Making Ore While the Sun Shines; Miners Scramble to Take Advantage of Favorable Market Conditions

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New book, The Maintenance Scorecard, ISBN 0831131810 (Published by Industrial Press), addresses the unique issues of extracting further economic value from physical assets within the mining industry.

The commodities boom is now an established fact rather than a noticeable blip on the radar. Prices in some sectors are reaching all-time highs, copper and iron ore, while others, such as gold, are enjoying a long awaited resurgence. The book, The Maintenance Scorecard, ISBN 0831131810, addresses the unique challenges that this situation creates for mining companies throughout the world.

Normally high prices would be cause for concern as observers within the industry would be quick to point out. However, this time things are different. The demand profiles within the commodities have been irreversibly changed due to the growth in both India and China, making this boom one that could continue at least for the next five years.

The presence of high levels of sustained demand has placed the mining industry under pressures that it has not felt for up to twenty years in some cases. Like all boom periods at the end there will have been winners and losers. The winners will be those companies who were able to deliver value to their shareholders through aggressively exploiting the current opportunities.

The short answer for many organizations is to increase capacity, drive up production levels while maintaining, or reducing, the costs of producing every tonne, ounce, or pound of product that is sold. At first glance, this appears to be an obvious solution. Except hat every mining organization wishing to take full advantage of the current favourable climate has also thought of this!

On current stated requirements there are simply not enough productive units (be they trucks, shovels, loaders or shipping facilities) to satisfy all the expansion demands of the worlds miners during this boom cycle. There is a similar story when looking at the resources available in the area of parts and consumables for these machines. For example there is currently a world shortage in tyres for the largest of open pit ore haulage trucks. This places miners under the unique pressure of increasing productivity levels with existing physical assets, and ensuring that similar regimes are in place for new assets when they finally arrive.

In the past similar pressures existed from the cost reduction standpoint, however today the pressure comes from the increased demand perspective. The difference being that in the past approaches aimed at achieving this were aimed at cost reduction, thus increasing profit margins, today the goal is increasing potential revenue through exploiting the opportunities offered within the market place.

Advances in technology have allowed miners to be more productive generally. Today haulage and digging units are far larger than they were ten years ago, also much of the world modern mine sites are more highly automated and mechanised than the were even five years ago. This is where the challenge for today’s asset managers is far greater than in the past. The loss of one productive unit today, has a far greater impact than it would have had a decade ago, similarly; higher levels of automation and mechanization mean that there are now many more “mission critical” components in many transporting and refining processes throughout the world. Both older mines and newer mines are also dealing with increasingly complex geology; this places even fur-ther pressures on modern asset managers within the industry.

For companies to answer these challenges, and be able to take full advantage of cur-rent market opportunities, there is going to need to be a vast change in the operating practices of many of the worlds leading mining houses. This can be summarised into two general areas:

a. A need for a different view of costs of asset management, focussing more on unit rather than on direct costs, and

b. A need to survive with lower capitalization throughout the industry in general.

Since the middle of the 1980’s analysts have lauded mining houses for aggressively driving costs out of the industry. This need has been one of the driving factors behind such things as automation, mechanization and increasing unit size. However, the result of this today is that while these organizations still need to be making progress along the cost optimization path, their ability to do so through traditional rationalization methods, such as reductions in human resources and inventory optimization, are greatly reduced.

During these periods the focus was on driving whole-of-life costs of machinery to an absolute minimum. Today, this approach is no longer enough, in fact it can even be counter productive in the current high-demand environment. Asset managers need to establish the link between performance and costs if they are to achieve greater levels of productivity while maintaining low unitary costs. This requires an altogether dif-ferent focus on the whole-of-life asset management procedures than those fostered during the late 1980’s and through to the end of the twentieth century.

Deterministic, or static, costing models will need to be replaced with proactive, comprehensive and forward looking, models in order for miners to be able to drive out greater economic value from their physical asset base.

This is far more than merely representing the whole of life profile as it exists within maintenance systems and goes into such areas as; accurately forecasting corrective actions and their costs, modelling the changes in operating environment, driving asset decisions by condition assessments rather then anachronistic age or usage based thinking, and providing minimum safe levels of asset management interventions for a varying levels of performance and risk. All the while looking at improving the integrity and quality of the asset information portfolio to support a move towards stochas-tic or probabilistic support of decisions. (Something that is often not possible today)

In the past asset management was seen as something carried out by predominantly the maintenance department, however modern organizations realise that it is a combination of equipment design and acquisition, operations and maintenance that go into creating a sustainable high performance and low cost whole-of-life profiles.

This is a change from low costs to high cost effectiveness, possibly taking the hit on direct costs to guarantee sustainable low unit costs, and through ensuring that there is a balance between capital and revenue spending to produce the lowest overall costs for the company for a given level of performance and risk.

If miners are going to take full advantage of current market conditions, while having physical limitations on the rate and amount of expansion that they can undertake, then they will need to accept a reduction in capitalization of their physical asset base relative to production levels, and will need to manage this change aggressively.

Daryl Mather is a specialist in asset management, risk and reliability. This article is based on his new book “The Maintenance Scorecard” ISBN: 0831131810. He currently assists selected companies to achieve strategic advantage.

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