Northern Cape, South Africa
Home of a recent Proudfoot mining project that addressed production output, training and coaching
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Quarterly Mining E-Bulletin, January 2007
We hope you had a wonderful holiday season.
If you anticipate concerns about controlling budgets,
project timelines, energy expenditures and shrinking margins in the year ahead,
this issue will provide you with the insight you need to get 2007 off to a great start:
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 Predictions for 2007
An Interesting and Challenging Year Awaits Us
In our last edition, we mentioned the innovative pricing prediction campaign at Arcelor Steel (now Arcelor Mittal).
To our delight, it seems we have a few employee prognosticators in our midst at Proudfoot! We asked our mining experts from around the globe to share their expectations for 2007, and they came back with ideas ranging from the expected to the unusual!
Jon Wylie, Proudfoot Americas, predicts:
- Continued mergers and acquisitions, especially consolidation of mining companies across resource sectors. Continued high metals prices will allow mining companies sufficient funds to look for acquisitions up-stream, and across mineral sectors to reduce cyclical metal prices. Additionally, I expect some consolidation within sectors and possibly the Chinese government obtaining resources through direct acquisition. Cross cultural management will become increasingly important.
- Continued higher than historic metals prices. I am looking for industrials to peak in mid 2007, oil and energy to remain firm as expanding economies take up surpluses from any conservation activities by developed economies. These conditions will allow for an increase in exploration / development budgets, including new capex and expansion projects as miners seek to replace resources and aged assets, to take advantage of higher selling prices. Project management will become
more of a focus as well as integration activities across sites (e.g., supply chain management / logistics chain / reliability maintenance for aged assets etc.).
- Further skills shortages will require expanding contractor roles. Management and supervisory talent will become increasingly scarce and more of a management priority.
Cay Mims, Proudfoot Asia Pacific, predicts:
- Project (new and expansion) delays and capital cost overruns will escalate until there is a commodity price correction based on demand slowdown in China and the USA (I don't anticipate this happening anytime soon).
- Greater focus on worker safety and health, in and outside the mine: Companies and countries from the United States to China are all taking steps to address miner safety. Moreover, health issues such as AIDS add costs to mining. In Africa, there is a notional "AIDS tax" adding between 1% and 6% to labour costs annually. No wonder that companies ranging from Gold Fields to Rio Tinto are funding antiretroviral drug trials in South Africa starting in 2007.
- Skilled staff shortages and competition for global talent — while mining student enrolment numbers are up, it will still be nearly a decade before they are ready to lead multimillion dollar projects. Chip Goodyear says BHPBilliton may go to the jungles of Africa and South America to find people if necessary. Goodyear furthermore indicates that for each new project commissioned in Western Australia at present, skills shortages automatically add 10% to the costs of all other projects currently underway.
John Fryer, Proudfoot South Africa, predicts:
- Continued widespread speculation about Anglo American as a takeover target.
- Continued escalation of platinum prices — The platinum price will reach a sustained price of $1300/oz before the end of 2007.
- More safety lapses — Continuing safety incidents in Chinese mines will create disturbances or revolts.
Patrick Lapointe, Proudfoot Americas, predicts:
- Asset optimisation: Mining organisations must get the most out of their assets, whether they are from recent mergers or existing equipment. A renewed focus will be placed on the examination of asset performance and availability to support operational and strategic decision making (operational integration from M&As and site/development decisions).
- Skills and trades erosion — Our industry is losing a generation and needs to fill its ranks, from miners to managers. The trades and skills need to be improved and developed to support asset optimisation as well as improve free cash flow (FCF). In a period of furious mergers and acquisitions, creating a solid FCF position now is the foundation for the next crunch and establishing a stronger if not dominating position for individual operations and corporations.
- Developing and opening sites — With a multitude of operations being merged together through acquisition, the decision-making of what to hold, what to develop and what to explore will be critical. Bringing these sites to operational levels on-time and at costs, accelerating operational status (producing at projected rates at projected costs) are key factors in maintaining reserves if prices and demand continue to hold in the next few years. What is one-day of production "ahead of schedule" worth to you?
Damian Walsh, Proudfoot Global, predicts:
- High growth will continue but with increasing margin pressure on operations and capex challenges in the rush for extra capacity. The latter will be a MAJOR test of top management. The "wild cards" that keep me awake at night are the possibilities of a major world event potentially disrupting the "China Syndrome" — maybe North Korea, maybe a big terrorist attack, perhaps a US economic collapse.
