The head of Australia’s newest listed mining services player DRA Global says exposure to battery metals and ESG services will become increasingly important for contractors to align with the aims of modern mining houses.

South African-born, Perth-based DRA has benefitted from both ‘bolt-on acquisitions’ and a buoyant resources market ahead of its joint listing on the Australian and Johannesburg stock exchanges on Friday.

It has enjoyed a 139% increase in revenues from 2016 to the 2021 financial year from $518 million to $1.24 billion, a CAGR of 19%.

More than half of that came from work in precious metals and bulk commodities, and DRA boasts $600 million of new project and operational awards from customers in 2021 including Rio Tinto, BHP, Arcelor Mittal and Anglo American.

“Obviously bulk commodities in Australia are doing very well at the moment and there’s a lot of demand for services in that space, on sustaining capital and expansion projects,” CEO Andrew Naude said.

“Then precious metals have been pretty strong. For us that means platinum and gold predominantly and we also do a fair amount in industrial metals and the copper space.”

Copper is one of the metals set to benefit most from electrification and the take up of EVs, renewable power systems and batteries. DRA boasts an EPCM contract for the processing plant at Ivanhoe Mines and Zijin’s Kamoa-Kakula copper mine in the DRC, one of the few copper mines of scale to enter production in recent years.

 

DRA Global share price today:


 

 

ESG a growing focus for mining clients

Naude said DRA is increasing its attention on ESG services and commodities expected to see demand growth from the energy transition.

“Absolutely, there’s really two drivers of mine for DRA’s services in that ESG space,” Naude said.

“The first one is we’re doing more and more work in the batteries sector, a lot of studies and development opportunities there.

“Then the other one is actually the broader transformation of the industry and supporting our customers with their own strategies and goals.”

For DRA that includes water sustainability and treatment solutions, energy and supply chain sustainability, and ethical supply chain and procurement management.

Naude said there were increasing expectations from mining houses that contractors have a clear ESG strategy.

“I think what I’ve just talked about is an ESG related service offering, and you’ve got to have those capabilities to provide those services,” he said.

“More broadly I think there’s an expectation on companies to demonstrate their values and have an ESG strategy around the kind of corporate citizens they are.

“We certainly do that and it is important to our customers absolutely.”

 

Coal a declining part of services business

DRA still has exposure to thermal coal – one of the best performing commodities out of the pandemic this year despite the long term pressures the sector faces from the shift to renewable power.

Around 12% of its revenue came from the sector in 2020 but Naude said it has been declining over time.

Figures in the DRA prospectus show thermal coal contracts were responsible for generating 22% of its revenue in the 2018 calendar year and 17% in 2019.

“I think there’s a natural move away from thermal coal in the energy markets, particularly in developed markets,” he said.

“Thermal coal accounted for I think it was like 12% of DRA’s revenues in the last financial year, and that’s down substantially from where it has been in the past.

“Given what we’re seeing in the market we see that trend continuing.”

Naude noted, however, that thermal coal remains a part of the global energy mix.

“Obviously coal is still a part of the energy baseload and we do work with responsible coal developers but we’re pretty selective about what we do in that space and I do see economies moving away from coal over the long term.”

 

Base metals a growing part of project mix

In calendar year 2020 precious metals – mainly platinum and gold – made up around 31% of DRA’s revenue mix, with bulk commodities next at 22%.

Base metals, many of which like nickel and copper are prized for their future value as battery components, accounted for around 19% of the total and more than $1.5 billion of DRA’s projected near and longer term project and operational pipeline.

That was up from 8% in 2018 and 15% in 2019.

DRA recently announced a major contract on the debottlenecking project at BHP’s Mt Keith concentrator, one of the key cogs of its Nickel West division in WA, which is ramping up to become one of the world’s biggest suppliers of nickel sulphate for battery makers.

While designated “battery minerals” only make up a small portion of that pipeline, Naude expects the company’s capabilities in that space to grow.

“Our service offering is engineering, project delivery, operations management and our focus in on minerals and mining as well as non-process infrastructure,” he said.

“In terms of our commodity expertise, we have for a long time had a strategy around diversity and diversification and have always tried to maintain a balanced portfolio and look to invest in commodities that we see being more prevalent in the future.

“So yes we’d certainly be developing our capabilities in those spaces.”

 

Labour shortages not a major impediment to growth

There has been some negative sentiment around the mining services sector around the impact of labour shortages, which have been felt around the world as economies expand against the backdrop of international travel restrictions.

Those have been keenly felt in resources powerhouse WA, where companies including Perenti Global (ASX: PRN), Ramelius Resources (ASX: RMS) and St Barbara (ASX: SBM) have all cited labour market impacts on project delivery.

While it will likely hit companies’ reporting earnings this year, some analysts have noted that concerns about labour shortages have masked strong fundamentals for many mining services stocks.

Naude acknowledged managing projects during the Covid outbreak had been complex, but said DRA had been able to cope with the logistical challenges.

“We have probably experienced it more in Australia than elsewhere in the world,” he said.

“Delivering projects with teams of people when you’ve got travel restrictions, particularly international travel, adds another layer of complexity.

“In terms of labour market costs and pressures, Covid has had an impact on that in terms of limiting other pools of labour, particularly in Western Australia.

“But that’s something that we’ve managed around.”

DRA expects to generate $51.6 million in EBIT this calendar year, up from $39m in 2020.

The company closed up 5c or 1.3% at $4 on its first day of trade.