March/April 2015

Beyond the backyard

Northern Ontario mining suppliers outgrow their traditional customers

By Eavan Moore

Special Report: Ontario For every one person employed in an Ontario mine, there are two employed in the sectors that supply them. The expertise accumulated in the province has long overflowed its borders, but local developments and global forces have challenged mine suppliers who might otherwise have stayed content with local business.

“We’re running about 15,000 people working just in Sudbury alone on service functions and products and services,” says Dick DeStefano, executive director of the Sudbury Area Mining Supply and Service Association (SAMSSA). “Vale and Glencore have maybe 5,000 people or 6,000 people total working. Mining suppliers get to the point where they need to maintain their workforces, so they go look for other markets.”

DeStefano believes that more northern Ontario suppliers have turned their attention outwards. Part of that is simply due to the universal downturn; in Ontario as everywhere else, mining has slowed in recent years. But Vale and Glencore (then Xstrata) also changed the local landscape when they acquired major customers Inco and Falconbridge in 2008 and 2009.

“When the global mining companies purchased the Canadian assets, among all the other effects two actions occurred regarding the acquisitions,” explains Spencer Ramshaw, director, information and communications at the Canadian Association of Mining Equipment and Services for Export (CAMESE). “One, global suppliers became more aware of the Canadian assets as an opportunity via existing relationships with Vale and Xstrata. Two, the procurement strategies and policies from these global companies were integrated into the Canadian operations. These two activities together made it more important for Canadian companies to explore their export potential as a result of the increased out-of-Canada competition into their local markets.”

Meanwhile, the risk involved in depending on a couple of companies hit home in 2010, when a prolonged strike at Vale’s operations hurt the mining suppliers that counted on them for business. “It really caused a lot of financial stress on those suppliers that were significantly relying on Vale revenues,” says Andrea Gaunt, mining sector advisor at Export Development Canada (EDC). “And it really had them rethinking international opportunities and globalization a little bit more seriously than they would have otherwise.”

The need to expand

Dave Rector knows well the risks of depending on a few customers. His machining business in Sault St. Marie relied on the steel and forestry industries, diversifying into mining only in 2006 when Weyerhaeuser’s local operations closed. “Back in the ‘90s, we had three businesses that were 65 per cent of our income,” he says. “To me, that’s scary, when you have three big players and you don’t have much to back it up. If you’re not moving forward and expanding, you’re going to go stagnant, and the market’s going to walk away from you.”

Now with a healthy mining customer base north of the Sault, Rector is considering going further afield. He thinks he could sell truck parts in South America, but he wants to wait a year or two before investing too much in an export campaign. “Right now, we want to take care of the customers that we currently have,” he says. “We don’t want to grow too fast, and we want to see where the markets are going to go.”

Michael Gribbons, vice-president of Sudbury-based Maestro Mine Ventilation, started manufacturing Ethernet-based monitoring and control equipment with partner David Ballantyne four years ago. For Gribbons, avoiding reliance on the local market means keeping employment steady. He has seen northern Ontario suppliers load up on labour in a local upturn and lay people off in a downturn. But Gribbons says he thinks valuable employees need to feel their job will survive during hard times.

“So going into this, we made a conscious effort to avoid the lucrative local service-based business,” he says. Instead of tying up labour servicing ventilation equipment at the local mines, Maestro trained other service companies on its product and invested into scaling the business for the international market. Already, sixty per cent of its revenues are outside of Ontario, and the company plans to increase that number to 85 per cent in five years.

Government support

Eager to sell to a global market, the management at Maestro applied right away to the Strategic Export and Marketing Program (SEMP), a program launched in 2011 as part of the Mining Supply and Services Export Assistance Program by the province but now funded by both FedNor and Northern Ontario Heritage Fund Corporation and delivered by Ontario’s North Economic Development Corporation. The program was launched following a 2010 study that suggested just how large the mining supply sector in northern Ontario had grown. Before then, industry professionals had had a sense of its size, but the existence of solid numbers provided justification for giving formal support to smaller players.

“It showed $5.6 billion worth of sales,” says DeStefano. “It showed 23,000 people employed in the mining supply sector in northern Ontario, and it showed that only 19 per cent of what they were producing was going outside of Canada, that 19 per cent was going to the rest of Canada, and 62 per cent was staying within the region.”

The study made it all the more clear that the mining supply sector in Ontario is worth nurturing. Moreover, some companies do need help. As Scott Rennie, program manager at SEMP, puts it: “A large portion of the firms that were identified have way too much of their revenue locked up with very few customers in northern Ontario.”

SEMP selects applying companies that are small and well-managed for one-on-one strategy development and mentoring over a six-month period. Jon Baird, former managing director of CAMESE, who has worked with 50 such companies over the last few years, says each firm is different – some should be exporting just to southern Ontario, others to specific provinces or countries.

Mel Sauvé, president of Global Growth Results, also mentored companies in SEMP. He often found a willingness to export was the chief asset companies had. Some advice-givers, he says, suggest that exporting is exceedingly tough and complicated: “They scare the heck out of these companies, when in fact, exporting is really easy.”

That is easy, at least, if you have an export-ready product. Sauvé is able to help companies struggling with distributor networks and marketing, but fundamentally his mentees need to have a product that distinguishes itself on a global level.

One such product was the novel belt alignment system offered by Conveyors Plus, started at the Timmins home of former Xstrata employee Dave Sharp. What started as a sideline in 2004 turned into overwhelming demand, compelling Sharp to quit his job at Kidd Creek mine and market his product full time. “The plan wasn’t to go really big,” he remarks. “I just wanted to work in Timmins, and then other people talked to other people, and that’s how it started off.”

Sharp completed SEMP and then applied for its marketing assistance fund: $10,000 a year for trade show fees and similar expenses. It helped him expand to Saskatchewan potash mines, the oil sands, Labrador City, the United States, and the large mines in Chile and Peru.

Joe Gladu, vice-president at Sudbury-based tech firm Symboticware, says Sudbury is a great incubator for mining technology; many mines are within an hour’s drive, and there is access to many different suppliers. But the six-year-old company always needed to think bigger. “Even beyond Ontario, looking at the Americas, we are seeing a bit more momentum in South America,” he says. “Canadian investment in these markets has certainly helped fuel demand for our solutions.”

Symboticware also benefits from government support, including from EDC. For the last decade, EDC has provided accounts receivable insurance for Canadian exporters, wooed and provided financing to foreign buyers on the condition they consider Canadian equipment and services, and set up meetings between suppliers and potential foreign buyers. In 2013 EDC provided financial and risk management support of almost $13 billion to mines and their suppliers, which is nearly twice as much as it provided in 2005.

Gaunt indicated that EDC has extended numerous foreign loans to international mining companies, such as Chile’s Codelco, on the condition that they increase their awareness and engagement with Canadian suppliers. Financing for Codelco, for example, has helped promote more than $888-million worth of purchases from Canada in the last five years, involving more than 150 suppliers of everything from engineering services to environmental technologies.

For many of these foreign borrowers, EDC has noted a significant increase in procurement from Canada. There is still a tendency for mom-and-pops to throw their hands up at the idea of exporting, according to DeStefano. But for those intrigued by the idea, there are still more sources of help, the Industrial Research Assistance Program and Sudbury Regional Development among them.

Over at SEMP, Rennie has a plug to put in for this year’s round of applications: “We hope to work with up to 12 more companies in 2015.”

Next: Environmental regulatory liability in the mining sector


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