- More big M&A activity early in the New Year. I expect further acquisition activity, possibly involving Xstrata, CVRD, Anglo American, BHPB or Rio Tinto. I could really stick my neck out and say that I expect that Xstrata and CVRD may merge, Anglo may be acquired and broken up and that BHPB is on the lookout for something (Fortescue?), while Rio Tinto could be a takeover target itself, perhaps a private equity play!
- Heavy turnover in CEO and top management in all the big companies as the surge in stock prices makes retirement increasingly attractive for long-term execs and as industry growth encourages poaching. Senior-level turnover will present Boards with increasing challenges, on top of the existing general skills shortages across the industry.
Who will be proven right? Only time will tell.
One thing's for certain — it should be a very interesting year!
Need help managing the challenges of 2007? Click here for a free, no-obligation consultation.
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Get Smart
Controlling Project Budgets and Timetables through Improved Management Skills
By Cay Mims, Proudfoot Asia Pacific
Underpinned by a strong global economy and the rapid growth of economies such as China and India,
the commodity-price boom unleashed earlier this decade is being followed by a ramp-up in long-term production
capability.
While expansions and new projects are often well resourced in terms of technology,
equipment and tools, delivery of successful projects requires project managers and their teams to overcome
a variety of hurdles. Project complexity is usually high, project structures tend to require defined
accountabilities, and communications both within and outside the project require a highly skilled management
programme. In the current environment, project ROI is increasingly threatened by our industry's escalating
costs and availability of capital equipment, labour, energy, chemicals and consumables.
Despite project plan approval at commencement, project structures and accountabilities may not effectively manage the cascading effect of numerous design changes. Project managers invariably require effective review and change control methodologies while also instilling behaviours among their staff and contractors that effectively respond to any one or more of a wide range of scope or conditions changes.
In the present environment of skills shortages and escalating wage pressures, securing productive labour resources represent a very real challenge for project managers. Once personnel are engaged, skills deficits may become evident through personnel's inability to adequately measure and report progress, solve problems, identify root causes of those problems, and actively supervise and train other workers.
Project managers need to be catalysts for and enablers of problem solving by lower level managers. And just as with all operating environments where market conditions are constantly changing, project managers must develop and foster their own continuous process improvement culture and develop a future orientation so as to proactively manage within these conditions.
Project Management Behaviours and Skill Issues
Most project managers and supervisors are dedicated to the success of their projects
and from a behavioural viewpoint, want to be spending their time actively managing projects for success.
However, it has been Proudfoot's observation that these same project managers often find themselves spending excessive amounts of time on solving low-level and recurrent problems, exacerbated by
administrative activities.
The unfortunate result is that project managers are less available to provide required leadership and address project needs as they arise.
Proudfoot has observed that a key skill gap for many project managers and supervisors is their ability to employ effective coordination and communication skills. This skill gap negatively impacts projects just as significantly as operational issues. Indeed, with high profile and big budget projects, cost overruns or late contract deliveries can swiftly affect financial performance and corporate reputations. Therefore, the ability of project managers and supervisors to effectively provide direction and feedback to their teams or to follow up on assigned work, is just as vital to project success as operational success.
Inability to provide contract visibility and predictability is another gap we have frequently observed. We regularly find project contractors who spend up to 50% of their time in non-value add activities for reasons such as data unavailability, conflicting work assignments, poor review and control of change requests, rework and redesign, poor work definition and inappropriate skills sets. Project managers need both the skills and systems to ensure contract visibility and predictability to effectively manage contractors.
Project managers and supervisors may also lack effective problem solving capabilities. Too often, project managers and their supervisors waste large amounts of time dealing with symptoms of recurrent problems. The effect is that project managers are not able to complete the vital root cause analysis and develop longer term corrective actions.
Improve Project Management Skills through Training
To improve the skills described above, we deliver management training within the work area and "on-the-job" in ways that prepare and empower project management teams to embrace and use new tools and techniques. At the same time, the project's commercial organisational structure and roles of stewards, project and contract management are aligned with required tasks. The clarification of roles and responsibilities reduces interruptions from recurrent problems and misdirected information while time spent searching for data is reduced through management system upgrades and work flow reorganisation. Review and control of change requests are effectively tracked and managed.
Proudfoot has assisted dozens of organisations in improving the skills of its project managers and supervisors across the spectrum from small to the very largest projects in the mining, metals and oil & gas sectors. The consistent outcome is project managers who manage projects better and furthermore, teach their people to better manage projects.
