Mining slowdown prompts rethink for WA firms

Peter Godfrey
by |
Western Australia’s largest independent law firm claims demand for legal work in the state is shifting in nature as a result of the mining boom slowdown.

Mining-related M&A work and work relating to the construction of new mining projects has virtually ground to a halt due to a sharp decrease in demand for the sector’s primary export, iron-ore.

“A lot of work for lawyers had been centred on the growth of new projects and the establishment of new companies and projects particularly in the area of iron-ore,” Jackson McDonald partner Will Moncrieff told Australasian Lawyer.

The iron-ore price is expected to decline to US$113 a tonne in 2014, before potentially falling further to US$80 in 2016 due to slowing growth in Chinese property and a wider global mining downturn.

Moncrieff said as the golden period of rapid growth and high production in WA's mining industry temporarily begins to ease, firms will need to adapt to the new kinds of work that will arise.

“The mining industry is now focussing more on a production phase. The main companies are concentrating on cost control and production efficiency as well as access to infrastructure in order to get production shipped,” Moncrieff said.

Moncrieff believes legal advice on company negotiations for rail and port access will increase, as will other areas where mining companies believe they can reduce or renegotiate costs.

“There will be a significantly greater amount of work in reviewing existing contracts. That is, proofing contracts to get them better suited to the market that we’re in,” Moncrieff said.

Last month’s high profile demise of the Perth-based engineering and construction company Forge Group foreshadows another source of potential work.

The company’s collapse, which resulted in at least 1500 workers losing their jobs, has already prompted calls for a class action in an attempt to recoup shareholders money.

Commercial litigation funder Bentham IMF announced it would bankroll a legal claim against Forge and that it would be led by Slater & Gordon.

“We expect to see a large number of shareholders sign up to the action as the most effective avenue to compensation for losses suffered,” Bentham IMF’s investment manager Tania Sulan said.

However, Moncrieff sees the Forge failure as evidence that the mining boom slowdown is set to result in more insolvency-related work for law firms.

“A lot of contractors and engineering companies are suffering with reduced workflows and managing the downturn in mining,” Moncrieff said.

Moncrieff says that this will produce an increased workload for lawyers working in insolvency and financial reconstruction work.

Lavan Legal partner Bronwyn Davies, who handles such insolvency cases, confirms Moncrieff's position.

“There is no question that we’ve already seen an increase in that area of work emanating from the mining sector and I suspect we’ve not seen the bottom yet.  There will be more to come,” Davies said.

Davies explained that companies which depend on mining output and investment such as drilling or geology firms were already under a lot of pressure.

The insolvency of the Perth-based mining accommodation construction firm TAG, which operated one of the state’s biggest undercover manufacturing sites, is further proof of the trend.

While the current economic climate suggests firms are unlikely to experience much expansion overall, Moncrieff remains positive, believing that the new areas are where firms can still expect moderate and cautious growth over the coming year.

 

Australasian Lawyer forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions