Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Standing Committee on Industry, Innovation, Science and Resources
04/09/2018
How the mining sector can support businesses in regional economies

FLYNN, Mr Paul, Managing Director and Chief Executive Officer, Whitehaven Coal

van MAANEN, Mr Michael, Executive General Manager, Corporate and External Affairs, Whitehaven Coal

[14:07]

CHAIR: Welcome to the hearing. Thank you for giving evidence today. The committee appreciates your participation in its inquiry. Although the committee does not require you to give evidence under oath, you should understand that this hearing is a formal proceeding of the Commonwealth parliament. Giving false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. I remind you that the hearing is public and is being recorded by Hansard. The hearing is also being broadcast live. Do you wish to make an opening statement before the committee proceeds to ask questions? If so, I ask that you limit your statement to five minutes before we proceed questions.

Mr Flynn : From Whitehaven Coal's perspective, as the largest private sector employer in the region—and we define our region between here in Tamworth and Narrabri—we think we're playing a critical and constructive role in the region. The business is typified by 75 per cent of its employment of people living in the region surrounding our operations. We spend hundreds of millions of dollars with local businesses year on year. Our wages are quite substantial, with $170 million going into the community year on year. And, of course, our contribution to royalties and taxes flows to the state. The state benefits from the extraction of the valuable resource that we're mining. It certainly goes into the state coffers and improves the situation of the state's budget, as our Premier has cited. We're also, obviously, very focused on making sure that the whole community benefits from our presence here. As a result, we have made significant and sustained efforts to increase Aboriginal engagement in our business, to the extent that, in our business now, the proportion of Aboriginal and Torres Strait Islander people who are represented in our workforce is higher than the proportion of those people in the community itself. That's happened within a very short period of five years, which we're very proud of.

We haven't left it at employment. We've also invested upstream and downstream with that, if I can say so, into child care and family support services and into family welfare and intervention services as well, both in Gunnedah and in Narrabri. We've been pivotal in bringing the Girls Academy to Gunnedah High School as well which has been a tremendous boon for the school—that's the feedback that's been provided to us.

So we're very mindful of our presence here, and we've crafted our value proposition as a company to be tailored to the community's needs. You may know that we don't support fly-in fly-out operations in our business, and that's why, of the people in our whole organisation, 75 per cent live and reside around the communities that host our business. We take that position very seriously. That is not to say that we're perfect at all times, but of course we'll look to continue to improve and hone that proposition so that the people in the community can make that judgement that we're a net positive and a contributor to the community. To reassure ourselves that we are hitting the mark in some degree, we take the temperature of the community through quite extensive surveys, polling, focus interviews and focus groups, and over time that tells us that the favourability towards the business has improved substantially. I'll probably leave it there to leave time for questions.

CHAIR: Mr van Maanen?

Mr v an Maanen : I have nothing to add.

CHAIR: Okay. I'm going to ask a question. It's something you'll know that I've been trying to flesh out. How many slots are there a day to get coal trains into Newcastle through the Ardglen Tunnel? How many trains go down a day?

Mr Flynn : I would say that in our operations we're probably responsible for at least 10 a day, and often up to 12.

CHAIR: How many are available? What is the total number? Does anybody know what the total number of slots a day is?

Mr Flynn : I don't have the total number of pathways available, because it is taken up by other things aside from just coal, and of course we're not the only coal provider.

CHAIR: There's a passenger train.

Mr Flynn : Yes, some freight and passengers.

CHAIR: There are other things that have to go as well. There are also goods trains. I've seen them. There are substantial goods trains.

Mr Flynn : Yes.

CHAIR: You're predominantly thermal coal, aren't you?

Mr Flynn : Thermal coal and metallurgical coal—20 per cent metallurgical.

CHAIR: Metallurgical coal is about $230 a tonne or something in that vicinity?

Mr Flynn : It's about $185.

CHAIR: Sorry. Thermal coal is about $140?

Mr Flynn : Are we talking in US dollar terms?

CHAIR: No, Australian.

