April 2002

By Bruce H. Mason and Bill Welgoss

Editor’s Note: This article is an adaptation of a presentation given by Bruce H. Mason at the Society for Mining, Metallurgy, and Exploration’s Winter Workshops, in Phoenix, Ariz., on Feb. 25, 2002.

In the summer of 2001, approximately 200 aggregate industry personnel were asked to share their thoughts concerning the top 10 challenges and opportunities facing the aggregate industry. These industry personnel represented all facets of the industry, administration, sales, technical, operations, and environmental and quality control. This request for information was deliberately very broad-based.
The request for information was not scientifically based with the requests being made to specific percentages of industry personnel. It was sent to all state aggregate trade associations, the National Stone, Sand and Gravel Association and many leading aggregate producing companies. Of the more than 200 industry people who were sent surveys, the response was about 12 percent, which was less than expected. The events of Sept. 11, 2001, are believed to have been a factor in this response rate.
The request for information did not suggest any specific areas of concern or specific opportunities. The request was simple. It asked that one should list the top 10 challenges to be faced and list the top opportunities that might be possible. Respondents were asked to provide comments concerning their list of challenges and opportunities. Most respondents provided expanded comments concerning their lists of challenges and opportunities. These comments gave added insight into the actual areas of concerns, challenges and opportunities.
From information about the total tonnage of aggregates produced for transportation and public infrastructure needs (see “Production Statistics Show Growth”, p. 7), the apparent stability in pricing and the forecasted increases in all construction activity, one would think that the number one challenge facing the aggregate industry would be funding issues.
The information that was gathered from the survey was surprising, but understandable considering the amount of growth that has taken place in the aggregate industry in the past four decades and the local nature of this industry. The top concerns are related to and deal with the need to participate in the educational process to ensure that good information about mining is reaching our schools, students and the public; and the need to improve the access (zoning) to present and future aggregate reserves.

Challenges
At a recent meeting of the SME Construction Aggregates Committee, 2002 SME President Michael Karmis coined the term “urban mining.” All of the top three concerns deal with urban mining issues.
The number one concern was the need to properly educate the public about the need for mining and the true value of the contributions that aggregate products make to the standard of living enjoyed by today’s society. Comment after comment illustrated the frustration of all segments of the industry in facing an increasingly hostile public when trying to obtain permits for expanded operations, zoning reserves or approval for construction projects.
A second concern addressed in multiple comments is that the industry is being challenged more by the prospect that future aggregate supplies are at significant risk because the general public does not care where aggregate supplies are obtained, except the public does not want it to come from their back yards. The popular term to describe these people would be to use the term NIMBY—Not In My Backyard. Another group can be described as BANANA’s—Build Absolutely Nothing Anywhere Near Anybody. There are also the NOPE’s—Not On Plant Earth.
Groups such as the Animal Liberation Front (ALF), Earth First! and The Earth Liberation Front (ELF) are targeting construction projects throughout the United States. Many mainstream environmental groups and grassroots organizations are very active in their opposition to zoning and permitting of aggregate reserves.
A third challenge is posed by grassroots groups. These groups are normally neighborhood groups—those five to seven people who bring their lives to a halt to protest a road, a construction project or the zoning of aggregate reserves. They put their lives on hold to stop those projects that they think will seriously affect the quality of their lives. It was obvious from the comments of the respondents that this grassroots activism is evolving from the once small, informal group and from small meetings to larger, well-financed groups and alliances of groups intent upon on stopping “growth.”
Fourth on the list of challenges was the need to be better neighbors and to do more to address common neighbor complaints concerning blasting, noise, dust and trucks. This was followed with the awareness that more public relations activity is needed to explain how the aggregate industry is contributing to the well being of the community and society.
A fifth challenge is the feeling that the aggregate industry was facing an increasingly hostile regulatory environment. Increasing regulations in safety and health matters, air permitting, blasting regulations, water issues, wetlands, and historical preservation issues are an increasing risk factor for the aggregate industry. It is easy to see a relationship between the public’s negative perception of the aggregate industry, the lack of proper information about this information (or the lack of understanding of the true significance of the aggregate industry) and the increasingly difficult task of obtaining permits of any kind.
A sixth concern is the need for more technological advances. Such improvements would allow the aggregate industry to utilize production advances to improve production and lower costs.
Adequate funding for transportation needs is seventh on the list. We believe that if this request had been made in January of this year, funding needs would have been first on the response list. In the last three months, some of the optimistic economic projections for short-term increases have been reversed. Many states now face significant shortfalls in funding for their transportation needs.
At press time, Indiana faces a potential $1.2 billion dollar shortfall in revenue to meet current budgetary needs. Additionally, local transportation funding has been cut by approximately $200 million. Experts are projecting a possible $1.8 billion deficit in total revenue over the next budget cycle. This could impact the ability of the state of Indiana to match federal transportation dollars. At the federal level, there is significant pressure to use dedicated transportation trust funds for other purposes. Serious funding issues are coming to the surface.
Eighth on the list is a concern about the availability of a good work force. It is an understatement to say that good employees are hard to find and retain. The aggregate industry has, for a number of years, enjoyed a certain relationship with the rural communities that seem to provide excellent employees from basically a family farm base. These employees came to work for the industry with a good work ethic, a certain amount of mechanical knowledge and a respect for the maintenance of machinery. As the aggregate industry becomes less rural and more urban in nature and as the number of family farms and farm families shrink, good employees from that historic base will decline.
In ninth place is the concern that employees need better training and to have a better technological base. Fewer training choices seem to be available to those interested in working for the aggregate industry. If this is true, the lack of significant training facilities will present significant challenges to the industry in the future.
The final challenge is the concern that specifications by transportation agencies are presenting significant threats to an economically affordable aggregate product. These specification changes continue to present production challenges to this industry.

