NATURAL RESOURCES UNCERTAIN TIMES : Mine owners focus on technology to control costs
Today’s economic environment has fundamentally altered commodity demand and prices, making it more difficult for mining companies to predict future patterns. Although long-term demand for natural resources, particularly by industrializing nations, is expected to rise, short-term pressures are forcing companies to examine their operations.
During the mining boom of recent years, mining companies focused on getting as much material out of the ground as quickly as possible; closely monitoring costs and overall productivity was not a priority. The result: the mining industry benefited from rising output, but didn’t reap the marginal profit growth that should have come with it.
“Mining was a low-growth business for much of the 20th century, so we were caught off-guard by the pace of China’s early 21st-century urbanization and industrialization,” Andrew Mackenzie, CEO of global resources company BHP Billiton, said in a June 2013 speech to the Melbourne Mining Club. “Demand was met in part by higher cost – much higher cost – operations. And many invested poorly to the detriment of their owners. Finding five dollars of savings per metric ton did not seem as pressing when prices were skyrocketing. But it really matters now.”
With the “low hanging fruit” of the easiest-to-mine deposits gone, companies are forced to enter more remote and costly-to-develop regions. Labor issues, favorable political environments, financing, and monitoring and safety challenges all become more difficult and expensive in far-flung locations.
In its recent “Tracking the Trends 2013” assessment of the mining industry, global consulting firm Deloitte reported that costs are reaching “unsustainable highs, and unless companies improve operational efficiency, proactively control maintenance costs and invest in cost-reducing technologies the trend is likely to continue.” The tough conditions and challenges faced in many mining operations “mandate a level of analytical capability that many companies lack,” the Deloitte report stated. “Significant rewards will be available to companies that invest today.”
The call to action to invest in new technologies is not falling on deaf ears. “In recent times, mining companies have been making money no matter what they do, but that’s quickly changing,” said Chris Holmes, Head - International at IDC Manufacturing Insights, a global research and consulting firm. “A fundamental rethink is happening on the way these organizations are run. There is a focus on productivity and efficiency that leads to a discussion on technology, including project management and supply chain solutions to complex communication and simulation tools.”
“WE MUST BE ABLE TO SET UP MINES AND LOGISTIC SYSTEMS IN WAYS THAT WE ARE ABLE TO REACT TO CHANGES IN DEMAND AND REDUCE RISKS AND UNCERTAINTY.”assistant professor of resource engineering, Department of Geosciences and Engineering, TU Delft University
Mark Cutifani, CEO of British multinational mining company Anglo American, advises the mining industry to look to other industries, such as petroleum, aviation and manufacturing, for technologies that have been used to address these needs, including design, mapping, modeling and simulation solutions. Cutifani told shareholders at his company’s April 2013 annual general meeting that “while many things have been achieved, we cannot continue to do business as usual. Our share price is languishing compared to our peers, and we are not being rewarded for the potential we have embedded in the asset portfolio.”
From site modeling and supply chain optimization to automation of mine operations, maintenance monitoring and strategic planning, the opportunities for gaining efficiencies and reducing costs are numerous.
“We must be able to set up mines and logistic systems in ways that we are able to react to changes in demand and reduce risks and uncertainty,” says Dr. Jörg Benndorf, assistant professor of resource engineering in the Department of Geosciences and Engineering at the Netherlands’ TU Delft University. “Setting up mining projects takes 10-15 years with billions invested. You can’t just react to the market; you need the proper strategies to justify the investment and implement projects successfully.”
Some mining companies are turning to experts from other industries to lead the charge. “A couple of natural resources companies have brought in supply chain managers with retail and consumer goods backgrounds to implement some of the latest supply chain process thinking and supporting technologies,” IDC’s Holmes said. “And that’s a trend I think we’ll see continue.”
Cutifani encourages the mining industry to develop “an operating and project-delivery model that takes inspiration from beyond the mining industry, to support the implementation of the plans and disciplines necessary to improve our ability to execute our strategy. In doing so, we will also establish the underlying processes necessary to improve our competitive operating position, to improve margins and to increase capital returns.”
The road ahead isn’t necessarily an easy one for the mining industry. The biggest challenge, Holmes and Benndorf agree, will be tackling change.
“Mining is a very conservative industry, and implementing change usually takes a while,” Benndorf notes. “The right driver has been missing because mining has been such a lucrative business. But now we’re being forced to look at cutting costs. Smarter ways of doing maintenance, mine planning and implementing production become more appealing to companies and they are more willing to change in this situation, but it requires a commitment from the top.”
Holmes believes a change in culture is a prerequisite for technology adoption. “We need to start talking about lean techniques in mining as other industries do,” he urged. “It’s important for mining organizations to look at other industries to see how they’ve embarked on that journey. We need a very fundamental change in thinking and a cultural change that is organized from the top down so that things get implemented.”Back to top