UNCERTAINTY surrounding the Resources Super Profits Tax (RSPT) has led mining technology company Runge Limited (RUL) to downgrade the upper end of profit forecasts by $8 million for 2010. But with around 40 per cent of revenues coming from abroad, Tony Kinnane plans to boost the company’s foreign outlook, with a new office set to open in Russia in July. He tells Brisbane Business News about a 19-strong international office network which now includes Mongolia.
In his Ann Street office Tony Kinnane has a Russian flag folded on the desk, ready to make its way to a new Runge office in Moscow as soon as the paperwork is signed.
In the last four years the company has made about $9 million in deals with Russian companies including Suek, Severstal and oligarch Oleg Deripaska’s Rusal, but now it’s taking the relationship one step further.
“Russians are very process-oriented bureaucratic people, so getting visas for staff has taken longer than we wanted, even with Michael Zubkov who will be heading up the office – he is Russian, but because he’s an Australian citizen he needs to get a visa too,” says Kinnane.
“We’re comfortable to pick and choose who we deal with and avoid corruption - we keep our eyes open and we’ve found that Russians tend to know what they want, but we state that we are the best in the world so we’re not going to compromise on fees, and Russians love quality.”
In light of last month’s mining accident that killed 90 people at the Raspadskaya mine in central Russia, there are growing calls for increased mining safety in the world’s largest nation.
Runge does not service that particular mine, but Kinnane points out that mining safety is embedded in the company’s consulting practices to boost productivity, which presents many opportunities.
“We say that we can give them a better net present value and safety will be a part of that, so when you’re economically focused they presume you’re also safety-focused.
“Then we have to hope like hell that the operators stick to the operational plan.”
He points out that while some Russian entities are often associated with corruption, the situation is no worse and in some cases better than in other countries where Runge operates.
“We’ve got 19 offices around the world so we’ve dealt with every country where there is corruption– we’ve been offered deals that you could say are corrupt but we’ve always knocked them back.
“For instance, they might say if you give $10,000 to this minister then you’ll get the project, but if you do that once then you do it again and you get a target on your head that says ‘these guys practise graft’.”
A Khan-do attitude
The former Soviet satellite of Mongolia changed its mining laws 12 months ago which has led to an influx of foreign companies vying for market share. Up until mid-April Runge had run its Mongolian operations from Beijing, but Kinnane has seen the nation is fiercely independent of Chinese influence.
His goal is that Runge will get more kudos at the ground level for basing itself in Ulan Bator.
“We’re the only mining consulting group there at the moment and we cover the full range of minerals, so even if you’ve got some esoteric mineral that’s very unique, we can source a person to work on it.
“We’re very well-positioned and we’ve also got Peabody Energy and Leighton Holdings in the same office building.
“We’ve also got three Mongolians mining engineers here in Brisbane and at an appropriate point we’ll send them back to the office in Mongolia – the idea is that we’re not culturally Australian in Mongolia, but an Australian company with Mongolian culture over there.”
He believes the value of Mongolian contracts will reach a similar scale to those from Russia in due course.
Expectations and nimble feet
While Mongolia is encouraging investment, the Henry Tax Review aims to cool down a boom facing infrastructure constraints, but the end result has been a slowing down of local activity.
Kinnane would have preferred a swift action rather than the current uncertainty around the RSPT and until the policy is clear, he will be shifting nine staff abroad.
“We previously forecast a revenue between $5 million and $10 million for the company but we’ve downgraded that to around $1 million plus – since January everything’s just gone quiet in Australia, so the momentum went backwards,” he says.
“I think it’s got a lot to do with the proposed super profits tax - the announcement was made in May publicly, but it was well known that something was going to happen in January.
“The biggest danger Australia and our business is facing is the total uncertainty created by this tax, because if they came in with a clear decision people might not have liked it, but we would have had a better idea of what to do.”
Runge’s business model, export inclusive, is all about flexibility between its network of offices, spanning five – soon to be six – continents.
“Our office in Denver is a great example, as from there we have a lot of clients dealing with our office in Belo Horizonte in Brazil.
“From Hong Kong we have Andrew Ryan, who basically runs the office as a shopfront because Hong Kong is the hub of money to China – he’s very enthusiastic at looking for opportunities there, while also tracking capital flows to Africa.”
By expanding into new markets, Kinnane highlights the flexibility in product offering as another opportunity to gain revenues, as opportunities are not always what you think they will be.
“In Chile what we’ve found is that while we started with our software and people grasped that first, they then saw that we’ve got a presence in consulting.
“In South Africa we started out with consulting and training, before software came on the back of that, so it’s all very much horses for courses - what the customers want, we’ll give it to them.”
“In Russia there’s a real opportunity for training too, to give training courses in Russian, so being nimble on your feet going into a new market is very important.”
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