Mr Flynn : No, it's a little bit higher than that at the moment for the thermal coal. It's US$114 today, so, depending on the currency, you're probably looking at more like A$160.

CHAIR: That price for metallurgical coal was in US dollars?

Mr Flynn : Yes. Your number, therefore, would be closer to that in Aussie dollar terms.

CHAIR: Yes, about $230.

Mr Flynn : That's right, before royalties.

CHAIR: If something's the truth, it should never be a problem. Basically, a train is about 82 carriages of 120 tonnes a carriage.

Mr Flynn : No, they're 100-tonne carriages. We generally get about 75 times 100 tonnes per 82-wagon train, so 7,500 would be your rule of thumb, I would think.

CHAIR: So basically you've got 75 carriages at 100 tonnes each. If that's thermal coal, it's actually more. It's still in excess of $1 million a train in gross value as it moves out.

Mr Flynn : I can give you the revenue numbers if you'd like.

CHAIR: No, that would be your revenue. I'm actually trying to look at the whole district rather than being particular to Whitehaven. So you'll be somewhere between $1 million and $1.4 million a train, which means that, every time you see a train moving, there's in excess of $100,000 in royalties going off to the state government. Would that be a fair call?

Mr Flynn : In round terms, I think that's about right.

CHAIR: Okay, good. With that extractive resource, you've got a mine at Werris Creek. That's correct?

Mr Flynn : Yes, we do.

CHAIR: So, where do the people at that mine at Werris Creek live? Are they all residential, or is there a section of fly-in-fly-out workers there?

Mr Flynn : No, there is no fly-in-fly-out composition there of any magnitude at all. Most the people from Werris Creek actually live in this immediate area here in Tamworth.

CHAIR: So, where would they live? Tamworth? Werris Creek? Quirindi?

Mr Flynn : All of the above.

CHAIR: Is that the actual employed workforce? I'm just getting an idea of the whole thing. Do you have actual contractors coming in and doing work as well?

Mr Flynn : We do.

CHAIR: What's the main sort of item of contract work that comes in?

Mr Flynn : Maintenance services are often part of the contract. Each of our mines differs in terms of what we use, but in terms of the Werris example that you've asked about, large-scale maintenance for trucks and excavators and so on is certainly part of what the contractors are providing. We do have labour hire also onsite. We're providing that additional labour support from labour hire businesses in the region as well. There's maintenance of all descriptions. Explosives have certainly been provided to us by services from the region.

CHAIR: How many of those contract services would come in from Newcastle or Sydney, as opposed to Tamworth or—

Mr Flynn : I would say that most of the labour component of those services is provided by local people.

CHAIR: In that royalty stream, is it difficult to get money spent in the local area? We were saying before that with such a resource being earnt from a certain area—do you find it difficult to actually get a better bang for your buck on the capital expenditure in your local district?

Mr Flynn : In this past four months we've spent—and this is quite consistent year on year—just under $300 million between Tamworth and Narrabri, with local procurement, local services, on an annual basis. We find that from time to time the full range of services may not be available locally or on a scale that we require. In times like that we've taken the position that we've incentivised a local provider to step up and have invested—not in their equity, but we've certainly arranged contractual terms that are favourable to them investing up-front to be able to service our needs.

CHAIR: What are your terms? What are Whitehaven's terms of payment?

Mr Flynn : They are 15 to 30 days, our longest.

CHAIR: That's good. That'll do me.

Mr BRIAN MITCHELL: Going to other companies—your competitors, for want of a better term—they use FIFO; why don't you?

Mr Flynn : We don't feel that it's the right value proposition for the communities we reside in. We would like to see ourselves as the largest member of the community as a private sector employer. That's a significant responsibility. We think it is a great benefit to us but also has responsibilities. We don't feel that there's a need for FIFO in this particular setting, because we have viable towns here of a scale with services that we believe are sufficient to attract people to come and move here. When we started our Maules Creek mine, which needed a large workforce very quickly to get it up and running, we made it very clear to people that if they weren't from the community—because we have trained a lot of local people and skilled them up in the skills required for our business—that we'd provide support to be able to transition in, but that would wean off over time, and then they must put their roots down.

