How QLD’s mining downturn impacts the broader industry

From mines to machinery suppliers: how northern QLD’s mining downturn is affecting the broader industry

Downstream mining companies feel the pinch as northern QLD industry contracts. Responding to northern QLD’s mining downturn: practical steps for downstream companies. What downstream mining companies can do as northern QLD’s mining industry tightens.

As the pressure within northern Queensland’s mining industry intensifies, the announcement of major local job cuts from BHP and the administration of Bowen Coking Coal have local economists worried.

The financial challenges follow a period of falling coal prices, rising production costs, labour shortages, and the introduction of Queensland’s progressive coal royalty regime in 2022. While designed to capture more state revenue when coal prices spike and ease the burden when they drop, the regime brought in unexpectedly high tax rates that have contributed to major cash flow pressures according to industry advocates.  

Although the financial pressures aren’t unique to Queensland’s mining industry – evidenced by the recent closure of the Bald Hill lithium mine and Ravensthorpe’s iron ore operation in WA – the strain on the industry and those who rely on it is becoming increasingly evident. 

The effect on downstream mining companies

When a mine is in financial distress, the consequences reach far beyond the pit. It’s not only the miners who face uncertainty, but also the contractors and small businesses that depend on the site’s activity.

From machinery suppliers and maintenance crews to transport operators and even cleaners, bookkeepers, caterers and local cafes and restaurants, the impacts are widespread and have the potential to devastate regional economies.

As coal prices drop and mining becomes less profitable, the big end of town will necessarily revert to cost cutting measures. For downstream mining companies, being able to ride out the storm until the situation improves is easier said than done.  

They may have to contend with:

• delays in payment
• disputes over invoices or work completed
• contracts being renegotiated at lower rates
• cancelled or non-renewed agreements
• a shortage of new work opportunities

Any one of these could be enough to jeopardise a company that depends solely on income from one or two major clients. 

How downstream mining operators can respond

As mines look to recapitalise or scale back operations, the possibility of unpaid invoices is a challenge all suppliers need to plan for. Equipment and machinery providers should be especially diligent, as they are likely to feel the impact early as operations are scaled back.

With coal prices expected to remain under pressure for some time, it’s worth noting that this may only be the beginning unless conditions unexpectedly improve. 

So what can downstream operators do to stay ahead of the curve and safeguard their business in this precarious environment? Here are eight key steps:

• Review your contracts. Make sure you understand your rights and obligations under current supply agreements. If a dispute arises, consider mediation or similar options rather than getting caught in a costly stand-off.
• Maintain strong relationships with key customers. Open communication will help you stay informed as the situation evolves. Try to remain flexible so you can scale operations up or down in line with customer needs.
• Re-assess costs across the business. Look for savings through staffing levels, financing arrangements, and operational efficiencies. After years of strong profits, it’s time to explore ways to become more efficient while still delivering quality outcomes.
• Conduct regular strategic reviews. Keep a close eye on performance, cash flow, and profitability so you can see where improvements are needed and risks are emerging.
• Stay on top of the numbers. Accurate record keeping will make it easier to spot early warning signs that a major contract could be at risk. This gives you more time to act before the risk is realised.
• Plan for diversification. Consider ways to pivot to other industries or sectors if possible. For example, you might explore opportunities in civil infrastructure or renewable energy projects where demand for expertise and services is growing.
• Redeploy or liquidate surplus assets. If a mine scales back or closes, think about redeploying machinery, vehicles, and other assets elsewhere in the country. Or, work with auction partners to sell unused equipment.
• Seek professional advice early. Speak with your accountant or lawyer about restructuring options and understand the implications of each decision. Many operators are caught off guard when problems arise because they haven’t sought advice in time.

Don’t leave it too late to explore your options 

If things have reached a critical point, talking to a qualified professional early on can help you access Safe Harbour protections while developing a plan to turn the business around. This might involve reassessing how your structure is set up and identifying what can be restructured to stabilise operations.

In some cases, this can mean difficult decisions like reducing staff numbers or addressing tax issues through Small Business Restructuring. In more serious situations it could involve voluntary administration, informal restructuring, or a more formal voluntary administration process such as a Deed of Company Arrangement (DOCA) or liquidation. We

We can conduct a strategic review to map out your options and recommend the best path forward. Depending on your circumstances, this may include:

• assessing your financial position
• connecting you with a lawyer to review contracts and obligations
• evaluating operational efficiencies
• planning for asset redeployment or divestment
• developing a contingency strategy 

We understand that decisions such as downsizing staff can be extremely difficult, especially when your organisation is closely connected to and committed to your team. However, holding on for too long can make the situation more difficult – especially if you end up in a predicament where you’re unable to meet payroll obligations. 
For these and other reasons, it’s important to speak with someone who understands what you’re going through and has the expertise to help you chart a clear path forward. 

If you’re unsure where to start, give us a call. We’ve helped many organisations in a similar position, and often find the biggest challenge is when they reach out too late and many of the preferred options are no longer viable.
Getting professional advice early from experienced accountants and advisors will give you the best chance of working through your obligations and finding a way forward that fits your circumstances. Every business is different, but the earlier the conversation starts, the better the outcome is likely to be.
 

FOR MORE INFORMATION

For a confidential and free initial consultation with our Queensland restructuring and recovery team, contact Mitchell Herrett on (07) 3225 7860.