TORONTO (miningweekly.com) – Mining companies should revisit and re-evaluate their business models to ensure the maximum benefit of cost and efficiency savings, head of KPMG Canada’s Value Creation service Simon Beer told members of the Canadian Institute of Mining’s Management and Economics Society on February 26.

Many mining companies also need to overhaul their data collection and data analysis, while also ensuring greater interdepartment understanding of a mine’s life cycle and the impact that actions may have on operational efficiencies.

Labour accounts for around 45% of the overall cost of a mine, Beer highlighted. Consumables account for 15%, maintenance 15%, energy 10% and other costs 15%. “Energy is often a forgotten aspect of what can be done in terms of optimising operational cost,” he said. “Other factors include head office support, sales support, logistics, transportation etcetera.”

Labour optimisation and reducing labour costs can have some of the greatest effects. “Even incremental movements in the labour cost structure [can] drive some really significant [optimisation] results,” Beer said.

“Traditionally, we seen people being able to improve their labour costs by between 3% and 10%, which, significantly, translates to between 2% and 5% of the overall cost structure,” he said. “So moving the needle on labour productivity is a key aspect for driving value across the organisation.”

REMAKE, REMODEL

Mining companies could learn a great deal from other industries where this is a core focus, particularly the automotive sector, Beer said.

“I can’t stress this strongly enough; the mining industry can learn from other industries that have traditionally worked with lower operating margins. Some of the things that we see [in mining] just wouldn’t happen in the automotive industry or even in some parts of the oil and gas value chain, like refining,” he added.

“The key aspect is integrated production planning. Eliminating all those small inefficiencies can have a material impact on the end result,” he continued. “In a number of organisations, we’ve seen people working in silos; for example, those at the mine might not understand what the logistics operations want or what the processing plant is looking for.”

Beer then outlined a recent case study for KPMG. “We worked in Africa last year with a major mining company. We had all of the mine managers and went through labour productivity [discussing] where shovels were waiting for trucks and where trucks were waiting to unload. We estimated about 25% of the operating time was spent waiting,” he said.

The subsequent streamlining delivered around a 15% reduction in the labour cost structure, he said, adding this then translated to around 6% to 7% in reduced overall costs.

Maintaining and building efficient data on all core functions and costs was essential to initiate improvements. “The thing that differentiates leading performers from laggards, for want of a better description, is having a clear data structure that enables people to make better decisions,” he said. “To have true operational excellence, you need to look at the whole picture and understand what can be done differently.”