Mines Must Operate More Efficiently or Die

The world claims that nobody predicted the Global Financial Crisis and the commodity price drop, rebound and subsequent drop which followed it. But this is untrue. You might think the GFC is over but with 18 first world countries facing debt defaults (which most are desperately trying to inflate themselves out of), it would be a brave person (or a fool) who believed that boom times were returning any time soon.

Back in 2007/08 there was almost universal support amongst Economics academics that the situation in the US was unsustainable. There was even one of the regulators, Brooksley Born, who spoke out and was quickly excised. Funny how the media is only bringing this to light now.

Quite apart from this, in August 2007 I gave a presentation where I said that the current resources boom could not go beyond 2011. I must confess I thought it was over in 2009 with the rapid drop during the GFC but most commodities rebounded strongly. In February 2008, Leigh Clifford was in the press saying we were at the start of a 50 year super cycle. At this point I knew the end was only a matter of time.

We all know that the mining and resources industry works on a boom-bust mentality. It is possible to track this back to 1846 when copper was officially discovered in South Australia. Australia’s first (and greatest) resources boom lasted to 1852/3 after the hoopla of the official discovery of gold in Australia in 1851 died down. We see subsequent resources booms starting in the 1870’s, 1890’s, 1920’s, 1950’s, 1970’s and 2000’s. These are not necessarily stock market booms but rather investment booms and not always mineral resources; in the 1950’s we had a wool boom. The average time between booms starting is 25 years and varies between 22 and 28 years. Of significant interest is the fact that they have never run more than 8 years (nor less than 6 years). Consequently, the most recent boom, which did seem to be a particularly strong boom after a really difficult time in the industry during the 1990’s, and which started around 2003, couldn’t go past 2011. In addition, the 2000’s boom closely mirrored the 1920’s boom which ended in the 1929-1933 stock market crash. In both cases a financial bubble was formed using creative financial products. Don’t kid yourselves here. In the 2000’s high commodity prices were driven by leverage from financial institutions; leverage for speculators to push and manipulate prices up and down, and leverage for US households to keep spending and push consumption through the roof. In the 1920’s high stock prices and resources speculation were driven by leverage provided by brokers with the support of bankers. The GFC was a shake-up to the system caused by a drop in house prices in the US. But to use of leverage to manipulate commodity markets is still very much in play.

What is my point? Don’t believe for one second that investment is going back to boom times in the short term. History says it won’t before 2025. Add to that the fundamentals which see the US basically bankrupt; a financial system which should deleverage but is strongly leveraging itself further; and there is insufficient demand to offset the increased output from the boom to drive commodity prices up. I believe the masses are being sucked into a financial con by the big (mostly US) financial institutions who are using government stimulus and printed money to create an illusion of recovery to drag Mums and Dads back into the market (many through superannuation) so they could further leverage the derivative products. It can’t end well.

We are therefore left in a “bust” until at least 2025 and possibly until 2031. I have said before, the last bust (1986 – 2003) addressed labour numbers in the mines. Workforces were slashed by 50% and more which increased an illusion of efficiency in terms of output per manyear. This bust has embarked on cutting the excess labour and this process is nearly finished. There is not much more blood left in that stone. The mining companies have at least 12 more years to survive until the next boom and will have to address equipment efficiency.

For many mines it will be a simple equation; operate more efficiently or die. The new coal and iron ore barons will die and/or be swallowed up by the big players or by Chinese companies. My estimate, again based on history is that at least 70% of current mine owners / companies will be gone by the start of the next boom. You have little choice but to improve efficiency. You might as well start the process now; the pain will be less later. When your company is losing money on every tonne of a commodity going out the gate what owner will allow their equipment assets to be 20%, 30%, 50% below their capability? They won’t. In the same way, Charles Copeman and Peko Wallsend addressed labour issues at Robe River in 1986 (followed by a raft of less advertised examples across most of the mining industry), this industry will, over the next 10-15 years, address equipment underperformance issues. For some mines which can’t or won’t that will mean closing.

But surely our mines aren’t this bad. Surely, this was also addressed in the previous busts? Well, no it wasn’t. In the 1980’s we didn’t know how badly most of us operated our equipment. We had a feeling that it could be done better but it is only with the advent of complex monitoring systems and the data-warehousing of worldwide data that we now know how inefficient most of the industry is.

If you as an individual and company haven’t developed the most important strategic skill – value-adding change, chances are you won’t survive in this industry to see the next boom.

