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.

GBI Consultant Spotters Fee

We are currently asking for all mining consultants (planning, production, training, maintenance, etc) to help source and provide sales assistance with mines who may participate in benchmarking of open cut mining equipment including draglines, shovels, loading units, trucks, drills, dozers and graders.  Mines may be located anywhere in the world.

Once the invoice is paid by the customer the spotter fee will be 25% of the total invoiced amount.

What do we require?

1. Make the first contact with mines to establish interest
2. Provide names and contact details for interested parties
3. Help establish project scope

What will GBI provide?

GBI will provide sample reports and proposals to help with the initial contact and discussions. GBI will be available to assist with any questions regarding what is available and any scope queries.

Once a scope is established GBI will take over project management, communications and deliver the benchmark.

If this is something that you or your company would like to participate in please contact Graham Lumley graham.lumley@gbimining.com to discuss in more detail.

GBIData.com Loading Unit Full Sample Report

GBIData.com Loading Unit Full Sample Report

GBIData.com Mining Truck Full Sample Report

GBIData.com Mining Truck Full Sample Report

Syndicated Project for Rope Shovel Benchmarking in Russia

GBI are formulating a syndicated benchmark specifically for rope shovels in Russia with a focus on the Kartex EKG range. If you have these machines and would like to participate in this benchmark to find out how your equipment is performing compared to Best Practice please contact me for more information on laura.seviour@gbimining.com.

Truck and Loader Matching - Part 1

For many mines the issue of matching truck capacity to loader capacity is problematic and more often than not results in substantial inefficiency.  As trucks and loading units increase in size the number of passes required to fill the truck is decreasing and the difficulty in attaining the match is becoming more difficult.  The goal of getting the majority of trucks +/- 5% of the rated capacity just doesn’t happen.  Clearly an innovative process is needed.  The first stage in innovative thinking is to benchmark (use data) what is currently being done.

The word benchmark stirs more emotion amongst open cut mining fraternity than any other issue.  It is a polarising issue which people either seem to love or hate.  We, of course, are biased and love it because we have the data.  However, the data teaches us a lot and we think we know what benchmarking equipment can and can’t be used for.  Benchmarking is a widely accepted business tool to identify position and performance against previous performance and the rest of the world.  It is the process of seeking out and studying the best practices that produce superior performance.  Benchmarking identifies your strengths and weaknesses, and to determine strategic areas for improvement opportunity. It shows what can, and is being achieved, (best practice).  The two phases to benchmarking are; determining best practice and how your equipment compares, and secondly,  identifying and learning from leading practitioners?

While we are thinking about truck and loader matching it is worth considering the truck.  Can you accurately benchmark mining trucks? When trucks can work on the surface or lift 400 metres or more; aren’t the differences just too great to gain a useful result.  The simple answer is that so long as you understand the mining scenario and the data you can gain useful information from truck benchmarking.  The total output from a truck (measured as rate multiplied by digging hours) is an important component in the overall productivity equation for a mine.  Then digging hours and the different components of it can be broken out.  The dig rate can be broken into load and cycle time.  Each of these can be broken down further.  The analysis may be as broad or as specific as required.  The key to benchmarking trucks and loaders is to take the “glass half-full” attitude.  What can I learn about areas for improvement?  What are others achieving which I should be able to do?  Many mines are shocked by first time benchmark results and justify it through “But my operation is different”.  These mines are consigned to mediocrity.  Those mines that say “What can I do to improve?” inevitably do improve through the intangible process of simply focussing on performance.  Process improvements come on top of attitude-based improvements.

At the end of a benchmarking exercise a mine will get specific data about their trucks and loaders and surely that can’t be a bad thing.  Remember, your data is your most important strategic resource; so get some return from it.

Compounding the problem of truck and loader matches is the variation in truck and loader performance. It is a simple fact that different makes and models work better than others.  In fact performance varies between makes and models of truck by up to 81%.  This means that the average performance of one model moves 81% more than the average of another model.  (You would sure want to make sure you didn’t buy the bottom one – which is still available!!!)  Clearly a hard rock mine which is 400 metres deep is going to have lower truck productivity than a coal mine where the trucks are being used in prestrip.  However, it should be noted that the difference in average performance for excavator models is up to 66% and that is not dictated by the geometry of the pit where they are working.

