Removing the Barriers to

Potential

Mining Trends 2014Are you ready for a seismic shift?

January 2014

DELOITTE – Tracking the trends 2014

1.Mining productivity hits new lows

2.Market imbalances wreak commodity price havoc

3.Exploring the innovation imperative

4.Debt up, deals down and juniors fight for survival

5.Record impairments call capital allocation practices into question

6.Local community demands intensify

7.Government relations marked by rising hostility

8.Zero tolerance regulatory environments complicate compliance

9.From zero harm to zero fatalities

10.The talent gap widens into executive suites

The top 10 issues mining companies will face in 2014

“It’s not a pendulum

swing, it’s aseismic shift”

Innovate or face the Consequences!

• Strategic Planning and Thinking • Asset Allocation

• Government and Community Relations

• Ability to secure Funding for growth Projects

• Mitigate risk of Commodity Price fluctuations

• Cost Management

• Improved Management of People and Processes• Raise Productivity

• Improve Safety

• Reduce Operational Risk

• Innovative Talent strategies

There’s no doubt the mining industry is experiencing tremendous pressure on costs. But cost constraints often lead to innovation. Mining has grown bigger over the past 200 years – bigger plants, bigger trucks, bigger blasts. But the industry itself hasn’t evolved much. Now is the time to make fundamental and dramatic changes.Glenn Ives, Americas Mining Leader

Responding to the Global Challenge

•Many Miners can no longer wait for Peaks in Commodity Prices to make up for questionable Business Practices

• TMS has pioneered an innovative Approach to solving Problems and continues to evolve this Approach through Practice and Research

•Over the last decade TMS has helped mining organizations address the challenges outlined in the 2014 Deloitte report

• The challenges are not new but have been exasperated by instability in Commodity prices

• The Depletion of Resources is causing Costs to rise while Productivity is falling

Cost Cutting ≠ Cost Management

• Reactive cost cutting is not sustainable

• Cost Creep tends to reset spending to historical levels

• Redundancies often need to get rehired at additional costs

• Focus must be on Return on Capital Employed (ROCE) and Shareholder Value

• Shifting from Asset Expansion to Operational Excellence

•Maximize Cash Flow from existing Assets

• Improve Productivity through better Management, Systems and Technology

Reducing costs over the long term requires mining companies to prepare for a hard campaign of changing the way they do work. This, in turn, should spur them to look closely at their culture to determine if that needs changing too.Andy Clay, Managing Director, Venmyn Deloitte, South Africa

The TMS Solution to improve Asset Performance

• Cost Management to decrease all-in cost and improve cash flow

• Strategic Business Planning to optimise the capital allocation for long-term benefits

• Effective People Management to mitigate the long term skilled shortage

• Managerial Capability and Accountability at all levels to deliver the results expected and

reduce operational risk

• Quality Production Management at the mine level to improve a manageability of the

operations

• Detailed Knowledge of the primary and Support Value Streams to optimise the value

generated by the business

• Capital Project Management to ensure the delivery of essential capital projects

Systematic Improvement of Mine Business Effectiveness

Mine Effectiveness Improvement Programme

• Short term Financial Performance• Improve short term Cash Flow with “quick wins”

• Increase Asset Value

• Sustaining Short Term gains over the Long Haul • Introduce systemic Improvements to boost Effectiveness

• Cultural changes to raise Productivity and reduce Risk

• Better Management for better Results • Effectively manage People, Structures and Work

• Improved Decision Making reducing Operational Risk

• Optimal Organisation Structures with clear Accountability from Top to Bottom

• Identification and Development of High Potential to fill Talent Gaps at all Levels

• Reduced Reliance on “foreign” Talent to cut Costs and improve Community Relationships

Multi Dimensional Nature of the Effectiveness Improvement Programme

• а

Mine Planning Effectiveness

Mine Organisational Effectiveness

Mine Technical Effectiveness

Mine Economic Effectiveness

Mine Long Term Effectiveness

The Elements of Mine Long Term Business Effectiveness

Mine Short Term Effectiveness Management

Mine Long Term Effectiveness Management

Ensure maximum economic return

from the planning, organisational and

technical systems of the mine

(quick wins) - short term activities that focus on identifying the opportunities foroptimising cost and increasing the value of the mines and their delivery within a shortperiod (up to 1 year). Such initiatives do not require system / cardinal changes

Ensure an availability of the mine production management system for improving the key mine effectiveness indicators on a constant basis every year

to sustain the short term achievements

Long term activities that focus on sustaining quick, short term results and that will require systematic / cardinal

improvement of operational and management systems of the mines within the long term period (to 3-5 years)

Mine Effectiveness Improvement Programme

Tasks:

• Analyse and optimise the current initiatives in regard to

improvements in the effectiveness of the mines (cost

and value)

• Identify the shortfalls in the current approach to

manage the cost and value of the mines

• Define key strategic initiatives to improve the cost and

value of the mines with clear and feasible advantages of

the initiatives

• Train managers at all the levels of the mines on various

methods to improve cost and value

• Provide support to the managers in their practical

application of the methods learned and achievement of

feasible economic effect.