Are your project managers struggling to achieve contract visibility and predictability?
Need to improve your team's coordination and communication skills? Click here for a free,
no-obligation consultation.
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Top 10 Reasons for Energy Waste
Common Mistakes that Cost Companies Millions
By Wesley Andrud and Channing Rollo, Proudfoot North America
Nearly every mining organisation on the planet has felt the pinch of rising energy
costs following the recent "perfect storm" of geopolitical conflict,
natural disasters and supply-side challenges. Waste reduction and improved energy efficiency are on everyone's mind, and for good reason —
such initiatives offer businesses the chance to capture billions in lost profitability.
For example, according to the US Department of Energy, commercial and industrial spending by US businesses
on non-renewable energy will
reach $690.3bn this year (not counting transportation expenditures). Unfortunately, in most of those organisations,
there is no one individual accountable for energy consumption, evaluation and monitoring.
Proudfoot's Wes Andrud says, "Our cross-industry examination of energy usage found
that organisations waste an average of 20% of the energy they use, with 25-75% of that waste being
controllable. That 'controllable' element translates into 5-15% potential savings across
industries — an incredible $103bn in potential savings at corporations in the United States alone."
The first step in achieving these savings is recognising and confronting the wide
range of barriers to energy productivity. Managers tasked with improving efficiency often find
themselves with little time to analyse, evaluate and manage energy use. Even worse, some c-level
leaders think a simple decree to "do all we can to reduce energy costs this year" will solve the problem.
If it were that easy, businesses wouldn't be wasting billions a year on energy inefficiency.
Many of the causes of energy waste are behavioural or cultural in nature and require little to no
capital outlay to remedy. The top 10 culprits of organisational energy waste are:
- Poor consumption practices and inefficient equipment are either not identified or not addressed. In many organisations, energy efficiency has not received serious attention until recently. Management requests for resources or capital in support of energy programmes and more efficient machinery may have been ignored for years in favour of other investment priorities. Now leaders are realising that — with respect to energy — change may be less expensive than the status quo.
- No one is held accountable for energy consumption. For most companies, plants and sites, energy use is no one's direct responsibility. And we all know what the resulting "no ownership" means — serious waste.
- Energy key performance indicators are not defined, measured or monitored. Without clearly defined indicators of energy usage, organisations are not able to understand their level of efficiency or waste. Constant monitoring of these indicators is essential — not weekly or monthly, but in short intervals — daily, hourly.
 Rate structures and billing invoices are not available or not understood. Energy experts are few and far between, which means that in most organisations, rate structures and complex invoices are rarely met with informed scrutiny.
- No one is reviewing utility bills, labour profiles, usage trends or records. Bills and usage reports provide the data for a longitudinal study of energy usage, and oftentimes bring to light new opportunities for corrective action.
- No energy usage expectations are communicated to employees. All employees must be involved in energy efficiency, supported by behavioural change initiatives. Without a shared sense of ownership, waste will continue.
- Excessive lighting or machine usage with poor or no controls. The drive for increased production has instilled an assumption that bright, noisy plants operating at all hours suggests improved and uninterrupted production. The actual results may include higher unit costs compounded by early equipment failure and falling profits.
- Electricity demand is assumed to be uncontrollable. Too many organisations focus on fuel
and ingredient inputs while ignoring the electric side of their energy usage, even when it comprises 50%
or more of their total bill. This is exacerbated by heavy electricity usage during peak times and start-up.
There is no aspect of energy usage with fully tapped potential for savings.
- Operating procedures do not take energy impact into consideration. When energy experts walk into a plant or facility, they instantly notice prescribed behaviours that contribute to waste. All processes that involve energy usage deserve careful re-evaluation to identify savings opportunities.
- Poor maintenance or operational practices of major energy consumers. The best place for a conservation and efficiency structure to begin is in areas of heavy usage. These may include old, inefficient machines or simply energy-intensive processes. Such areas deserve special attention in the development of performance indicators, plans and review.
While many of the causes of energy waste are behavioural or cultural
and may require no capital outlay to remedy, the identification of internal opportunities for energy conservation and
optimisation requires an exhaustive audit of energy usage, policy and management. The end objective of such an
audit and corrective action must be to achieve sustainable energy productivity gains — a goal that shareholders,
employees, customers and our planet will all appreciate.
Struggling with the behavioural or cultural side of energy efficiency? Click here for a free,
no-obligation consultation.