Look at it this way.  If you knew your RH340 was moving 13 Mt per annum you might think you were doing OK.  This puts you in the 78^th percentile.  However if you also knew that best practice (~95^th percentile) is 22.8 Mt then you can find plenty of potential.  Surely that knowledge is valuable.

It has been known since the 1990’s payload is the key for dragline productivity.  This has been determined from the strength of the relationship between payload and annual output.  With trucks and loaders there is a much greater dependence on the number of hours the equipment is scheduled to operate.  It is a little perplexing that mines can spend many millions of dollars on equipment and then not schedule to use it.  The best practice mines use their equipment.  They don’t have it sitting around idle.  Consequently, when the piece of equipment is operating, payload is again the key to productivity.

Over the next few weeks I want to investigate this phenomena where trucks inevitably take 2.5 or 3.5 or 4.5 passes to fill.  Equipment selection is still being done very badly and it doesn’t have to be.  More on why truck and loader matching is such a problem next time.

Graham Lumley 

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

Complexity and Productivity

If you were to ask a mining executive why their mines’ equipment performance has reduced over time, apart from spluttered expressions of disbelief from some you would certainly get the issue of mining complexity fairly high in the excuses.  This is because site people use this excuse almost universally when asked why their performance has reduced.  It seems logical that mines dig the easiest / most profitable areas first and conditions do generally become more difficult over time.

When executive management starts holding site people accountable for the equipment performance it is interesting to see what happens.  It usually goes something like this;

1. Dry up the source of the bad news – ie. stop benchmarking.  “We know we are 40% below best practice so why keep telling Executive Management”.
2. Advise management that reducing performance is a function of complexity of the mine. “We know it is getting worse and we know it must be the increasingly complex mine we are running.”
3. Create a picture of how complexity reduces digging hours or increases cycle times, etc.

However, should equipment achieve less output as the mine becomes more complex?  This really is a perfect example of not letting the truth get in the way of a good story.  We have looked at this issue from multiple angles and we can’t find any evidence to support this notion that complexity reduces the performance of a particular piece of equipment.  Even for trucks if you use an appropriate measure of truck performance there is no consistent reduction in performance.  Of course as a mine gets deeper and more complex, more equipment may be needed.  This is a completely different issue.

So let’s look at the truth. 

The absolute key to the performance of any piece of equipment is payload.  I can’t find any logical explanation as to why complexity should consistently impact payload.  The only possible impact could be in bench heights and/or pit layout.  However, if superintendents and engineers do their job there is rarely a reason not to set the pit up to ensure optimised payload.  The differences in payload (eg. The difference between dragline best practice and average is 17% and other equipment is similar) are inevitably caused by other factors.  The most common and most distressing is mines telling operators not to fill up the bucket or truck body and kicking the operator when they do!!!  For heaven’s sake the operator’s job is to fill up the bucket and he/she should be encouraged to do this to the best of their ability every time.  If it is overloaded then don’t blame the operator; this is a management failure.

OK so it can’t be payload.  Is digging time related to complexity?  The key area that gets blamed is operational delays and most specifically waiting on equipment or blast.  We have tracked operational delays and we know that when productivity drops, about 40% of the drop can be linked to operational delays but only about 6% is linked to waiting on something.  So really it has little to do with waiting on equipment or blast.  Yes there is a relationship between complexity and operational delays but the major loss in productivity is found elsewhere.

Often the major contributor to a loss in productivity over time is availability.  What happens is that there are two key relationships.  Complexity increases with time and availability tends to reduce with time.  The truth is the two relationships are only linked in a very minor way.  So is it equipment getting older and harder to keep going?  Maybe, but old equipment does get replaced and the trend does continue.

It is my theory that the corporatisation of the mine site is to blame for the increase in operating delays; the reduction in availability; and consequent reduction in productivity.  It is the focus on process and not the result which is primarily to blame.  Managers are often judged on how they do their job, not the end result, and a declining result can be hidden behind exceptional processes.  Because most managers have little real management expertise they embrace the processes which are encouraged by corporatisation.  Six Sigma or Lean are great because they provide the manager with a focus on process.

A bit of a wake-up call here.  Commodity prices (maybe with the exception of silver and gold) are going to decline.  You won’t be able to keep making money without focusing on the real reason you are in business.  You need more of your commodity going out the gate at a lower cost, not a new business improvement process every week or month. 

Graham Lumley 

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