Byrnecut keeps it private - SPECIAL REPORT

In a rare interview, Byrnecut executive chairman Steve Coughlan spoke to Business News about the growth of the low-profile mining contractor into one of WA’s biggest private companies.

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Many successful businesses have a near-death experience that sets them up for their later achievements, and Byrnecut is no exception.

The mining contractor was established in Kalgoorlie in 1987, just a few months before the stock market crash, but has grown to have annual turnover in excess of $900 million and nearly 3,000 staff around the world.

The business relied on Kalgoorlie entrepreneur Frank Lubbock and a bank overdraft in its early days, with both quickly drying up as a source of funds after the ’87 crash.

It kept on going, but was under immense financial pressure. It even secured new contracts, though that just added to the cash flow squeeze.

“We were using third-tier lenders for equipment finance, factoring the debt and up to our eyeballs with personal directors’ guarantees and a rapidly diminishing cash balance,” executive chairman Steve Coughlan recalled.

The turning point came in 1991, when a member of Germany’s famous Thyssen family took a big stake in the company.

Claudio Thyssen, through his company Thyssen Schachtbau, was an investor in the Callion gold mine, which was operated by Byrnecut in joint venture with another German company, Sachtleben.

Mr Coughlan asked both German companies to invest in Byrnecut – Sachtleben said no, but he got a positive response from Mr Thyssen, who acquired a 50 per cent stake, later increasing to 70 per cent.

Mr Thyssen is still the majority shareholder, but in a most unusual relationship, does not have a board representative.

“It’s very unusual, but it’s worked,” Mr Coughlan told Business News.

“We meet Claudio twice a year, and have a review meeting.

“That’s probably helped our cause; it’s given us incredible freedom to just get on and run the business with minimal bureaucracy at that level.

“I mean the capital spend we do every year, nearly $100 million, doesn’t require approval at that level, he just allows us to get on with it.”

Longevity

The team that runs Byrnecut is led by its three-member board – Mr Coughlan, who retains a 21 per cent shareholding, fellow director Bill Blake, who has a 9 per cent stake, and finance director Bob Evers.

“One really big seller for us is the longevity of our people,” Mr Coughlan said.

“We’ve had the same board for over 20 years.

“That goes right through the organisation.

“Our managing director offshore (Duncan Bradford) and our managing director Australia (Pat Boniwell) have been with us since they were young mining engineers, 15 or 20 years.”

Mr Coughlan strongly rejects the view that companies need to renew the board and executive by bringing in new people.

“There is a stream of people below them who are the renewal in the business,” he said.

“You keep renewing by growing and doing things in other spaces.”

Early career

Mr Coughlan was 34 years old when he helped to establish Byrnecut.

He had spent most of his career working for Western Mining Corporation in its Kambalda nickel operations, which is where many contractors got their start.

Barry Patterson, who pioneered contract mining when he established Eltin in 1980, had been resident manager at Kambalda.

People who had worked at Kambalda established several other contractors, including Barminco and GBF.

Mr Coughlan’s early career helped shape his thinking.

For instance, one role he filled was production superintendent, where he was effectively a middleman between the underground managers and the mine superintendent.

“I could not make the big decisions, as that was the role of the mine superintendent, and I missed the responsibility of running a mine with my own team,” Mr Coughlan said.

“Therefore I have the view that middle layers of management need to be justifiably structured with clear levels of accountability, or get rid of them.”

Mr Coughlan also recalls the large number of workplace accidents.

“In a period between June 1975 and February 1977 there were five fatalities at the (Silver Lake) mine,” he said.

“These days it’s hard to get your head around that statistic – we would all be out of business.”

The industry has changed enormously since then, with highly structured training, safety and induction systems, though Mr Coughlan believes one issue that remains unresolved is the focus on lagging indicators to reward or penalise workers.

At its worst, this can result in people manipulating statistics or not reporting events.