Mr BRIAN MITCHELL: Has that presented any difficulties for you in terms of sourcing labour?

Mr Flynn : It did a little; there's no doubt. We were fortunate that we built that mine at a time when there was less labour pressure, labour demand. We were fortunate to be able to impose that, if you like, as a requirement of employment with us. Over time I think that's been a little more challenging, but we are less dependent now on labour from out of town, because as we've grown the training process that we go through has skilled up more and more local people so that the workforce actually want to live here, in the first instance, as opposed to coming here for a job.

Mr BRIAN MITCHELL: If you hadn't employed the track you've gone down—if you'd gone down the FIFO track—what would the community look like?

Mr Flynn : I can only hypothesise and compare to what I see in other states. We've never had that as a component of our business. As we talked about earlier, we do have services that aren't available locally coming into town, but if we had a large 'fly in, fly out' component, my sense is that there's less investment in the community as a result. There are still people resident there during the course of the week, but perhaps they leave at the weekend. The very things that go into making up make up a community and society—families, sports and services—wouldn't be as incentivised to move into the region as when you have a residential workforce.

Mr BRIAN MITCHELL: I was going to ask about sports. My electorate has a lot of regional towns in it—no FIFO—but over the last 20 or 30 years it has been hollowed out and the sports teams are dying. Has that been the case in your community or has your presence invigorated those sorts of teams?

Mr Flynn : All the LGAs that we reside in, based on the New South Wales state government data, have done very well over the last five years. We've grown significantly during that five-year period.

Mr BRIAN MITCHELL: Has there been any—I'm not sure 'independent' is the right term—data collected about what the positive impacts of your non-FIFO hiring methods have been on the community? Has anything qualitative have been done by the government, for example?

Mr Flynn : I'm not aware of anything by the government, but I know that as part of our recent submission of an EIS for our Vickery Project one of the requirements is to provide a social impact study, so you need to hire as social scientist. That study is part of the EIS and has pointed to significant contributions to the community not just from existing business but further.

Mr BRIAN MITCHELL: Can that be made available to this committee for the purposes of the inquiry?

Mr Flynn : The EIS has just been lodged, and I believe it will be made available for public exhibition in a couple of weeks time.

Mr BRIAN MITCHELL: If you could formally supply that to this committee, that would be very useful. I would say that goes directly to the terms of reference of this inquiry. You mentioned in your submission that more than half of all your suppliers receive payment within 30 days. That would suggest that just under half don't. What's your waiting time for those who don't receive it within 30 days?

Mr van Maanen : It's next month's end. It's 51 per cent within 30 days and 49 per cent by next month's end.

Mr Flynn : If you purchase something on the 25th of a month, you'll be paid at the end of the following month.

Mr BRIAN MITCHELL: So the most someone should be waiting is 60 days. If you submit your invoice on the first of one month, you could be waiting two months. Is that right?

Mr Flynn : There's potential for that, but assuming it has been processed within the month, it will be run at month's end. That doesn't mean every one of them gets captured within the month. Our general terms are 30 days. We don't just log them at the end of the month when they arrive; we're processing invoices on a daily basis.

Mr BRIAN MITCHELL: You've touched on the issue that you train and upskill your local community and your local workforce. We've heard evidence today—unfortunately you weren't able to be here for that—about a view amongst the chambers of commerce and others that perhaps not enough has been done by various corporations to contribute to training and skills within the community and that some corporations, of which yours might be one, prefer to do it in house rather than through TAFE. Do you have a view as to what role your company should be playing in upskilling the community more generally not just for your own immediate purposes but to have a better a better-skilled community overall?

Mr Flynn : I see our role to be very complementary to the role played by communities. We are in constant discussion with the Liverpool Plains, Gunnedah and Narrabri shire councils about how to bolster training opportunities for people in the region.

Mr BRIAN MITCHELL: How does that take effect?