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Antidote to Shrinking Margins
Doing More with Existing Assets and People
By Jon Wylie, Proudfoot Americas
Although metal and mineral prices remain in the stratosphere, many mining companies are struggling to translate these prices into profits. Even companies that do succeed in moving revenue to the bottom line are facing other challenges, most notably a squeeze on margins posed by cost and timeframe overruns.
Largely to blame are the cost and availability of labour, raw materials, equipment and supplies, so what can be done to reverse the margin squeeze? Traditional responses are proving to be ineffective in today's environment. What does work, as we have found in numerous locations, is an integrated approach that drives down operating costs while helping mining companies and related organisations realise the full potential of their existing facilities and workforce.
A Multi-Faceted Approach to Maintaining Margins
- Build consistency across the organisation — No one builds a plant to produce 150-thousand tons a day on an occasional basis — you build it to produce that level or product day-in and day-out, year after year. If plant capacity hasn't changed but production is inconsistent, or if a mine or processing operation is unable to sustain production at or near maximum levels on a consistent basis, we must recognise the situation for what it is — a management failure.
It's not a technical or production issue; rather, it is an indicator that there are barriers inhibiting management's ability to effectively utilise available resources including the physical plant, equipment and human labour.
To begin addressing such inconsistencies, the entire operation must be aligned toward a common goal and common metrics, using compatible indicators when assessing and reporting performance.
- Optimise the workforce — There's a saying among South African miners: "With every pair of hands you get a free brain." Mining executives, who generally come from an engineering background, sometimes lose sight of this simple truth and rely instead on technology to solve problems that may be best solved by the workforce.
Optimising the workforce involves education and
training — but this is only one part of the story. Optimising the workforce also means taking advantage of the skills workers already possess, as well as creating greater flexibility across the organisation. With a minimal investment in cross-training, scheduled downtime can be dramatically reduced.
- Improve management skills among first-level supervisors — To a great extent, the ability to improve margins is largely in the hands of the supervisor who manages the operation on an hour-by-hour basis. To their credit, many mining companies already recognise this, and are devoting greater resources to supervisor education.
Unlike many types of training, the purpose of supervisor education is not just to transfer knowledge, but rather to help instil a "culture of execution" — an environment in which plans are consistently converted to action where it matters: at the mine face or on the shop floor. It is this focus on results that distinguishes this type of education from typical "management training." The ultimate outcome we seek is not just a trained supervisor, but rather an improved operation, in which the best demonstrated production is achieved consistently, and where the best demonstrated performance is also steadily improving.
- Improve the way contractor relationships are managed — In the past, outsourcing support functions in order to focus on the core business has been an effective way to drive costs out of an operation. What's often overlooked, however, is the need to adjust mine management systems and techniques to anticipate the conflicts and communication disconnects that inevitably arise.
Disconnects are common when managing contractor relationships. Addressing them requires a partnering approach, rather than traditional "command-and-control" management. The need is most critical at the first and second level supervisor level, where the bulk of their work is managed. It is important that contractors and payroll employees be managed consistently, using compatible standards and methodologies, and that performance is measured using comparable and equitable indicators.
Coordinated improvement programmes such as these have produced results in a wide variety of settings — results that are generally achieved in a matter of months, and sustained over a period of years.
Mining projects on five continents suggest that results such as these can be reproduced in virtually any mining or processing environment. In fact, one could argue that correcting inefficient mining processes and outdated management practices is the most cost-effective way to protect margins — both for the present and to prepare for the next inevitable downturn in metal and mineral prices.
Are your margins under pressure? Need to do more with existing assets and people? Click here for a free,
no-obligation consultation.
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Feedback & Contribute
Proudfoot's E-Bulletin team would greatly appreciate your feedback, contributions and ideas. Are we right on the money, or off the mark? Don't be shy, send us an e-mail and share your thoughts! We want to provide you with operational thought leadership that will impress and intrigue you every quarter.
Proudfoot E-Bulletin Editor: Channing Rollo. Editorial Board: Cay Mims, Jon Wylie, Joe Farrell,
Marius Ellis, Damian Walsh, Alan Steelman, Carol Bresnicky, Mark Bagster and Jonathan Clegg.
Proudfoot Consulting is an international firm with 60 years of experience in helping clients achieve sustainable financial and operational improvements. We have deep global expertise in mining and metals having partnered with major mining and metals companies on five continents. For more information or to speak with a member of the Proudfoot Mining Practice Team, please call 561-624-4377 or visit
www.proudfootmining.com
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