Fix the cost base first, win the contracts that are actually open, and enter adjacent services through partnerships, in a set order. Cost is the one lever a contractor controls: in 2013 the largest players dug more coal, yet each tonne carried less work, and by December 2014 the benchmark coal price was 43% below its March 2012 level.
Largest contractors, 2012 to 2013
More coal mined, but roughly the same earth moved, so each tonne meant less overburden work.
Coal mined
Overburden moved
Strip ratio
BCM per tonne, approx.
Source: industry data and annual reports of the largest listed contractors, as compiled in the engagement fact base. Strip ratio fell for every major player in 2013.
Lower prices and lower strip ratios cut what owners will pay and how much earth-moving work each tonne creates.
Contractors do not set prices or strip ratios. About 70% of their operating cost sits in two lines they can manage.
Chase contracts that are opening, services buyers can unbundle, and adjacencies in order of capability fit, with partners where capital is short.
The client had to grow, yet the usual route, more fleet and more contracts, was getting less profitable. Three forces explain why.
The benchmark price dropped from US$112.87 per tonne in March 2012 to US$64.65 by December 2014. Owners passed the pressure on as rate cuts.
Owners cut strip ratios to lower their own cost. Overburden removal is a key contractor revenue driver, so revenue per tonne of coal fell.
About 116 contractors compete, but the top seven hold roughly 60% of contracted production, often through long contracts and owner affiliation.
Exhibit 1. The benchmark coal price had already lost 43% by the time the report was written
Government reference price (HBA), US$ per tonne, selected months. The shaded part is after the report, shown for context.
Source: Ministry of Energy and Mineral Resources (ESDM), monthly HBA releases. Percentages are against March 2012.
Splitting margin into its drivers shows that the biggest pressures sit outside the contractor’s control. What remains is cost per BCM (bank cubic metre of earth moved).
Exhibit 2. Two drivers are set by owners and markets; the cost side is the contractor’s to manage
Contractor margin per BCM, broken into its drivers.
Source: engagement analysis; cost split from competitor and interview benchmarking.
The team converted the problem into testable hypotheses and used interviews to confirm or reject each. The client also set a hard boundary: little capacity for extra investment or staff, so the strategy had to deliver maximum impact with minimum support, starting with quick wins.
Owners were cutting strip ratios and pressing rates, while leading peers reported around 22% operating margin and cost cuts of up to 12% (about US$31M) over 2013 to 2014.
Windows opened at contract expiry, incumbent underperformance, or new concessions beyond incumbent capacity. Owner affiliation was the strongest predictor of who held the work.
Buyers could procure drilling and blasting, hauling, and ports separately, and specialists had succeeded by focusing on one segment. With limited capital, partnership beat ownership.
Only two of the six largest contractors had meaningful construction exposure. Mining infrastructure transfers best; piling and EPC need partners, references, and engineering depth.
Evidence base: 50+ stakeholders (3+ experts and associations, 10+ mine owners, 15+ contractors, 5+ traders, 10+ adjacent-industry companies, 5 to 10 construction participants), plus secondary research and competitor benchmarking.
Cost leadership does two jobs at once. It protects margin when owners cut rates, and it lets the contractor quote lower than rivals when bidding for new contracts. The shift is in the operating objective: from the highest production to production at the lowest cost per BCM.
Exhibit 3. About 70% of operating cost sits in two lines, so three levers address the bulk of the cost base
Operating cost structure and the levers that act on it.
A fleet management system dispatches trucks to match excavators and cuts idle time and wasted haul cycles.
Tracked by: fuel per BCM, dispatch compliance, utilization
Component rebuild and life-extension programs, parts stocked by criticality, and planned shutdowns. Peers stretched asset life by 1 to 3 years.
Tracked by: maintenance cost per hour, physical availability
Activity-based costing per BCM, KPIs cascaded to site teams, incentives tied to cost-down, and centralized supply chain.
Tracked by: cost per BCM, improvement pipeline, owner per cost driver
Source: competitor benchmarking and primary interviews; operating cost split as described in the engagement recommendations.
Every option was screened on seven questions: Is the market attractive? Do capabilities transfer? Can the client reach the customer? How much capital is needed? How fast does it pay back? Can it win beyond price? What is missing to execute?
Exhibit 4. Screening narrows the market to accounts with a real window to switch
Account-level screening logic. No counts or names are disclosed.
Source: customer-screening logic developed during the engagement, validated through owner and contractor interviews.
Buyers can purchase services separately. The question is which links are worth entering. The answer: those where rivals are not already fighting on price, and where a partner can share the capital.
Exhibit 5. Three links offer room to differentiate; the middle of the chain is a price war
Coal mining services value chain, from pit to port.
Source: competitor and customer interviews, port and ammonium nitrate market analysis. Crushing was not seen as a competitive focus in the benchmark.
Exhibit 6. Mining infrastructure and selected minerals first; specialist construction and EPC only after capability gates
Adjacencies by capability gap and time to impact.
Source: capability-adjacency assessment against assets, people, customer access, capital, and execution risk.
The order follows speed and effort: quick, low-capital moves first, anything that needs new capabilities last.
Exhibit 7. Each pathway has a reason, a timeframe, and an effort level
Growth portfolio for the client.
Prices are falling and cost is the one lever the contractor controls.
Open windows at expiring or underperforming contracts let a stronger contractor replace weaker ones.
Unbundled drilling and blasting, hauling, and port services differentiate without owning the whole chain.
Tie-ups with traders give mine owners a route to market and give the contractor a reason to be chosen.
Outsourced activities such as drilling, overburden, loading, and hauling match existing capabilities.
A market growing 8 to 13% a year, but it needs credentials and new capabilities, so it is staged.
Shading: green deepens with speed; amber deepens with effort. Source: strategic recommendations of the engagement.
Exhibit 8. Three horizons: defend, expand selectively, then transform
Sequencing of the six pathways. Investment gates differ by horizon.
Author’s post-engagement synthesis. This scorecard and the risk list were prepared afterwards to show how the strategy could be run. They were not part of the original deliverable.
| Initiative | Leading indicators | Outcome KPIs | Gate |
|---|---|---|---|
| Cost leadership | Improvement pipeline, cost-driver owners, maintenance actions closed | Cost per BCM, fuel per BCM, maintenance cost per hour | Monthly operating review |
| Contract capture | Qualified accounts, expiries tracked, decision-maker access | Pipeline value, bid conversion, margin | Bid or no-bid committee |
| Drilling and blasting | Licence readiness, supplier agreements | Project margin, utilization, safety incidents | Pilot, then scale |
| Hauling | Cluster participation, road agreements, fleet plan | Cost per ton-km, truck utilization | Cluster business case |
| Port services | Terminal access, anchor customer | Throughput, turnaround, demurrage exposure | Anchor-volume threshold |
| Construction adjacency | Partner secured, critical hires, references | Backlog, margin, on-time delivery, rework | Capability-stage gate |
This section is an observation made years later, not a claim about project impact. It compares the base-case forecast in the original analysis with what the data later showed.
Exhibit 9. Output went flat for four years, then outgrew the 2020 forecast by 12%
Indonesian coal production, million tonnes (Mt), actual versus the forecast used in the engagement.
Sources: actual production from ESDM data as reported in ministry releases and press (2006 to 2011 figures matched the engagement data; 2012 and 2013 were later revised upward from 383 and 421 Mt to about 412 and 474 Mt); forecast from the original analysis.