Mr Flynn : Our training needs are quite specific to our business. We're not doing electrical trades training, for instance, but we if we want to convert a taxi driver, because they have a driver's licence, into a truck driver on one of our sites then we give them that training. Obviously we give them the safety training first and then the skills associated with driving a truck or grader or excavator. They're complementary to the ones that are done at TAFE, for instance.

Mr BRIAN MITCHELL: I was coming to TAFE. Do you see a role where you liaise more directly with TAFE to ensure that they're providing the sorts of skills that you need? Does that happen now? And, if not—

Mr Flynn : It does happen now. In Gunnedah, for instance, we're trying to provide to them the clearest line of sight we can on the demand for trades. Say the local service station has a need for electricians, for instance, and we've got a need for 10. What we're doing is pooling all the needs so that we can actually have a community based picture of what the need is for those trades, because we don't just want a sugar hit of getting 10; there will actually be 10 next year and then after. So what we're trying to do is to give people the clearest line of sight of what the demand is for those skills.

Mr BRIAN MITCHELL: How satisfied are you with the way TAFE operates? Does it meet your needs? What improvements could be made?

Mr Flynn : As to the nucleus, if you like, of where our regional centre is, in Gunnedah—I think we could do with more support in Gunnedah. A lot of our trades—

Mr BRIAN MITCHELL: In terms of more teachers, or—

Mr Flynn : I think more capacity for localised support in their courses. A lot of our young tradespeople doing their apprenticeships have to come here to Tamworth in order to attend their courses. They might live here or closer to Narrabri and obviously work at that end of the basin. So I do find some favour in the idea that we should continue to find a way to stimulate further support closer to our operations.

Mr BRIAN MITCHELL: I'm going to go into some figures for a moment. I promise I won't use my calculator. I'm not an accountant, like the chair! In your submission you mentioned $293 million that you spend with local suppliers.

Mr Flynn : Correct.

Mr BRIAN MITCHELL: How much would you spend not with local suppliers? So $293 million is the figure, but what is that figure in proportion to the total?

Mr Flynn : As a proportion of the total of the expenses of the business, that's probably about a third, if I'm thinking through the numbers at a high level. That's a very significant—

Mr BRIAN MITCHELL: I won't hold you to it. So roughly a third—

Mr Flynn : Roughly a third of our cash expenses—and there's clearly all the non-cash items. So there's funding and things and servicing; they obviously don't go into that equation. But it would be about a third.

Mr BRIAN MITCHELL: Okay, though that seems a fair bit higher than the anecdotal evidence we've heard from other witnesses about what other corporations are spending locally.

Mr Flynn : As I say, our pitch as a company is that the community needs to be able to do the math—that they can calculate, on their mental arithmetic, that they're benefiting from us being here and us growing and continuing to prosper. I think, in that sense, we're very aligned.

Mr BRIAN MITCHELL: What scope do you see for increasing that to, say, 40 or 50 per cent? What will it take to get it up? You're spending $300 million. Obviously the local community would love you to spend $500 million. So how do we get there?

Mr Flynn : I don't want to say that we're the centre of everything that goes on in that region—far from it—but mining is a very labour-intensive activity. So, in terms of our footprint—

Mr BRIAN MITCHELL: Rio Tinto might disagree with you!

Mr Flynn : Yes, but, if you look at our footprint versus the other land users in the region, the value creation and labour intensity for the square metres that we're using are actually very intense, and a lot of value is derived from that. As we've grown over time, it has been very rewarding to see new businesses come into the region and establish. If you look at the various industrial estates of Narrabri and Gunnedah and look at the expansion, you can see where businesses have now set up shop that are actually for the purposes of servicing not just us but broader industry around. That will expand the amount of local content as a proportion of our total spend.

Mr BRIAN MITCHELL: Given your stated commitment to the community, do you have an active plan in place to up your local spend? So you're spending $293 million now. Do you have a target for next year to try to up that to $300 million or $350 million?

Mr Flynn : We don't put a numerical target on that. What we do is that our procurement rules demand that we source local tenders as part of the tender process. We tender all our major works out and very consistently—whether it be concrete supply, electrical supply or you name it—we're seeing very good local proponents putting forward tenders.