Truck and Loader Matching Part 4

Over the last few weeks I have systematically pulled apart the issue of nominal truck capacities to demonstrate why big mining trucks achieve 5-15% below what the manufacturer says they should get on average.  I don’t believe this is an issue that too many truck manufacturers’ want to address and the cynical side of me suggests that this article won’t help.  Maybe a single voice in the wilderness can gain support to force change. 

My focus is on mines moving more for less and apart from the engineering design work to increase the capacity of trucks from the 150 tonne maximum size 25 years ago to the 360 tonne maximum size now I don’t think that the truck suppliers have helped the “move more for less” equation too much.  Even the notion of bigger trucks being a great innovation and assistance in efficiency enhancement is questionable.  I will repeat something from a previous blog.  On the whole bigger trucks are less efficient than smaller trucks.  They carry less payload (as a percentage of nominal capacity) and work less hours. However, this is not a consistent picture between OEM’s.  In terms of nominal capacity the 360 ton trucks are 50% bigger than a 240 ton truck. however, in terms of actual annual capacity, average 360 ton trucks move just 20% more than 240 ton trucks.  I am not pointing the finger at one supplier. 

Figure 1 shows the 2010 median performance for each major mining truck make and model.  Some of the older and newer models are not included due to lack of data.  Mining truck performance is presented in this analysis as annual tonnes (normalised for full year operation) * km travelled per tonne of nominal tray carrying capacity.

Trucks with different designations (usually A, B, etc used by Cat and Liebherr) have not been separated in this analysis.  The capacities for these “sub-models” are generally similar as is the output.   It is important to note that this plot does not attempt to say whether the make and model results actually reflect better trucks or the operating characteristics of the sites at which they are used.  The trends with increasing size of mining trucks are mixed.  The Liebherr trucks become more efficient with increasing size while the Cat trucks become less efficient with increasing size.  The Hitachi, Komatsu and Terex trucks achieve peak efficiency with the 240 ton (218 metric tonne) capacity size EH4500, 830E and 4400 respectively.  The larger capacity trucks are not as efficient with these OEM’s.  Of the larger trucks the Liebherr T282 is the highest performer with Terex and Komatsu both achieving 20% less annual tkm/t and Cat 23% less annual tkm/t.  It is not without precedent for larger equipment to have lower unit production (ie. draglines) however, the exceptional performance of the Liebherr T282 range demonstrates that this is not a necessary outcome.  Another clear finding from this plot is that the performance of the smaller Cat trucks (777 and 785) was, and continues to be, relatively high.  They however, are not suitable for loading with the larger loaders. 

This industry has lived in a world where bigger is better.  But frequently when bigger equipment is released it just doesn’t perform well.  Those of us who remember the release of 240 ton trucks would remember that they had real problems.  It seems too easy for a poorly performing mine to just get bigger equipment and that is what they tend to do.  They waste more millions of dollars when the improvements they need are available by just operating more efficiently and would actually cost very little.

To demonstrate this point I will set up a scenario of a PC8000 hydraulic shovel loading Cat793 trucks.  These have not been chosen for any particular reason except it should be a comfortable three pass match.  The average PC8000 loader will require 7.5 average Cat 793 trucks.  Four crews plus spares plus trainees (you should always have a pool of people training) probably means around 40 truck drivers.  If a mine then goes and purchases Cat797 trucks the typical method of determining number of trucks is to simply work out the proportional capacity.  New trucks = old trucks * 793 capacity / 797 capacity.  Using this formula five new Cat797 trucks would be purchased with the expectation that around 13 people would be saved along with reduced running and maintenance costs.  Unfortunately, this scenario is fictitious.  In the real world the PC8000 on average needs 5.8 * 797 trucks and only saves 9 people.  Bigger trucks cost more to buy and more to run, so how far ahead are you?

OK so returning to the real point of this column; technology is progressing fast.  We now know that trucks are not carrying the nominal payloads.  This has not gone unnoticed by companies which make their way in the world by making equipment work better.  For the OEM the real money seems to be in the chassis and tyres.  Improvements in payload are coming from specialist tray suppliers.  Truck trays are no different to most other mining equipment.  What the equipment carries is made up of steel and payload and the aim is to maximise the payload and minimise the steel while achieving acceptable life.  In the past with trucks this was a nothing equation because OEM’s told the mine what payload the truck would carry.  We now know this was almost always wrong.  Truck trays seem to be following where the industry has been with draglines.  Now Bucyrus and P&H build draglines and shovels but CQMS currently build the most efficient dragline buckets while VR Mining have the most efficient shovel dippers.  In trucks you have specialised truck tray manufacturers like DT HiLoad, Duratray, Esco, Philippi-Hagenbach, Westech, etc. who seem to get it; the chassis is built to carry a certain load and if you can reduce tonnes of steel and increase tonnes of payload then the mine must be ahead. 

