Sandvik was established in 1862. The business philosophy adopted at that time—to develop and supply innovative niche products through direct contact with customers— has been maintained by Sandvik and is the basis of SMC’s operations as well, said Josefsson. Over the years, worldwide reach has also become a vital strategic element and the Sandvik group employed 42,000 people in 130 countries by end 2006.

To meet increased demand from the construction and mining industries, SMC has made major long-term commitments: it has undertaken a major restructuring to create a more customerfocused organization (as discussed in E&MJ’s October Scandinavian Report), made strategic acquisitions such as the mobile crushing and screening equipment companies Extec and Fintec, adopted a strategic sourcing policy, launched a program of capacity expansions as well as increasing the flexibility of manufacturing capacity, and improved product availability. As a result, after two difficult first years, SMC has become a world leader in mining and construction equipment supply, trebling sales, doubling the number of employees (to 14,600) and achieving global product supply and support—with over 4,000 service engineers, said Josefsson.

The Atlas Copco group also has great reach, serving more than 150 markets worldwide, employing 25,900 people in 2006. CMT has continued to pursue the strategy adopted at the start of this decade, said Rosengren, whereby operational stability is the basis for profitability and profitability is the platform for growth. The growth target remains a rate greater than 8% per year, with the main focus on organic growth. However, acquisitions have been and will be made to increase geographic coverage and improve product range logic.

Rosengren pointed out that the surge in Chinese economic activity has validated CMT’s growing involvement in manufacturing there as well as having 41 sales offices across the country. Atlas Copco is investing at three new factories and extending two existing operations, including the one at Beijing. Previously joint ventures with Chinese partners, these operations are now wholly-owned. In India, where Ingersoll Rand has established a strong presence, CMT has 14 sales offices and is also building a new factory at Nashik that will replace a number of smaller operations. Russia has been fertile ground, with over 40% annual growth in demand for equipment through the last seven years, such that in 2000 Norilsk Nickel accounted for 80% of CMT’s sales but now provides only 20% of CMT’s business in the country.

Sales and Financial Performance
In 2006, Sandvik Mining and Construction achieved sales of SEK25 billion. SMC’s performance in 2007 should be ahead of last year’s as sales had reached SEK23.9 billion by the end of the third quarter, with EBIT at 15.2% and ROCE at 31.9%.

Atlas Copco also enjoyed an excellent 2006 and the first nine months of 2007 were even better. In the 12 months to end-September 2007, 32% of CMT’s orders came from Europe, 23% from North America, 19% from Asia/Australia, 15% from Africa/Middle East and 11% from South America. The July-September quarter of 2007 was particularly good: compared with third quarter 2006 revenue was up by 45% to SEK6.63 billion, orders were 35% higher at SEK6.8 billion and the operating margin was 17.3%. Mining accounted for 47% of revenues, building and construction 42% and other activities 11%. CMT expects to achieve sales of around SEK25 billion in 2007.

Product Developments
In light of the key acquisitions made during 2007, both Atlas Copco and Sandvik focused on opportunities in construction markets. Claes Ahrengart, who became president of CMT’s new Road Construction Equipment division following the Dynapac acquisition, explained why the purchase represented a fantastic opportunity. Ahrengart’s replacement at Construction Tools, Henk Brouwer, outlined the healthy state of the market for rock breaking and demolition tools and the advantages provided by the combination of bigger breakers and the Atlas Copco ProCare service. Also supplying the civil ground engineering industry, as well as mine rock reinforcement systems, the mineral exploration and water well drilling markets, is CMT’s Geotechnical Drilling and Exploration division, headed by president Hans Lidén. Atlas Copco is building a new plant for manufacturing Swellex bolts in North Bay, Canada, and launched the Roofex deep mine bolt during 2007 .

Dr. Thomas Schulz, president of SMC’s Construction segment headquartered in Svedala, Sweden, outlined the unit’s niche markets—which include quarrying, demolition and recycling as well as surface and underground civil engineering and tunneling—before commenting on the Extec and Fintec acquisitions, which are now jointly managed and will be integrated with each other and transferred to the Sandvik brand during 2008. Sandvik aims to become the leading supplier of mobile crushing and screening equipment to the mining and construction markets, Schulz said.

Teemu Raitis, product line manager UHM trucks, introduced the new Sandvik loader line, which has been developed, field tested and distributed over a two-year period prior to full throttle marketing in 2008. Already about 180 units were scheduled to be in the field by the end of 2007.

Outlook
Both Josefsson and Rosengren anticipate continuing strong demand in mining markets worldwide (including the U.K., where Atlas Copco recently delivered a Boomer 282 drilling rig, Scooptram ST1030 LHD and Diamec U6 exploration drilling rig to the South Crofty tin mine in Cornwall that Base Results is attempting to resurrect).

Atlas Copco sees its key geographic growth markets in the long term as the United States (especially for construction), India and China. In the construction market generally CMT anticipates substantial growth in road and rail development, especially in Asia and parts of Europe, until 2012, after which road maintenance will be the main focus.

As well as the likelihood of worldwide demand for both construction and mined materials continuing strong, Josefsson pointed to another factor that Sandvik believes will be positive for suppliers of advanced technology. This is the pressure on mining companies created by the fact that their operating costs have risen substantially in recent years (77% from 2000 to end 2006) while their productivity has stayed generally flat. Although commodity prices have so far risen sufficiently to more than cover the costs increase there is no guarantee they will continue to do so. In view of the calculation that mobile mining equipment capital expenditure is less than 2.8% of total mine costs but influences 40%, mines— like construction firms—can be expected to invest in equipment that reduces total cost. (Both SMC and Atlas Copco have been placing considerable emphasis on advanced control and automation technology.)