Mr BRIAN MITCHELL: That does get to my next question, which is: how do local suppliers know that there's a supply job going? Do you have to just advertise it locally? Do you have a portal that people know to turn to? How do you make sure that information gets out?

Mr Flynn : We advertise for some of them. Then with others, because we're so large we know who all the concrete suppliers are in the region, we make sure that they get notification that there's work that we'd like them to tender for. On the whole, I'd say local business probably make up half the proponents of any given services tender in the region.

Mr BRIAN MITCHELL: We had evidence earlier from a chamber of commerce and a woman who's partner had a landscaping job because he was canny enough to go and ask but otherwise it's pretty hit and miss. I'll throw in that it would be useful if there were some formal mechanism where if you know you've got a gravel job or whatever coming up there's a list, almost like a Seek portal—

Mr Flynn : Some sort of services portal—

Mr BRIAN MITCHELL: Yes.

Mr Flynn : A tender portal—

Mr BRIAN MITCHELL: Yes. So local small businesses knows. They can say, 'Let's see what Whitehaven's got this week,' and there's a list of all your jobs. In terms of upping that 293 million that could probably increase that.

CHAIR: You've got a regional office based in Gunnedah?

Mr Flynn : We do.

CHAIR: Do you find that of assistance in running your area?

Mr Flynn : I think we've completely underestimated the benefit of it.

CHAIR: Was it hard finding staff for your regional office?

Mr Flynn : No. We had staff in the area but they weren't concentrated in one point. The feedback from the polling that I mentioned—that we take on an annual basis—and the focus interviews was that the functionality of how people engage with us was low. They didn't know where the decision-makers were. There was no physical presence where they could go and seek a tender, apply for job and provide some feedback if you needed to. Part of that feedback loop that we're trying to create here is that, 'You've said that we're hard to find, and you didn't know that there were senior people on the ground who could make decisions,' so we put a physical presence in in the township in the main street. That's been a huge boon for us and it's been that easy to attract people into it, because we would like to integrate our people more into the main street of the city.

CHAIR: That's to be commended. A presence in a regional town stands in stark contrast to some of the other evidence where with the presence for the mining houses is sometimes in Sydney and sometimes in Melbourne but very rarely in the actual areas where the minerals are being extracted from. I think that creates a problem in precisely what we're talking about because if someone needs to engage with the company, it's best to engage with it where it actually is. The promotion of goodwill is greatly assisted by people saying, 'It's in our area. It's a local.'

Mr BRIAN MITCHELL: Whitehaven Coal, you're independently owned? You're not a subsidiary of a bigger organisation?

Mr Flynn : We're listed on the stock exchange. We're the largest Aussie pure play coal company.

Mr BRIAN MITCHELL: Where is your HQ?

Mr Flynn : We have a small office in Sydney. We have 25 people.

Mr BRIAN MITCHELL: In Gunnedah how many people have you got on the ground there?

Mr Flynn : There are 35. In Newcastle we've got probably about 35. Newcastle is where our sales and marketing logistics takes place down at the port. We have a small representative office in Tokyo and everybody else is up here.

Mr BRIAN MITCHELL: I'm just trying to think, in terms of the culture of your company whether size plays a part—and I take your point that you're the largest. The multinationals tend to be the ones with the Sydney and Melbourne footprints. The bigger they get the more remote they get. What we've also struck in this inquiry to date is that there's been very little capacity for managers on the ground to make purchasing decisions. It's all done from global head office.

Mr Flynn : When I took over responsibility of the company some five years ago we had 22 people in our head office in Sydney. We're now four times the size we were from that time. We have 25 people now.

Mr BRIAN MITCHELL: Your decisions are made on the ground?

Mr Flynn : Yes.

CHAIR: Thank you very much to Whitehaven Coal. Thank you for attending the hearing. You'll be sent a copy of the transcript of your evidence and will have the opportunity to request corrections to transcription errors. I now close the public hearing. The committee stands adjourned until Wednesday, 12 September in Canberra.

Committee adjourned at 14:35