“Jon added significant value in our process and I would strongly recommend him to any other client looking to develop a major project.”

Stephen Esposito
Director of Strategy & Risk

Developing an Alliancing Strategy for New Zealand's largest coal mine

The Challenge

Solid Energy is New Zealand's national coal company and Stockton is New Zealand's largest open cast coal mine. It's coal has a very low sulphur content which makes it ideal for coking and casting steel. However, it has some very specific challenges :

  • it is remote, even by New Zealand standards : it's on the 'wild west' side of South Island so (a) the coal has to be transported over the Southern Alps to the deepwater port (b) getting the  quantity & quality of people to manage it was hard and (c) it is the major employer in the area.
  • it is half way up a mountain giving it extremely high rainfall - about twice that of the UK's Lake District - so the cost of infrastructure is 45% ot total operating cost compared with 5% for large Australian mines
  • it is right next to National Parks, so in the short term any environmental incident could temporarily shut the mine down and in the long term, environmental remediation was not being addressed due to the focus on 'getting the coal out'
  • it had a limited supply of high quality coal which if overused - i.e. not properly mixed with lower quality coal - would dramatically shorten the mine's life from 20 odd years to under 10 years. In the rush to 'get the coal on the train', it was not being properly mixed.

As a result, Solid Energy's senior management wanted to blend their expertise of  Stockton's specific challenges with that of large mining companies from Australia (including their systems and processes) with, after 5 years, their management having the expertise. They had already put out an invitation to tender, but Jon was recommended to them as no-one really knew exactly what they were asking for !

The Solution

Jon was with his family having a working 3 month holiday in New Zealand at the time. Over this time, he worked worked with the senior management team to :

  • refine, in a workshop environment, exactly what outcomes they wanted to achieve - what good really looked like and how they would now if it was being achieved - from which they worked backwards to refine exactly what capabilities they were looking for from potential partners which they then went and tested
  • define their first pass commercial arrangements so that when they had chosen the right partner they could enter into commercial negotiations as an equal rather than being led by the miner. The phrase used was "if we don't stand for something, we'll fall for anything" ! In brief this was a 5 year framework, where the parties entered into an annual contract with targets and incentives set on an annual basis. This allowed for changing circumstances. 

 

The Result

The revised selection criteria resulted in Solid Energy interogating the potential miners for specific capabilities. Having chosen them, they 'closed the deal' within one and a half months whereupon the Australian miners management team could start working alongside Stockton's.

Significant improvements in cost, environmental remediation and better mixing of coal were recorded early on. However, within a year, the price of coal had fallen significantly. The flexibility inherent in having an annual contract with annual targets meant that the relationship was flexible enough to adapt with the world. The relationship lasted the full 5 years and was seen as a success. Click here to watch the presentation in which Jon explains how he worked with New Zealand's national coal mining company.

 

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