Africa’s Largest Engineering Company Remains Upbeat

By Antonio Ruffini, E&MJ’s South African Editor

Nigel Townshend the CEO of TWP Holdings, Africa’s largest private sector engineering company, is reasonably bullish on the long term outlook of the continent’s mining sector. He can afford to be as TWP’s existing project portfolio translates into some US$13 billion of predominantly mining related business for the company.

TWP has experienced some shrinkage in orders for the construction of mineral processing plants, but its mining project pipeline remains robust. Some of these projects, such as its contract for Impala Platinum’s new 17 shaft, span over a decade. That helps the CEO of a company with a 1,800 strong workforce, 95% of those having technical skills, take the long view.

Townshend believes TWP should leverage its large pool of scarce technical skills and the company has also established a division, TWP Investments to acquire and develop its own mining projects. TWP Investments owns coal projects in South Africa’s Witbank coalfields that are in advanced stages of development, and it owns 5% of junior exploration company African Eagle which is developing the Dutwa project in Tanzania.

“Our Dutwa nickel discovery in 2008 added some US$4 billion of metal in the ground to the company’s account within six months,” African Eagle chairman John Park says. African Eagle is commissioning an economic scoping study at Dutwa.

In addition, TWP’s portfolio of its own projects includes a waste retreatment project to recover platinum group metals (PGMs) and base metals as well as five potential IPP power projects in South Africa, with the group having agreed upon cogeneration deals with saw mills and timber related companies.

This is only the latest phase in what has been a dramatic half decade of growth for TWP, from its origins as mainly a PGM-focused mining sector engineering contractor. These days the PGM sector provides only some 25% of its work, a decrease from last year, as the effects of the decline of the PGM basket price has seen projects shelved.

However, Digby Glover, who heads TWP’s Project Division, sees strength in other commodity sectors. He sees buoyancy in Southern Africa’s coal and uranium sectors. TWP has been steadily increasing its activity in the coal sector and now its work for clients in this commodity account for some 25% of its order book.

He also sees strength in gold where the company has projects accounting for some 20% of its order book. “We see the potential for further exciting gold work, with AngloGold Ashanti having just announced it will deepen its Mponeng shaft,” Glover says.

AngloGold Ashanti will develop the Mponeng mine below the existing 120 level, adding some 2.5 million oz of gold and eight years to the mine’s life. The project will consist of four parallel decline shafts that are to be sunk from the 120 level to gain access to the Ventersdorp Contact Reef (VCR) on levels 123 and 126, some 3,600 m below surface.

In general, according to TWP top management, Africa’s mineral sector is not in as bad a shape as that of other regions such as Australia, particularly Western Australia where numerous projects in the hard hit nickel sector have been affected. “We have seen projects canceled there, but we will keep our presence in that region,” Glover said.

In Africa, it is Zambia that has been the hardest hit. Apart from having suffered due to its raised tax regime, subsequently amended to reflect much more favourable terms for mining companies, Zambia’s main mining industry is that of copper/cobalt, which has seen sharp price declines. Zambia is a relatively expensive copper producer with several deep underground mines that have significant water pumping requirements.

But while some mining and process projects in Zambia have been postponed or cancelled, most of those in which TWP is involved are going ahead as planned with the exception of some work on new process plants. Projects that are proceeding include work for First Quantum Minerals which recently awarded TWP an EPCM contract on the Frontier project just across the border in the Democratic Republic of the Congo (DRC), and Vedanta’s Konkola No 4 shaft deepening project where TWP is undertaking engineering design.

Working within the DRC is different. “Our strategy in the DRC is to become more involved with clients during the exploration phase of their projects, with major groups undertaking exploration in that country,” said Jim Porter, TWP’s head of mining.

There are companies that have inferred resources and some have historical exploration data. As such companies work to prove these up there is conceptual level work for TWP. “In the DRC future opportunity for us lies in turnaround and cost cutting initiatives across the board. While in many instances capital equipment is new, there remains significant scope for recapitalising operations’ infrastructure.”

This is part of TWP’s response to the slowdown in the mining sector. “TWP is taking no chances whilst managing its way through this cycle,” Porter said.

In addition to its focus on Zambia and the DRC, TWP has also been looking at major coal developments in Mozambique. From there it is a natural progression to East Africa. “However, in West Africa we remain only opportunistic. While there are some big mines in a country like Ghana it is not a very big mining centre and a different set-up is required to serve the neighbouring francophone countries,” Porter said.

Over the past five years TWP has been growing at a rapid rate, hiring some 30 to 50 people a month, and it grew by 60% in 2008. The expansion phase is now over and there will be some retrenchments. Townshend says the company will lose some 15% of its contractor workforce.

“We will be looking a bit more at turnkey work. We did see the risk associated with this contracting style during the boom phase when material prices were escalating and many engineering companies found themselves carrying a large share of those costs. But the environment for taking on turnkey work, particularly smaller projects, is now more favourable,” Glover said.

However, while prices of materials should decrease, Townshend says the current slowdown is only a respite in the skills crisis in the mining and engineering sectors, and the company is still seeking out key skills and looking to retain them in-house. “If anything I see the skills situation getting worse in the future. During a downturn the knee jerk reaction of the industry is to curtail training. Engineering no longer seems as promising a career during phases such as the current one. Older people take early retirement and are lost to the industry.” Taking into account the age profile in the industry the next upturn could see the skills crisis exacerbated and TWP is positioning itself to be ready.