MDM Group

Source: Energy Digital

Date :05/12/2007 17:26:35

George Bennett tells ExecUK how he’s combining the ‘business logic’ he developed as an investment banker with extensive intellectual capital at mining and metallurgical processing firm MGM Engineering

Written by James Hurley and produced by Alex Smith

The story of MDM Engineering (MDME) is an intriguing one. Combining the commercial professionalism of a new venture with almost 20 years worth of experience, MDM was formed in 2006 by George Bennett and Mike Nunn. The pair seized the opportunity when once prominent mining engineering firm MDM Ferroman went into liquidation following a string of financial difficulties and project defaults, purchasing intellectual capital and data as well as retaining key staff.

At the time, Bennett, who has a background in investment banking in his native South Africa, was CEO of AIM listed exploration player Shanta Gold, which he successfully listed on the London Stock Exchange (AIM) in July 2005. He resigned in April 2006 to take the helm at the newly formed MDM Engineering. “The opportunity to form MDM Engineering came to me early last year where I was able to form the new company by taking on all the skills that became available following the liquidation of MDM Ferroman.” Asked what prompted him to leave the security of Shanta, he explains the opportunity to have a significant share in the new venture was a big draw. “I had a much, much bigger stake which meant this was a far larger opportunity for me.”

Open book

The minerals process engineering and project management company can now boast a proven track record of more than 18 years’ experience. It can undertake small, medium and large scale minerals projects on a global basis and is spread across the precious metals, base metals, industrial metals, diamond, and uranium sectors.

But what went wrong at Ferroman, and how did Bennett ensure that MDM Engineering is different? “There were several reasons why Ferroman hit financial problems; one of them revolved around the under costing of projects. They were encountering problems on projects for a few years, to the point where they went into liquidation.

On the engineering and processing side, there was no problem. It was only on the commercial side that these projects went wrong.” Crucially, Ferroman preferred to contract on a lump sum, turnkey basis. The company had it that a turnkey approach worked in the clients’ favour as it allowed them to retain a small project team, without constantly keeping track of countless invoices and work hours. Of course, this policy was shown to be flawed.

Bennett’s first job was to drive commercial professionalism into the business, drawing on his extensive investment banking experience – he was head of Mining Research Sales and a Director of HSBC in South Africa – to ensure that the new MDME didn’t repeat the errors of Ferroman. “I applied my business knowledge and logic to change the way MDME operated,” he says.

The first thing he did was take away the lump sum turnkey model of contracting for clients to what he calls a ‘cost-plus model’. “We made sure costings were done in great detail on projects so no one got any nasty surprises. I brought a much higher level of costing detail into the company which is part of my business logic anyway. Now, we are able to ensure that the revenue is high enough above the cost base to make it economically viable, which wasn’t always the case in the old company.”

Whether it is completing a project evaluation such as a bankable feasibility study, constructing and commissioning plants and infrastructure or managing a project from start to finish, MDME employs its transparent ‘open book’ policy.

“This means we disclose to the client where our margin is and the cost to the company of our man hour rate if we’re charging. The client is able to view copies of the timesheets attached to invoices throughout the project. We’re very open about what margin we want to make on the project. If we source equipment, and we negotiate a discount, we pass that on to the client. We don’t pocket that advantage as some companies would.”

The whole approach is refreshing and contrasts starkly with the turnkey model. “We want to share the benefit. If we complete a project early by $5 million, we will get some of that saving as well, so it’s in our interests to try and pass discounts on and keep overall project costs down. If we don’t use as many man hours as we initially predicted, we will share the net cost saving with the client,” Bennett explains.

“You pay architects to design your house, and if you ask one to build the house they will be required to bring in plumbers, builders and electricians and charge an eight to ten percent project management fee. That’s what we do. We get paid a fee for the design and man hours and then we charge a percentage fee to manage the entire project.”

And the results speak for themselves. “In its first year, I was able to make the company cash positive within six months. That was quite good for the volume of business we had, which is now steadily increasing.” MDME found that it was able to secure work without heavily marketing itself – “on the back of the original reputation of some of the guys,” as Bennett puts it. “Also my involvement in investment banking and mining means I’ve got a strong contact base.” This approach will be developed over the coming months as the company works towards a planned IPO in 2008.

People

The MDM Engineering team has been involved in projects all over the world, but the company’s core focus is in Africa. While a lot of mining companies would consider the African projects MDME takes on extremely challenging, the company can draw on the extensive and varied experience of its personnel. “We have a project in DRC where others would perceive huge logistical problems. To MDME, DRC is quite easy we have the necessary skills and expertise to operate in the country,” says Bennett.

“It might seem challenging to someone used to working in the Canadian or Australian market where the infrastructures is so well advanced, but MDME’s experience in building plants in remote areas means we’re not too fazed – to MDME it’s a challenge, but not a daunting one.”

The company is currently involved in two copper projects - a particularly strong market at the moment - four gold projects, two uranium projects and one manganese project. “We’re in a number of fields that are experiencing record demand and record pricing levels. The key is that we’ve been able to secure the human resources to carry out these projects. We have been able to find the right guys as and when we needed them, in spite of a global skills shortage. The old MDM had been around for 18 years so we could get a lot of guys to come back who knew the industry. Secondly, I’ve been quite aggressive with my hiring and incentive policy. The combination seems to work.”

Bennett says the atmosphere in the company is conducive to technical innovation and unlocking superior economic value. “We have a very open management structure. Everyone rolls up their sleeves and gets involved in projects. We encourage people to think out of the box. No one is pigeonholed. The guys are free to think laterally, which is critically important in this industry. And a good atmosphere means very low staff turnover so we can retain the skills and capitalise on this.”

Bennett has implemented a bonus structure and hiring policy based on his investment banking experience. “This encompasses a different philosophy which hasn’t been applied in engineering very frequently.”

But how does the company ensure quality is maintained when its expertise is spread across such a range of resources? “We ensure we have a highly focused team with the correct skills for each project to make sure MDME's high standards are maintained. We’re currently working on a gold and uranium plant and next year we’ll be building copper and manganese plants as well as another gold plant.”

Most importantly, MDM won’t take on too many projects in relation to its size. “We’re in the fortunate position of being able to turn work away. We had a job earlier this year that we opted not to get involved with purely because it was a difficult project in a difficult country which would have involved stretching our resources, which is not an option for us as we want to maintain a very high standard of service. That was a $60 million project. We will only take on projects that we have the resources for, where the margin is attractive for the company and where we know we’re capable in terms of our processing and design skills.”

The coming year will be a very busy one for MDM. “We’ll be involved in building another four projects on top of the two we’re currently working on,” says Bennett. The planned IPO will help the company to maintain and attract key staff through share option and incentive schemes, and provide Bennett with a “war chest” for marketing and potential strategic acquisitions.

“I think the industry is in a growth phase that I conservatively estimate that this commodity cycle will last for at least another eight to ten years. I’m also confident in the gold market, and I’ve always had a strong feel for the gold price. I see gold going to $1000 per ounce in the future. It’s good for the industry and provides an excellent space for a mining services company such as MDME to grow in the long term.”