Sandvik divests its Mining Systems operations 31 Aug 2017

In July of this year, Sandvik announced acquisition of its Mining Systems business portfolio to Danish firm FLSmidth. This will comprise all products involved in continuous surface mining and minerals handling technologies and apply to related intellectual property, including drawings and reference lists, as well as the transfer of relevant employees.

Sandvik has since signed another agreement to divest the conveyor components parts of the Mining Systems business to NEPEAN Conveyors Pty Ltd, a privately owned Australian based company, including the related specialist conveyor systems business in Hollola, Finland.

By divesting the Mining Systems project business division to FLSmidth and the conveyor components’ operations to NEPEAN, the exit by Sandvik from Mining Systems will be fully executed. “I am pleased that we now have completed our plan enabling us to further focus on the Sandvik core businesses,” said Björn Rosengren, President and CEO of Sandvik.

Mining Systems is a supplier of design and engineering of material handling systems with annual sales 2016 of 2.9 billion SEK, of which the conveyor components’ parts corresponded to about 20%.

The acquisition by FLSmidth is aimed at strengthening its core minerals business. With its headquarters in Copenhagen, Denmark, and with offices in more than 50 countries, FLSmidth delivers engineering, equipment and service solutions to the mining and cement industries, the company now employs more than 12,000 people world-wide and reported an annual turnover of approximately €2.5 billion in 2016.

In a press release in July, Sandvik stated that the acquisition deal with FLSmidth will cover the divestment of Mining Systems, which it terms as the supply of design and engineering of material handling systems. In 2016 the operation had annual sales of SEK 2.9 billion. The actual divestment should come as no surprise to the industry, as Sandvik stated its intention to sell the business in 2015.

According to Sandvik, its plan to exit mining systems comes with reassurance that ongoing orders and deliveries related to non-mining material handling projects (mainly harbour projects) and some existing mining projects will be delivered by Sandvik through an agreement transfer period. These projects are expected to be finalised during 2017–2019.

Ever since Sandvik merged its mining and construction operations there has been a great deal of speculation as to what direction Sandvik is taking regarding its mining and construction offering. Given that the agreement with FLSmidth is said have no bearing on any underground mining and tunnelling operations, it will be interesting to see if this is the first divestment, or a rebalancing of the Sandvik business.

A variety of Sandvik mining operation equipment

The logic behind the deal is that it will enable FLSmidth to improve the productivity of its customers by closing a gap in its offering in the full mining value chain and enable the company to support its customers from the primary crushing point in the mining pit, through the transporting of excavated materials to the plant, all the way through the minerals processing plant to the tailings handling.

In essence, the agreement covers all products for crushing and conveying, waste/dry tailings handling as well as products and services, and will affect also a significant number of Sandvik employees. As hinted in the Sandvik written statement, a further provision of the acquisition will be that FLSmidth will provide project management and aftermarket services to Sandvik on the majority of its ongoing projects to be delivered between 2017 and 2019. This will result in all Sandvik employees currently executing Sandvik Mining Systems projects that are not transferring to FLSmidth becoming FLSmidth employees for a certain agreed time period. “We have agreed under certain pre-negotiated terms and conditions to provide the services necessary for Sandvik to fulfil contractual obligations to its existing customers,” said Michael Duricko, Vice President Strategy & Business Development Mining for FLSmidth.

Sandvik mining systems equipment in operation

The acquisition is not expected to affect any Sandvik manufacturing plants, but the transfer of intellectual knowledge and expertise will undoubtedly be an advantage to the Danish company. “Due to the confidential nature of mergers and acquisitions, FLSmidth does not comment on the specifics of pending or even potential deals,” explained Duricko for FLSmidth. “Notwithstanding, our offerings start with the transport of the material from the mine to the plant, mainly through mine shaft systems and hoists, therefore underground mining and tunnelling are for the most part outside the core of where we participate in the mining value chain.

The acquisition will strengthen our systems offering to better integrating upstream mining with downstream processing to increase the productivity of the complete pit to plant operation for our customers.”

FLSmidth materials processing crushing installation

NEPEAN conveyor system installation

FLSmidth has stated that all Sandvik employees who are part of the acquired operation with the right mix of experience and knowledge will be highly valued. “We are looking to take all people needed to execute the current backlog, plus be able to maintain it as a sustainable business in the future, and to support our existing mining and minerals systems business. We will utilize the time between signing and completion of the take over to finalize these numbers,” commented Duricko.

The acquisition will undoubtedly improve the FLSmidth ability to increased productivity for customers. “Deeper mines, lower ore grades and environmental constraints, all require mines to haul more material over longer distances and higher elevations,” explained Duricko. “Cost pressure will require new continuous technologies for conveying materials and improved conveying is expected to be a big driver for increased productivity in mining.”

It is by adding a number of new technologies and intellectual property, including an extensive reference list, to the FLSmidth portfolio, that the company aims to emerge possibly as a major player also within the underground construction industry. Given its specialism in cement, the potential for the use of excavated tunnelling material as aggregates will not have gone unnoticed by FLSmidth and access to the Sandvik materials handling equipment and expertise may be a pointer to future activity.