It is my proposal that we must here and now dispose of SAE Standard J-1363 for calculating truck capacity the same way suppliers have disposed of the CIMA formula for dragline bucket capacity.  We must also stop rating trucks based on a nominal payload.  We should establish a rated capacity for the truck trays which is struck capacity (contained capacity with no heaping according to computer models) multiplied by a factor.  With dragline buckets the factor is 0.9 which I have always disagreed with but everyone knows it and accepts it.  I believe the rated capacity of a truck tray should be equal to the struck capacity, (factor = 1).  In the same way that we have a Bucket Efficiency Ratio for draglines and a Dipper Efficiency Ratio for shovels, which is payload / rated capacity, we need a Tray Efficiency Ratio (payload / rated capacity) for trucks - TER.  There is also a steel weight ratio (Tray Unit Weight (TUW)), which is the weight of the tray divided by the rated capacity.  The formula for the optimum truck tray rated capacity is then;

OTC    =        GVM – Chassis Wt

                      TER + TUW

Only then can we get the best tray design with the right capacity to meet the gross vehicle mass.  At least then we will be covering Step 1 in the optimisation process; mines will be selecting the right piece of gear.

A Productivity Paradigm

I have spent some time looking at the issues relating to productivity and why working hard on a mining solution rather than a “Business Improvement” solution is really important.  You know at the end of the day that the most important strategic ability your mine has is to be able to implement value-adding change.  Also, there is that catch phrase “continuous improvement” which is really, really important when considering the most important strategic ability.  It is interesting when studying data from best practice operations to see the trend of their performance.  In the majority of cases it trends up.  It might be 2% one year, 3% the next and maybe some years it is 0% or down a bit, but the trend is unmistakable.

While Six Sigma, Lean, TOC, etc. are all useful systems, you have to be careful that the improvement you gain is in the removal of your commodity not just the understanding of the “correct” process of business improvement.

However, lets take a step back and assume you are not one of the 10% of mines that has best practice performance of your mining equipment.  Where do you start?  Well the first place you start is in the collection and use of data.  There are monitors for all equipment now and there is no reason not to have one on every piece of equipment.  We have just kicked off a project with Vale in Brazil and they have many, many small excavators and small trucks running around a number of their mines.  From a fleet of 5 m³ excavators and 40 tonne articulated trucks they have a monitor on everything and the data quality is as good as anything in the world.  This is a company which is trying to catch up technology and bring their mines into the 21^st century and they have monitors on everything.  You need to be the same.  It has often been said that if you don’t measure it then you can’t improve it and while this is true it is more than this.  If you don’t acquire it, analyse it and apply it then you can’t improve it.

OK, so we assume you have monitors (and even if you are still to get them) there is a very simple paradigm for improving your equipment.  That is; Fill it up and do it more often.  “Too easy”, I hear you say.  “We already do”, most will respond.  My response to this then is - why aren’t you achieving best practice?  If your P&H4100XPB shovel is moving less than 50 million tonnes per annum or your EX5500 Excavator is less than 24 million tonnes or your Cat 793 truck is less than 5 million tonnes per annum per truck then why aren’t you doing what best practice operations do?  The problem is twofold.  

Firstly, many mines find excuses not to “fill it up”.  These excuses range from, “I can't overload the machine” to “If I don’t fill it up then I can cycle quicker” to “We can’t handle the spillage” to …….  Any of these sound familiar?  Another issue for many mines is that operator have been taught to not fill it up.  The number one, most important thing you can tell an operator is to fill it up.  Irrespective of whether it is a truck, dragline, excavator, front end loader or electric rope shovel the singular directive should be given to the operator; “Fill it up”.  This sounds simple but an operator must be taught what full is and then how to achieve it consistently.  It is surprising how many different definitions there are of “full”.  I will return to this issue of full in future posts as it is a really important concept which many miss.  

Secondly, you must treat every second of time as being important.  This is another one of those attitude issues.  Do you operate your truck for 5,000 hours per year or 6,000?  Think about it this way.  If you could save 15 minutes a day simply by being more efficient in how you park your equipment and how you start it up again (this is one we have actually studied and we reckon 15 minutes a day is the average most mines could achieve per piece of equipment) you would save 90 hours per year.  The key here is attitude towards time.  The average hours worked for a Komatsu 830e truck is 5,159 per annum while best practice mines operate them for 5,675 hours per annum.  Interesting isn’t it.  Now right here I can hear the excuses, weather, height above sea level, hauling profile, etc. but the underlying issue is attitude.  If you found yourself making excuses as soon as you saw those numbers then you need to have a think about your attitude.

Graham Lumley 

BE(Min)Hons, MBA, DBA, FAUSIMM(CP), MMICA, MAICD, RPEQ

A Productivity Attitude

The primary aim of these articles is to get members of the mining community to think about productivity.  Productivity is about attitude.  Much can be learnt about the theory behind operating different pieces of equipment and improving productivity but if the mine does not have a ‘culture of productivity’ then achieving best practice is virtually impossible.  Being innovative helps but just doing the simple  things well is a really good start.

The profitability of many mines is highly leveraged against the productivity of the major earthmoving equipment and thus significant management effort should be focussed on getting the most out of this equipment.  Unfortunately exactly what this entails is not always well understood and often other activities are given preference sometimes to the detriment of equipment productivity.  The actions of mine planning, blasting, scheduling, maintenance and man management all play a significant role in production but need to have a common productivity focus or else they can negatively impact the equipment performance.

Figure 1

Figure 1 is the way many mines are run.  The processes in running the mine and the requirements of the corporate entity simply work against getting optimal performance.  In addition, people with an innovative attitude soon get put in their place and drowned within the bureaucracy.  People on these mines are too concerned with ticking career boxes and making sure the processes are all in place, but when it comes to doing something there is always a good reason not to.

Figure 2

The productive mine (Figure 2) shows a different flow of “impacts”.  We now make the equipment productivity central to the mine’s performance, (which is exactly where it should be…surely).  People and personalities become less important and the requirement for equipment productivity becomes of primary importance.

The equipment productivity is now “driving” other aspects of the mine operation.  It is no longer acceptable for mine planning to impact productivity negatively; they know what is expected of the equipment and they produce plans which help the equipment achieve it.  Blasting, scheduling, maintenance, management, etc. are all the same.  The mine has an expectation of performance (which I believe should be dictated by what best practice machines achieve) and every role within the mine should be singularly focussed on helping the mine achieve the required productivity.  We have inevitably found that this is the way which mines achieving best practice operate.

There is a saying along the lines, “the best things in life are free”.  I find it hard to forget as I had to debate this in Year 10 English.  I now prefer to say that the best productivity improvements are free (or nearly free).  Productivity is about people and attitude and it costs no extra for a mine to have a “productivity attitude”.

I have referred previously to Robe River Mine and the upheavals which took place in 1986 under the guidance of Charles Copeman.  At the end of the resources boom which commenced in 1977/78, mining companies were starting to tighten their belts.  Unfortunately this belt-tightening was resisted by workforces which had become accustomed to getting things their own way.  This attitude was promoted by management which made money despite themselves.  Robe River was the first to face the prospects of an extended “difficult” period by attempting to change the attitude of the mine.  I suspect Charles Copeman knew where it would lead as changing a culture is not an easy thing to achieve.  When change did not come Copeman sacked the management team and installed “his” team of people with the attitude he wanted.  Copeman recognised that change had to start at the top and work its way down.  Sure, it did eventually work its way through and the workforce was sacked and then selectively reemployed some on significantly different working conditions, but the important lesson to learn here is that the change started with management.

This was the start of the depressed period I call the “Downsizing Period”.  It ran from about 1986 – 2001.  I remember one day going on to a mine site (1996 I think) I often visited which had a big sign out the front.  Employee numbers usually ranged from 380 – 400.  This day, the number was 196.  I had to look at it a couple of times but it made an indelible impression on me.

The mining industry has now entered the next difficult period.  Forget the super-cycle or a quick rebound.  The largest economy in the world is bankrupt as is the Eurozone and demand for goods will remain depressed so demand for commodities will remain depressed.  I believe this period will run at least 12 more years (probably longer).  Most mines are now like the proverbial stone which has had the blood ringed from it when it comes to people.  You just can’t keep cutting people and keep the mine going.  Once Executive Management and Boards of Directors realise that prices are coming down they will have no option if they want to stay in business but to chase improvements in equipment productivity.  I wonder if they will follow Charles Copeman’s lead and start with mine managers who accept mediocre or average performance (in this case of their equipment)?  Most operators’ jobs are safe because most of them actually want to do a better job and just need management to help them achieve it.

