On January 16, 2017, Atlas Copco announced its intention to separate and distribute its Mining and Rock Excavation Technique business area, as well as its Hydraulic Attachment Tools business (previously referred to as a part of the Construction Tools division), Epiroc, to its shareholders and list Epiroc on Nasdaq Stockholm. The annual general meeting of Atlas Copco held on April 24, 2018, decided to distribute all shares in Epiroc to the shareholders of Atlas Copco. The first day of trading in Epiroc shares is expected to be June 18, 2018. In its official listing prospectus, the company gives a unique insight into how it seems its own market in terms of outlook, competition structure and industry trends.
Referring to the competitive landscape: “Epiroc is a leading player globally in most of its product areas. Epiroc’s key competitor in most products is Sandvik. To a lesser extent, other competitors include Caterpillar in the market for underground drilling and open pit mining equipment, Furukawa in surface drilling equipment and hydraulic attachments, Boart Longyear for exploration drilling equipment and rock drilling tools, Komatsu in the market for underground drilling and open pit mining equipment and hydraulic attachments. The Group also competes with
several players operating locally, regionally and in certain niche areas. In general, the competitive landscape for mining and infrastructure consumables is more fragmented, with several
smaller or local players focused on individual product lines.”
Epiroc states on customer focus on total cost of ownership: “In recent years, mining and infrastructure companies and contractors working in these industries have intensified their focus on controlling costs and prioritising solutions with lower lifecycle costs, including costs associated with services, spare parts, fuel and all other costs. In addition, these companies are increasingly looking towards comprehensive solutions, including high efficiency equipment with performance contracts for services and consumables, as well as consultancy and support services. This trend is beneficial for equipment and service providers that offer high quality equipment with longer and more optimised lifecycles, as well as the aforementioned performance contracts and solutions.”
On market trends, Epiroc uses McKinsey research to make some key points. While a lot of the info is very general it is interesting to hear how a major equipment sees the world in which it operates: “Between 2012 and 2016, overall mining capital expenditure declined from USD 80 billion in 2012 to USD 49 billion in 2016 as based on McKinsey’s estimates…with the decline driven by decreased commodity demand from end users. The resulting commodity price decline lowered profitability and cash flows for mining companies, who subsequently reduced investment in new equipment and other capital expenditure. This also led to a reduction in total output from mines because of shutdown or production decline in various mines, causing some equipment to be parked and therefore decreasing the need for new equipment. In addition, some mining companies were more hesitant to make investments in new equipment during this period because of uncertainty on future commodity prices. Mining capital expenditure on new equipment resumed growth in 2017, with strong demand for equipment supported by expansions of existing mines and replacement investments…McKinsey projects a compound annual growth rate of 7% for mining capital expenditure between 2017 and 2025. This projected recovery is driven by multiple factors, including an increase in the prices of various commodities since the trough in early 2016, such as copper and iron ore, and an ageing fleet of mining equipment deployed in mines globally. Within this market, capital expenditure for underground mining equipment is expected to grow at a higher rate than surface mining equipment. This trend is expected to benefit Epiroc, which has a higher exposure to underground mining than surface mining.”
On mining moving underground, Epiroc has this to say: “There is a clear trend towards underground mining for certain minerals as open pit mines become increasingly depleted, and because of the challenges associated with obtaining regulatory approvals for greenfield open pit mines. In addition, underground mines are going increasingly deeper underground, at a rate of 30 m per year, according to management estimates. This trend is driving a clear increase in demand for underground mining equipment and solutions to increase safety in these underground mines, for example
rock reinforcement solutions and automation solutions. These trends are beneficial for those equipment players with a strong offering of underground mining equipment, such as Epiroc.”
A major shift in the mining equipment industry is the trend towards automation, interoperability and digitalisation, as part of the emergence of intelligent mining, which is focused on cost reduction, productivity increases, performance-critical technologies and safety in the mining sector. “A higher level of automation reduces labour costs and health and safety risks. Automation frequently drives higher equipment utilisation rates through more reliable and better control of equipment and a higher amount and quality of data. For example, miners can increase the efficiency of equipment usage through predictive maintenance, better fuel economy, mine traffic management and automated navigation, amongst other areas. In addition, remote control of equipment reduces the health and safety risks faced by employees in the mining industry. The growth in underground mining and the increased depth of underground mines are also drivers of higher automation in mining equipment and services, as it is more challenging to have employees in deep underground mines for health and safety reasons. Another key technological trend linked to automation is the commercialisation of mechanical rock excavation for certain applications, which enables continuous excavation and reduces the need for drilling and blasting. Mechanical
rock excavation equipment can be automated and controlled remotely, increasing safety for employees. In addition, these machines increase efficiency of mining operations through easier scheduling and planning of excavation activities. Intelligent mining also accelerates the shift in the role of equipment providers to integrated solutions providers, enabling mining equipment players to capture a higher wallet share of the overall value chain. These technological trends lead to a shift in demand towards suppliers who can provide integrated digital platforms that provide greater process control, and have also increased the scope for collaboration with customers, benefiting those mining equipment and service providers who have longstanding, trusted customer relationships.”
On customer consolidation: “In general, Epiroc’s mining customer universe has consolidated in recent years, partially driven by a period of declining commodity prices in recent years. Consolidation of customers has led to a narrower supply chain, as these larger customers drive procurement synergies through reducing their supplier bases. This trend benefits the larger equipment and service providers such as Epiroc who are able to address the requirement to service customers on a global basis, provide integrated solutions including services and consumables, and supply significant equipment volumes.” The company adds: “Epiroc’s customers consist of mining companies, construction companies, drill and blast contractors in the mining and
infrastructure industries, quarrying companies and quarrying contractors. Customer examples include Anglo American, Astaldi, Boliden, BHP Billiton, Dragados, Freeport-McMoRan, Glencore, Goldcorp, Heidelberg Cement, Hochtief, Imergilo, LKAB, Rio Tinto, Vale and Votorantim. In 2017, Epiroc’s ten largest customers accounted for 16% of the Group’s revenues. These all have multiple worksites that buy equipment, spare parts and service, as well as consumables from Epiroc. None of the ten largest customers is dominating.”
And finally, on being at the forefront of its industry: “Through its long heritage of technology and innovation with leading R&D competence, Epiroc’s management considers Epiroc to be at the forefront of breakthrough technologies in its addressed markets. Epiroc’s solutions are targeted towards solving its customers’ key challenges, including their requirements to reduce operating costs, increase productivity, increase utilisation of their equipment, reduce their negative environmental impact, and enhance health and safety conditions for their employees. Epiroc has developed and commercialised a number of disruptive technologies to meet its customers’ challenges. For example, in order to improve health and safety conditions of its customers’ employees, Epiroc has developed a fleet of battery-powered equipment. As a result, the harmful emissions associated with diesel engines, as well as the need for mine ventilation, are significantly reduced.
Epiroc has also developed a range of technologies, such as mechanised drilling and rock reinforcement, to increase automation and interoperability of its equipment. This allows customers to increase safety, productivity and reliability, as well as equipment utilisation and predictability and therefore reduce costs. Epiroc’s innovations have also driven higher connectivity across the equipment fleet enabling predictive maintenance, real-time asset positioning, and a higher degree of process controls. To ensure continuous innovation, Epiroc continues to invest in advanced technologies and product development, with 6.7% of the total workforce employed in research and development. In addition, Epiroc collaborates with a number of equipment and service providers, technology companies and universities to drive further innovation in the industry – some of these providers include Mobilaris, ABB, Saab Combitech and Dassault Systems.”