Opportunities
There are basically three groupings of opportunities listed by the respondents, and they addressed communication issues, environmental issues and work force issues.
The first opportunity is to engage schools, educators and the public in the effort to provide better information about the need to mine aggregates and the need to mine in general. Also, there is a need to properly educate the public about the contributions made to our standard of living by our industry and other products mined from the earth.
A second opportunity exists to engage specifications writers and to communicate the effect of these new specifications on the cost of production.
Finally, a third opportunity exists to promote more industry grassroots efforts on the behalf of the aggregate industry. Comment after comment indicated that more time and resources should be spent informing neighbors why we do what we do and how it is important to society’s standard of living.
The second grouping of opportunities listed centered on environmental issues. Many comments indicated that potential environmental problems could be avoided by proactive actions by the aggregate industry. Others indicated an opportunity exists to properly inform regulatory agencies about the benign nature of the industry.
The third grouping focused on work force issues, such as safety training and other training issues.

Study results
There seemed to be an overall consensus between producers, state aggregate associations and the National Stone, Sand and Gravel Association as to the issues addressed in the top seven challenges. Only the order was different. The top three challenges were all very closely ranked. A single different response, one way or another, would only have changed their order, but not their content.
Opportunities listed ranged far and wide. If more information had been requested and more comments received, a ranking of opportunities would have been clearer.
In summary, a challenge to one person or company may be an opportunity to another. What is very clear is the fact that the general public is not aware of what aggregates are and what mining and mining products contribute to their standard of living. There is an ever-increasing need for aggregate companies, their employees and families to engage the public to properly inform them of the vital contributions this industry is making to their well being.