Graham Lumley 

BE(Min)Hons, MBA, DBA, FAUSIMM(CP), MMICA, MAICD, RPEQ

Knowledge Intensive Mining

I have addressed the issues in the previous couple of blogs about the poor use of knowledge and value adding through innovation by the Australian mining industry.  I have been quite negative about how the Australian mining industry is performing in this essential area.  So rather than always be negative, the aim of this discourse is to describe a process and a culture which will form the foundation of improved performance through knowledge-intensive mining. 

With some hesitation I return to University and 1^st Year Chemistry.  We consider a reaction with a desired result.  The chemical reaction requires reactants and a catalyst.  To achieve the desired reaction (adding value through innovation) we need the correct reactants (processes) and catalyst (culture)

If you knew that there was an M8050 dragline that achieved 21 MBCM annually (17% higher than the next best), would you want to know how? If you knew there was an EX5500 excavator which achieved 12% higher than the next best, would you want to know how?  Most people do and this type of broad information is the foundation of knowledge-intensive mining (but it doesn’t stop at the broad-based information).  The following definition is proposed for Knowledge-Intensive Mining:

Knowledge-intensive mining is the acquisition (from internal or external sources); absorption (through active understanding) and application (via systemic processes or one-off projects) of knowledge which improves the mining process. 

The steps to gaining the tangible improvements, whether they be due to a change in the machine or mining process, must be preceded by a number of steps of gaining the intangible knowledge. Each individual needs to be accountable for their own attitudes and actions, regardless of their position.  Not everyone keeps detailed records of everything he/she does, recognise some form of sub-optimal result, does something different, etc.  What is needed is people doing business improvement on a “micro scale”.  What that means is when a person sees something happening which is sub-optimal they immediately do something to change it.  For an operator an example might be a half full bucket or poor positioning on a block.  Improving this doesn’t take a BI program but if you look at it, a very similar (undocumented) quality / six sigma / lean process is taking place.  To achieve these gains you don’t need a BI program, you need a focussed and motivated workforce / team.  To get this you need the processes and the culture.  Each person up the management line, Operator, Foreman, Supt, Manager, General Manager, etc. needs to take this micro approach to business improvement and it appears clear that many are not.  All too often the upper level manager is too concerned with “ticking the boxes” and / or not making a mistake to worry about really using knowledge to achieve innovation.  After all, their performance is normally judged on how many mistakes they have made, not how innovatively they have acted.

Whether work is in coal mining, hard rock mining, infrastructure, environment, or wherever, the messages are the same:  Firstly, the idea that only tangible things add value must be changed.  We must value knowledge.  We must actively acquire knowledge, absorb it and apply it to add value through modifying processes.  Remember, processes are the innovation reactants.  They are the aspects which combine to produce productivity. 

Changes to them are sometimes hard to grasp or understand but they are none-the-less the fabric of performance.    Secondly, culture is the innovation catalyst.  Not change for the sake of change but rather change which is targeted at the bottom line.

So what do we do about culture? This is the more difficult question at all levels of the mine but if we look at management there are two key issues to do with culture.  Firstly, the attitude of rewarding people who don’t “stuff up” must be changed.  If you aren’t allowed to be wrong then your employer won’t ever achieve anything.  Companies must reward people who are prepared to take measured risks even if those risks fail.  Anecdotally, it is smaller companies which encourage innovation but they don’t always respond well to failure so their support of innovation is not always useful.  If you are rewarded for not “stuffing up” or if you work for a company which describes itself as a “fast follower” then find another company which encourages innovation.  Secondly, you must believe you have a right to be wrong.  If you as an individual aren’t prepared to be wrong then you won’t ever achieve anything.  Unfortunately our education system, which I admire greatly (I am married to a teacher who I met in a small town in the middle of nowhere), encourages people to be right.  There is little encouragement to be innovative and get it wrong.

It is these attitudes (or lack of them) which is strangling the advancement of the Australian mining industry.  

Graham Lumley 

BE(Min)Hons, MBA, DBA, FAUSIMM(CP), MMICA, MAICD, RPEQ