Coal miners spend more on IT

IT expenditure in the local coal mining sector is on the increase and is becoming focused on acquiring technological and mining information in order to make best use of that knowledge.

However, says Werner Nel, a manager in Deloitte's technology integration team and author of a recent report, spending in the coal mining sector is still lean when compared to other sectors.

The report, South African Coal Mining Industry: State of IT, shows miners spent between R130 million and R210 million on IT this year. As a percentage of operating expenses, this is between 0.7% and 2.77%.

However, Nel points out, financial services - for example - spend about 20% of operating expenditure on IT.

The report collaborates the responses of three unnamed coal-mining firms; two of which are international top miners and the other a local mining house.

Nel says the company approached 11 coal miners to take part in the survey - which was originally intended to be broader in scope - and three responded with sufficient information to draw conclusions.

Despite low levels of spending, IT expenditure in the coal sector is set to increase. Respondents, who answered the questionnaire before final 2006 figures were available, said 2006 should show a growth of 10% in IT spend. Nel sees no reason why this trend should not continue.

He points to a booming coal industry, global and local drivers for coal - including China's demand and Eskom's infrastructure projects - and analysts' forecasts that the three companies should continue to see bottom line growth of double digits.

The companies interviewed had differing perceptions as to the value of IT, with two of the companies still apportioning too much on back-office and commercial systems, more a case of keeping the lights on than deriving bottom line value.

Nel explains this is indicative of the companies having to get the basics right; failing to do so will result in cash being tied up where it can least add bottom line value.

However, mining companies in this sector are moving their focus to mining and technological systems, instead of concentrating on historical spending areas of back-office and commercial systems. While perhaps not indicative of the entire mining industry, Nel says this is a trend he expects to see when the company looks at profiling miners in the gold and platinum sector next year.

He points to a growing realisation among miners that IT can add value, although this is still narrowly focused. He says the reality is that many mining organisations do not see IT as strategic, although it is increasingly proving its worth.

This, says Nel, means being able to integrate production with executive decision-making and have greater visibility into aspects such as production volumes and wastage.

The report, which only sought the opinions of CIOs, will be extended next year to garner input from CEOs. This will allow Deloitte to benchmark the CIO's feedback against management's view of IT, he says.