• Allocate accountabilities for managing cost and value

(effectiveness) among the Managers at all levels

Key Mine Effectiveness Indicators

Mine Planning Effectiveness

Ensure effective planning of all functions of the mine at various planning horizons, starting with hourly and finishing with long term

plans (life of mine)

M2P for the mine > 90% in all planning horizons from hour

to 3-5 years

Mine Organisational Effectiveness

Ensure minimum required conditions (structure, people, management) of organisational effectiveness for delivering the mine

plans (short- and long-term) utilising mine employees at their full potential

Mine Organisational Effectiveness Index > 90%

Mine Technical Effectiveness

Ensure efficient utilisation of the mine’s technical resources for an achievement of maximum return on equipment and technologies

Mine Overall Equipment Efficiency Index > 45%

Mine Economic Effectiveness

Ensure maximum economic return from planning, organisational and technical systems of the mine

General Economic Effectiveness Index > 1

Mine Long TermEffectiveness

Ensure an availability of the mine production management system for improving the key mine effectiveness indicators on a constant

basis every year to sustain the short term achievements

Mine Production System Effectiveness Index >90%

Objective: Define and deliver a set of improvement activities to optimise the cost and increase the value of the assets

to achieve feasible economic effects in short- and long-term perspectives

Activities

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Express analysis of the Mine Business Effectiveness based one Mine

Stage 1 – Analysing and Optimising Mine Expense Profile

• Analysis and identification

• Implementing initiatives

Stage 2 – Expert Cost & Benefit Analysis

• Analysis and identification

• Implementing initiatives

Stage 3 – Accountable Cost & Benefit Management

• Module 1 – Developing Minimum Required Conditions of Organisational Effectiveness

• Module 2 – Back to Basics

• Module 3 - Optimisation

• Module 4 – Linking optimisation with budget

• Module 5 - Implementation

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Phase 1 – Analysing the effectiveness of the current elements of the Mine Production management System

Phase 2 – Designing the improved Mine Production Management System

Phase 3 – Implementing the improved Mine Production Mangement System

• Short Term Initiatives to improve Mine Production Management System

• Long Term Initiatives to improve Mine Production Management System

Phase 4 – Audit the Effectiveness of the Mine Production Management System implemented

Sample Implementation of such a Programme in one mining company

• The use of highly qualified external experts for auditing the key minesystems and processes

• Total value of short term cost reduction and value benefit up to $263M,including:• $89M within one year (2014) – short term initiatives and additional benefits,

including $35M in the processing plants (improvements in extraction)• $76M US additional benefits (2015)• Optimising the number of employees in the underground mine (currently 850, target

450 employees) by optimising equipment and improving mine planning• Strong downward trend in both cash costs and all-in sustaining costs, which were

down 17% and 7% respectively on Q2 2013 and 28% and 25% respectively on Q32012.

• Located in Africa

• 4 mines

• London Stock Exchange – FTSE250

• 5 000 employees

• Income - $1.087B

• 600 000 ounces per year

Activities

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Express analysis of the Mine Business Effectiveness based one Mine

Stage 1 – Analysing and Optimising Mine Expense Profile

• Analysis and identification

• Implementing initiatives

Stage 2 – Expert Cost & Benefit Analysis

• Analysis and identification

• Implementing initiatives

Stage 3 – Accountable Cost & Benefit Management

• Module 1 – Developing Minimum Required Conditions of Organisational Effectiveness

• Module 2 – Back to Basics

• Module 3 - Optimisation

• Module 4 – Linking optimisation with budget

• Module 5 - Implementation

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Phase 1 – Analysing the effectiveness of the current elements of the Mine Production management System

Phase 2 – Designing the improved Mine Production Management System

Phase 3 – Implementing the improved Mine Production Mangement System

• Short Term Initiatives to improve Mine Production Management System

• Long Term Initiatives to improve Mine Production Management System

Phase 4 – Audit the Effectiveness of the Mine Production Management System implemented

Sample Implementation of such a Programme in one mining company

• Implementing the Accountable Management System that focuses on improvingpeople, structure and work management Organisational structure - Significant changes to staffing structures and levels

resulting in a reduction of 27% of international employees in 2013 and a reductionof 37% in contractors on site.

• Improving the system of integrated planning :• Long term mine planning• Capacity planning with constraints• Short term planning and scheduling• Integration of maintenance planning

• Delivery of the production plan for the first time in 3 years• Reduction in cost below the planned indicator of $925 per ounce

• Located in Africa

• 4 mines

• London Stock Exchange – FTSE250

• 5 000 employees

• Income - $1.087B

• 600 000 ounces per year

If YOU had started last Year YOU would see the Improvement now

1.October, 2012 - the start of the analysing the

current business effectiveness (operation review)

2.January, 2013 – the start of the implementation of

the mine effectiveness improvement programme

3.May, 2013 – the announcement of the first results of

the implementation of the programme

4.July, 2013 - the announcement of first Half year

(2013) result

5.October, 2013 – the announcement of the production

–financial results for the third quarter and

intermediate results of the implementation of the

effectiveness improvement programme (cost

reduction and additional benefits generation)

2 3 45

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