Production Statistics Show Growth By Bruce H. Mason and Bill Welgoss The construction aggregates industry in 2000 consisted of more than 3,800 active crushed stone quarries in 49 states and 6,100 sand and gravel operations in 50 states. Quarries produced more than 1.56 billion metric tons valued at $8.7 billion dollars. This tonnage represents the highest production levels recorded in the United States, indicating a continued increase in the demand for construction aggregates. Approximately 84 percent of the total crushed stone produced was used as construction aggregate. Construction sand and gravel production in 2000 exceeded 1.2 billion metric tons valued at $5.7 billion dollars. Every state produced sand and gravel, and California produced more than seven times the amount produced in the entire country in 1905. The U.S. Geological Survey estimated that the value of the combined production of construction aggregates from quarries and sand and gravel operations at more than $14 billion dollars. The constant dollar average price of sand and gravel, which is the actual price adjusted for inflation, has not increased significantly since 1905. This is due in large part to the improvements in equipment and technologies that have resulted in greater efficiencies and productivity. The growth of the construction aggregates industry from 77 million metric tons in 1916 to more than 2.8 billion metric tons in 2000 is a reflection of how important and basic this commodity is for our standard of living. It is one of the primary components of all construction activity. The industry demand was identified as 34 percent consumed in the construction of highways, streets and airports; 23 percent consumed by commercial construction; 19 percent consumed in residential construction; and 12 percent consumed in other public construction. In its June 4, 2001, analysis of the construction aggregates industry, Morgan Stanley Dean Witter forecast an increase of 2.3 percent in 2001, 5.2 percent in 2002 and 6.5 percent in 2003. Morgan Stanley Dean Witter also forecast that pricing for the construction aggregate industry should increase 3.5 percent in 2001, 4.0 percent in 2002 and 4.0 percent in 2003. This forecast was predicated upon a reasonable economic environment. The events of Sept. 11, 2001 and the softening economy would suggest that their forecast might have been ambitious. Highway appropriations, by federal, state and local governments, appear to be well protected from being diverted to other uses. All of these appropriations are generally funded by user-fees (gas taxes). The states survey by Morgan Stanley Dean Witter indicated that they planned to spend approximately 80 percent of federal TEA-21 fund on highway construction. Consolidation of this industry from small privately owned companies into large multinational public owned companies has been underway for the past decade. This consolidation has slowed in the past year for a number of reasons, but is expected to continue into the future. The Morgan Stanley Dean Witter analysis illustrates that the top five aggregate producers will take their combined market share, currently at 27 percent, to 35 to 40 percent over the next five years. The major aggregate producers have obtained average annual price increases of 4 percent over the past five years. Morgan Stanley expects these increases to continue as the major producers continue to gain market share in land-locked regional markets, where new expansion is limited by social and environmental constraints. Short-term cyclical downturns in construction activity are the primary threat to the continued expansion of the aggregate industry. Decrease in interest rates normally prompt construction activity. Because of these glowing projections, rumors of possible new entrants into the construction aggregate industry abound.

Bruce H. Mason is executive director, Indiana Mineral Aggregates Association Indianapolis, Ind.
Bill Welgoss is senior industry editor for AggMan.

Hanson Eyes North American Acquisitions as Profits Rise

LONDON—Following a 10-percent increase in annual profits, Hanson Plc gave indications that it might soon hit the takeover trail in North America.
But the company maintained a cautious outlook. Hanson shares have fallen steadily since the Sept. 11 attacks, which exacerbated the effects of an economic slowdown in North America, which accounts for more than 60 percent of group operating profit.
Pre-tax profits before exceptional items for calendar 2001 rose to 351 million pounds ($502 million), from 318.6 million previously, with mild weather in the final quarter helping to boost building work at its American division.
On average, industry analysts had forecast Hanson to report profits of around 336 million pounds. However, Hanson said it remained cautious due to current global economic uncertainty.
“In the current economic climate, it is particularly difficult to predict the outlook so early in the year,” Chairman Christopher Collins said in a statement.
During recent years, Hanson increased its global presence with its acquisition of Australian construction group Pioneer International Ltd. in 2000. The company also made a further acquisition last month when it bought Canada’s Centennial Concrete Pipe group, and Hanson said it had the capacity to resume its “value adding bolt-on acquisition program.”
Chief Executive Andrew Dougal said Hanson had not set out any specific spending targets for possible acquisitions, but added the group was keen to build its U.S. presence.
“The U.S. will continue to have the lion’s share of investment because it has more opportunities than anywhere else,” Dougal told reporters.
Hanson, which recently sold its continental European bricks unit to help pay off borrowing costs, added it had cut net debt by 21 percent to 1.4 billion pounds.

New Minerals Association Formed

WASHINGTON—Representatives of a number of industrial minerals organizations announced the formation of the Industrial Minerals Association-North America (IMA-NA). Initially the IMA-NA will consist of such industrial minerals interests as ball clay, industrial sand, talc, soda ash, feldspar, mica and zeolite.
Rick Shearer, president of U.S. Silica Co., one of the founding members of the new association said, “By launching the IMA-NA we hope to tap the synergy of the industrial minerals industry to impact public policy throughout North America; sharing of safety, health and environmental information; and promotion of opportunities for industrial minerals to participate in the global economy. We welcome all North American minerals companies to join us.”
The inaugural meeting of the new association will take place April 18-19, 2002 in Arlington, Va. IMA-NA membership will be open to trade associations and individual companies involved in the production and/or support of North American industrial minerals.
For further information, contact IMA–NA at (301) 595-5550.