“In our case we concentrate 100 per cent of the effort on leading indicators … if you get these right, the rest will follow,” he said.

Byrnecut’s financial difficulties after the 1987 crash made a lasting impression.

“The lesson for me was observing how quickly Frank’s wealth increased on paper but how much faster it collapsed after the crash, due to excessive gearing,” Mr Coughlan told Business News.

Byrnecut now operates with a net cash positon – its only debt is for equipment finance, and the business uses cash reserves for working capital.

Mr Coughlan said the group had used shareholders’ funds to pay for all of its expansion moves.

“Other than the initial start-up, we’ve never borrowed money to set up a business,” he said.

“They’ve all used shareholder funds, generated from the existing business.”

Mr Coughlan believes the company’s strong balance sheet gives it a competitive edge.

Financial reports seen by Business News show that Byrnecut has been consistently profitable, including through the GFC.

It typically pays 30 to 40 per cent of annual profit in dividends, and is able to invest 11-12 per cent of annual turnover on capital equipment.

Competition

Mr Coughlan is not shy about contrasting Byrnecut’s financial position with its main competitor.

Barminco is majority owned by Gresham Private Equity and, like most private equity plays, it is highly geared.

Its latest financial report shows Barminco was carrying $886 million of debt at the end of December, comprising bonds and redeemable preference shares.

The high interest on its borrowings was a major factor in Barminco reporting a net loss of $33.9 million for the half-year to December, on revenue of $237 million.

Mr Coughlan has no interest in a stock market float, and even less in private equity.

“They don’t care about the business, they just care about churning it and making a quick buck,” he said.

“We’re interested in profitable growth.”

Growth

Byrnecut’s largest operations are in Australia but it has a big offshore business, particularly in Africa.

“That space is tightening up a bit,” Mr Coughlan said.

“Everyone thinks it’s easy so they’re all going over and having a look.

“It’s not easy by any means; a lot of work is needed on the commercial aside of those projects, different countries, different jurisdictions, different tax laws.

“Anyone who walks into that blindly is in for a bit of pain. But we’ve spent the school fees, we know the caper.”

New entity

Another major initiative was the establishment of Pinjarra-based Murray Engineering, which Mr Coughlan described as a ballsy call.

“During the boom years it was very hard to get good, reliable service from providers, they were all so busy,” he said.

“We deliberately set it up as a completely independent entity.

“Anyone who sets up an internal workshop, it’s doomed to fail because you don’t know if you’re getting a good deal or a bad deal.

“Murray competes on Byrnecut work, they bid for it.

“It’s forced them to stand on their own two feet, and get third-party work, which is well over 50 per cent of their revenue. That’s what we’ve always wanted.”

Another subsidiary is Jetcrete, which he says is the world’s largest shotcreting business.

Jetcrete operates internationally, and about three quarters of its work is for third parties

Other arms of the group, like Quattro Project Engineering and Mining Plus, are 50 per cent owned.

“The managers have skin in the game; it’s not our skill set in those areas but we’ve backed them,” Mr Coughlan said.

The ownership link also means the group can use the intellectual property that each business developers.

A more recent initiative is Sano Health.

“We got a guy from an elite sports background to set up Sano,” he said.

“He’s brought in a different take on OH&S; he uses elite sports techniques to monitor workload and repetitive stress.”

Mr Coughlan said Sano’s programs, like good nutrition and body strengthening, complemented the group’s mental health programs.

“We’ve been doing mental health since before it became flavour of the month,” Mr Coughlan said.

“If you talk about depression, I know senior guys who’ve had a problem.

“If senior guys have to deal with it, we don’t have a problem pushing it out to sites.

“I know it’s a blokey world but it’s a strongly bonded world as well.”

Byrnecut also has an in-house indigenous training arm – Global Mine Training.

Mr Coughlan acknowledges this is a tough space, and is looking to achieve more.

“We’d need to do a lot more before I’d be satisfied.”