How to rein in your mining costs and improve margins – Part 1

Cost reduction is important right now, but sometimes the operating margin can be improved by spending a little more in selected areas. Many senior executives acknowledge that while chasing throughput as the priority goal during the boom, they lost control of productivity and costs. Now they may be left with a systemic operating cost and productivity problem, a demoralized workforce and a management team reeling in the aftermath of severe across-the-board cuts. This isn’t the first time the industry has been at this stage of the cycle. Learning from previous experience can ease some of the burden and provide opportunities to improve. In this first of a two-part series, AMC’s senior consultants provide some ideas on how to rein in mining costs and improve margins.

Cultural change



Clearly an organization needs to make immediate corrections to survive, and in most cases this has already happened. More technical corrections may be required. The real win lies in leaders being able to change the culture of the organization such that it is possible to both aggressively chase throughput when the opportunity arises, and responsibly manage production costs and productivity all the time.

With good communication, people will help the leadership build a better organization. It’s not only monetary self-interest that will drive people’s participation. Security is important, but foremost is acknowledgement. People want to be included in something big, and then be acknowledged for their contribution. Managers just have to ask (really ask!), and they have to help people find their own answer to the big WHY question, “Why should I put in extra effort and share my knowledge?”

Inconsistent direction from executives and management leads to lack of ownership of initiatives for improvement. If the only directive is to cut costs, then effectiveness will suffer. If there is no direction at all, then the organization can end up with nobody knowing what’s going on. Then wheels spin, and money is wasted.

Mine employees often experience that “I’ve been here before’” feeling of repeating a system that has been previously abandoned, and that comes around again, packaged under another name. Never assume your workforce doesn’t have a memory. The best mines have a communication meeting where issues are communicated with all workers rather than a secretive management conference, from which edicts issue forth.

Resource and Reserve drilling

Good drillhole planning is important. There is too much drilling for the sake of drilling, not taking into account where and why data is required. Even then, the correct data is often not collected. The KPIs set for drilling have to make sense. If the number of high grades intersected or additional ounces added are made KPIs, then this will result in drilling of known high-grade areas and not areas of possible new resources.

There is little more demoralizing to senior geologists and engineers than planning for resource or reserve drilling under already tight budgets and then having it slashed 15% across the board at the end of the process. All walk away with a feeling of wasted time. Spend money on good quality resource, reserve and grade control drilling. The cheapest drilling contract will result in poor sampling and misleading assays.

Ask to see the geology plans and sections. You will likely eventually be handed a memory stick with 3D geology wireframes and drillhole data with an explanation that the geology wireframes are out of date. The focus on 3D modelling is becoming a dis-service to exploration – it results in only a select few who are able to carry out the interpretation work. Does the average geologist who works with the core, logging and conducting the drill program, know what’s going on in the ground?

The best exploration programs have an “old school” drawing table and series of paper sections where geologists update (almost daily) sections and interpretation based on new drillhole data. This gives immediate feedback for drillhole planning, and the results can be better interpreted for subsequent resource/reserve calculations or head office media releases. Once the geologists at site are “collectively” satisfied with interpretation, the sections are digitized, wire-framed and block modelled.

The average geologist also does not know how to collect structural data that is critical for interpreting geology trends. Modern borehole orientation tools are cheap and easy to implement. They just require some training and ongoing data interpretation. There are also a host of modern exploration tools related to borehole geophysics and mineralogy testing / sampling that can benefit interpretation – less drilling more thinking. Discuss the trade-offs with the service providers.

The lag, and therefore disconnect, between failing to properly understand the geology or adequately model the resource, and the consequent costly production problems of dilution, ore loss and vanishing metal, can be counted in years. The lesson is to wisely spend quality technical pennies during resource definition, and in doing so avoid the sometimes fatal loss of pounds during production.

Ground support

Optimize the ground support strategy. Alternative support types may be quicker to install (e.g. spin-to-stall resin anchored bolts). Seek cheaper alternatives with equivalent effectiveness. Ground support is the leading area of cost increase over the last two decades. This has been accompanied by great OHS improvements but is often overdone.

Rehabilitation of ground support is very expensive. Poor initial installation and rough treatment may require rehab that triples the effective cost of the initial support installation. Why spend the excess time having to recover when more time should have been spent initially? More rigorous analytical approaches such as advanced geotechnical numerical modelling may be a more expensive design method but they can significantly reduce costs by optimizing the ground support system and reducing the rehabilitation requirements.

Backfill

Underground mines often have a growing unfilled void, reflecting an inability to place good quality fill at the desired rate. Backfill systems have a direct impact on production and ageing systems can be very expensive to run. Appoint one person to be responsible for the backfill system, both on surface and underground. He or she will be able to apply management focus to as much as 30% of your operating costs.

Paste fill is usually not the answer. Study the alternatives before committing to a method of filling.

Is your backfill system running efficiently? If you’ve had some unexpected backfill dilution recently, did the geotech or planning people suggest adding some more cement, just in case? The problem is often too much water in the fill because the operators don’t want to risk blocking the fill holes. Adding cement is very costly and doesn’t increase strength much if the problem is the slurry or paste density. An audit of your backfill system can identify and realize big savings.

Ventilation

Mine ventilation is often overlooked. Energy costs can be greatly reduced when efforts are made to improve the ventilation system. Technologies exist that can help match ventilation to demand, such as remote controlled secondary vent fans and adjustable primary fans. Junior engineers are often made responsible for ventilation without training or experience, and this can result in a more-of-the-same approach and stale inefficient practices. Saving energy through optimizing the vent system can be easy money and is often simple to justify.