January 2, 2022
According to a 2014 Deloitte report that outlined key concerns for mining companies, markets won’t be able to sustain production if costs increase above a certain level.
The mining boom saw a record-breaking increase in commodity prices, which, in turn, led to lower productivity and higher-cost mineral deposits. However, once the commodity prices came down, companies responded the way they always do – by cutting costs. This, of course, fuels speculation about whether the costs will once again go up to unsustainable levels if the cycle shifts again.
While 2022 promises to be another good year for the mining industry, the one thing mining professionals know is that the market will eventually crash, and mining CEOs will again be forced to keep their cost-per-ton low to stay in business.
In order to break the vicious cycle of cost creep and cost takeout, miners need to start looking beyond the conventional measures for cost cutting. This means that industry productivity needs to go up before organizations can deliver bottom-line value and regain the trust and support of their shareholders.
Of course, the global economic trends responsible for determining commodity prices and currency rates are beyond the control of miners. What is not beyond their control, however, is the way that miners choose to operate. If companies want to consistently be among the lowest-cost producers in the industry, they will need to focus less on reactionary cost reduction and instead pay attention to sustainable programs related to cost management.
In this blog, we will be discussing a few strategies that can help miners improve their operational efficiency and, by extension, lower their costs.
Strategies for Improving Mining Operational Efficiency and Lowering Costs
1) Improve risk and budget management
Engagement has a direct impact on increased productivity. Transparency is one of the best ways to promote engagement within the workforce. Frequent communication and complete openness with teams (from middle managers to operators) on cost expenditures and all vital metrics will increase everyone’s cost consciousness.
Employees have a vested interest in helping the company succeed, but they need ongoing access to relevant information to be able to contribute meaningfully. If the company’s leaders trust them with this vital information, increased engagement will also lead to improved budget management. With full visibility on cost per area, per contractor, and per equipment, the team will be able to better control the budget and make sure that what’s being spent is actually useful for generating revenue (maintaining an ROI mindset).
2) Improve production planning
When times are good and price per ton is high, mining managers tend to run after the tons – sometimes at the expense of other extremely important priorities!
The following measures can help improve overall productivity in the mining sector:
- Understand the nameplate capacity of assets vs. production rates
- Avoid rehandling material
- Train and coach the frontline leadership on industry best practices
3) Use technology to improve efficiency
Productivity, of course, is about maximizing the output per unit of cost, time, and quality. A better and more efficient use of technology can help mining organizations achieve these goals. Here are some ways to do that:
- Predictive analytics for critical assets: With assets operating 24/7, deploying predictive analytics alone can reduce maintenance costs by 30% and breakdowns by up to 70%, focusing on essential business drivers (operating time and operating rate, for example).
- “Connected vehicle” solutions that most of the OEMs now provide, tracking the utilization and availability of mobile fleets.
- Streamlined dashboards to replace disjointed management and reporting systems, thereby obtaining insights on actual levels of operational performance.
4) Take steps to improve operational excellence
Here are a few ways that companies can reduce costs and improve sustainability:
- Re-evaluate operating models and make sure that they possess the reporting and management systems required for establishing a culture of cost management.
- Use Six Sigma/Lean approaches (such as analysis of shareholder value) in order to highlight and close any gaps in operational efficiency. Focus on lessons that can be learned from other industries.
- Implement a culture of operational improvement.
5) Invest in analytics
By introducing the latest technology, mining companies can rapidly reach the next level of productivity. One initiative that was launched in the early 2010s and is now gaining bigger momentum is called “Connected Worker.”
The project utilized tracking tags – which were worn by individual contractors and placed on vehicles – wi-fi location triangulation, and visualization software to provide insights on the movement of contractors into and out of work areas while capturing data on congestion points, fatigue, and exposure to hazardous conditions. Insights gathered during the proof-of-concept phase provided site leadership with analytics on factors contributing to safety incidents such as number of days on site, shift duration, and contractor firm performance.
In addition to improving safety, the project also provided valuable insights on productivity and cost that have been further leveraged by the leadership team. Using data from visualization modeling, the team was able to highlight issues like worker congestion, amount of time in productive zones, and traffic patterns. Cost insights included improved data on actual contractor time on site, which enhanced billing reconciliation and subsequent recovery efforts.
6) Partner with suppliers
Procurement and supply chain departments need to be closely involved in construction and improvement projects from the beginning. This is sometimes referred to as the “business partner” model (in effect, partnering within the same company), where finance, procurement, and supply chain functions are more directly linked to production/construction planning and execution. One other cost reduction initiative that we implemented was to “Walk the Contract” with the existing contractors. The goal is to challenge existing and new contracts with supervisors on the ground, which also helps them understand the deliverables, number of resources, required work hours, etc. Also, with greater efficiency, mining companies can reduce their MRO cost up to 10% with select vendors.
Implementing the above tactics can help your mining organization reduce its operational costs by enhancing productivity and ensuring sustainability. While this list is by no means exhaustive, it can serve as a useful reference point for management teams of mining companies looking to lower their costs, enhance productivity, improve profits, and produce greater value for their shareholders. To learn more about how we can help you improve your operational efficiency and performance, please feel free to reach out to us.