Andrew Heathcote Rich Lists editor

Andrew is BRW's Rich lists editor and is responsible for the Rich 200 and Young Rich flagship issues. He also reports on matters relating to wealth and investment for BRW and The Australian Financial Review.

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Why business digs the mines

Published 27 October 2011 05:06, Updated 03 November 2011 05:15

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It should come as no surprise that the number of companies on the BRW Fast 100 that are involved in the mining industry is rising. Talk of a two-speed economy dominates the business press and many smart entrepreneurs are taking full advantage.

This year, five of the Fast 100 are involved in the mining industry. This is up from four last year and two in 2009.

Despite the increase, several traps await those who try to tap into the resources boom. Get it right and the riches can be immense but get it wrong and it can be a disaster.

One of the most noticeable trends from the mining-related companies on the Fast 100 is that they service the mining sector rather than operate directly in it. Mining remains a capital-intensive pursuit and one that is dominated by big companies.

Rather than own and operate mines, the Fast 100 help meet the need for mining-related niche services, such as drilling, consulting and security. Booming industries can create new business prospects overnight and some of the Fast 100 have astutely tapped into Australia’s biggest source of business growth.

Their stories provide valuable lessons about how to “hitch your wagon” to a runaway industry but the reality is that none of them found it easy. Staff shortages in specialist areas are acute and most of them have grave fears about how the carbon tax will affect the demand for Australian resources.

Servicing the mining industry can be highly lucrative but, as the Fast 100 explain, there are as many risks awaiting new players as opportunities.

Salva Resources. Ranking: 9

The fast growth in the mining industry has meant that many businesses are struggling to fill key positions. Salva Resources provides experts who can assist in the exploration, commercialisation or development of a mine.

Building up a list of clients was the biggest challenge for the founders initially and made more difficult by starting the business in India. The fast growth in the Indian resources market was appealing to joint founder Lachlan Broadfoot but it was not easy to tap into. “It was a huge challenge initially being dropped into the middle of Indian bureaucracy,” Broadfoot says. “It was quite difficult emotionally.”

After establishing an office in India, Broadfoot returned to Australia to establish a local presence. The growth strategy has involved keeping a tight control on costs while promoting the business and expanding the service offering. Salva reported a 140 per cent increase in revenue last year to $13.6 million. “You have to understand the market and strive to do a good job for clients,” Broadfoot says. “From that, more opportunities will arise.” (See the Salva Resources profile in the Top 10 list.)

Minecorp. Ranking: 17

Ian Schultz joined Mark Lacey at Minecorp about 18 months after Lacey founded the business in 2007. The two men were acquainted from their time in the 4WD industry. “We thought perhaps two heads were better than one,” Schultz says of his decision to buy in.

Minceorp is a manufacturer and commercial vehicle fit-out specialist. It helps ensure four-wheel-drives and small trucks are safe on rugged mine sites.

Minecorp returns to the Fast 100 after debuting last year in a lower position (30). Revenue has grown strongly in the year to June 30, 2011, to $16.3 million, from $6.5 million in the previous financial year.

The business has undergone significant change since last year, in line with the growth in revenue. Staff numbers have risen by 65 to 93 and this has led to the need for a new layer of middle management.

Having reached a critical mass, Schultz says funding has become a lot easier to find. “The banks have been throwing money at us lately but they didn’t want to know us when we really needed them,” he says.

Schultz says Minecorp is targeting another big jump in revenue in 2012 as the Queensland-based business opens an office in Western Australia and continues its international push.

He suggests that one reason his business has done well is because he and Lacey have always aimed to have a big group of clients. “We’ve been very mindful of that from day one,” he says. “Some of our competitors have only three customers. We hedge our bets and don’t let any one customer get too big.”

Macquarie Drilling. Ranking: 46

Founded by Michael Petrozzi, Macquarie Drilling returns to the Fast 100 this year after ranking 53 last year. Revenue is growing strongly, rising to $21 million from $12 million last year. Petrozzi expects turnover to double over the next year.

Like Pioneer Drilling, Macquarie Drilling moved its rigs from other areas into the mining sector once the boom took hold.

Petrozzi says cash-flow management, safety and staff are the key determinants of success in his industry.

“There is no shortage of people,” he says. “There is a shortage of people you know, trust and who understand the business.”

Satisfying client demands is also a challenge given the market conditions. Rather than turn away clients, Petrozzi says he prefers to manage their expectations. “You don’t say ‘no, go away’,” Petrozzi says. “It is a case of being open with them and advising them of our capabilities.”

Building the confidence of clients is critical. “Clients have very high expectations,” he says. “They are not inclined to have you learn on the job. They have production targets so as a contractor you have to perform.”

Prospectors. Ranking: 58

Prospectors is a mail-order supplies company. The growth in mining has meant that the company that started by providing basic goods to amateur geologists has branched out to help meet the strong need for mining supplies. It also services other industries, including forestry and construction. Products include remote-area lights, hard hats and weather meters.

After suffering a 50 per cent fall for a brief period during the global financial crisis, fast growth has returned. Prospectors imports many of its products directly and has benefited from the rising Australian dollar.

Revenue has grown by an average 57.9 per cent over the past three years to $6.8 million but chief executive Robert Keast says it has not been an easy road. “Probably most things that could go wrong at different times have,” he says. “All of the experiences helped in our understanding of people and business. Every cloud has a silver lining so when things are tough all we have to do is find that silver lining.”

Pioneer Drilling Co . Ranking : 61

Apart from debuting on the Fast 100 this year, Pioneer Drilling is also the oldest company on the list. It was founded in 1972 by Richard Goldsworthy who still runs the company. He started off drilling water bores but got into mining about five years ago when the sector started to take off.

Drilling is a highly specialised pursuit. Goldsworthy has eight rigs in operation, up from three in 2008. Five of the rigs are on mine sites.

When the resources boom began, several companies began buying drilling rigs, which start at about $1 million each. The demand for experienced drillers is very strong but lots can go wrong in terms of safety, staffing and maintenance. “Getting bigger isn’t necessarily the key to growth,” Goldsworthy says.

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