SAP Mining Solution

White Paper

The SAP® Mining Solution

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The SAP Mining Solution

© Copyright 1999 SAP AG. All rights reserved.

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Design: SAP Communications Media

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ContentsExecutive Summary 5

Mining Industry Overview 6Remote Site Operations 6A Unique, Sustainable Competitive Advantage 6High Environmental and Social Impact 6Highly Complex and Expensive Development 6Long Business Cycle Times 7Industry Trends 7

IT in the Mining Industry 8

Planning, Execution, and Control 9Key Performance Indicators (KPIs) 10Different Information for Different Roles 11Resource-Pushed Planning 12Evaluating the Ore Reserve 12Phases of Mine Planning 12Life of Mine Plan 12Long-Term Plan 12Operational and Short Term Plan 13Production Plan 13SAP System � Enabled Planning 13Short-Term Plan 14Production Plan 15SAP Recipe Structure 15Costing Model 15Cutoff Grade Management in SAP 16Execution and Control 16

The SAP Mining Solution 17Enterprise Systems Technology 17The Mining Solution 18SAP Systems Integration 20

Appendix A: Typical KPIs and Cost Drivers 21

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Executive SummaryThe mining industry faces numerous challenges. Inmost sectors of the industry, rising costs and steadilydeclining commodity prices put operating margins un-der pressure. At the same time, the development ofnew, more competitive operations take advantage oftechnological advances in mining and metallurgicalprocesses.

To remain competitive, mining operations must facethese challenges. Assisted by advances in informationtechnology, many companies seek to improve theirmanagement effectiveness by:

■ Building a single, shared repository of companyinformation

■ Gaining a detailed understanding of costs acrossdifferent mining and metallurgical processes

■ Understanding the full economic consequences ofalternative mine plans

■ Analyzing what-if operation scenarios andevaluating the impact on costs and revenue of thescenarios

■ Optimally utilizing and maintaining equipment

This paper outlines the critical support role that theintegrated SAP enterprise-wide business systems willplay in the mining industry. It also examines key is-sues relating to successful enterprise-wide systemsdesign and implementation.

Integrated enterprise systems offer many benefits,some of which include:

■ Substantial reductions in the time needed torespond to new data acquired during the miningprocess

■ Ensuring long and short-term plan integritythrough continuous refinement and detailing

■ Greatly improved communication with allemployees, using shared data on a timely basis

■ A foundation for continuous improvement

This document also outlines the role of SAP businesssystems in a typical mining and primary processingoperation, with particular emphasis on the resource-driven approach to planning and running mining busi-nesses. For the purposes of this paper and in the inter-

ests of brevity, a detailed discussion of SAP solutionsthat enable downstream operations (such as smeltingand refining) is omitted.

The paper begins with an overview of the mining in-dustry and its use of information technology as thebroad context for outlining the wider business con-text within which SAP systems will be designed andimplemented. The overview includes discussion ofindustry structure and trends, as well as organization-al issues pertaining to the implementation of businesssystems. This context has implications for how thecustomer envisions, plans, and leads the SAP projectto ensure maximum business benefit.

The next section outlines the SAP Mining Solutionthat features SAP System as the critical support sys-tem, augmented by specialized third-party systems,and illustrates the solution map. This section specifi-cally focuses on aspects of mine planning. The impor-tance of mine planning for assuring the value of thebusiness into the future makes it the starting point forall planning in the business.

Given the emphasis on mine planning, the paper doesnot discuss other aspects of the full SAP Mining Solu-tion, such as detail scheduling, environmental healthand safety, and capital project management. It alsoomits a discussion of more generic business functions(commercial functions and systems), except as re-quired by issues of integration across the solution.

The SAP Mining Solution will not replace mine plan-ning or expert mine planning systems (such as Vul-can, Datamine, Surpac, and Whittle), but will store theplanning results. As an enterprise-wide business sys-tem, SAP System will issue the orders to carry out theplans and provide the framework for coordinating andchecking the execution of the plans.

Each mining operation differs in how the business isrun, its ore body (resource), its location, its physicaland social infrastructure, and the mining methods andequipment it uses. SAP System is proving itself to bea flexible system that allows each mining business tohave its own unique configuration. The design andconfiguration principles discussed in this paper, how-ever, are generic and can apply to any mining opera-tion.

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Mining Industry OverviewThis paper and the SAP Mining Solution define themining industry as the group of enterprises around theworld that are involved in the following business:

Mining, mineral processing, smelting, and refiningmetallic and non-metallic minerals and fuels, exclud-ing oil and gas. The definition includes mining andprimary processing of iron ore, but excludes iron andsteel making.

The following characterize the industry:

■ Remote site operations■ A single sustainable competitive advantage■ High environmental and social impact■ Highly complex and expensive development■ Long business cycle times

Remote Site Operations

Mining and mineral processing is carried at the site ofthe mineral ore body, which is, invariably remote fromcenters of population. Commonly, but less frequently,the subsequent stages of smelting and refining are alsocarried out at remote sites.

Companies choose to process ore (in one or more stag-es) adjacent to the mine site to avoid the cost of trans-porting non-mineral waste rock with the product.

Remote siting of mines generally means that the min-ing business must pay for and support dedicated in-dustrial and social infrastructure and logistics (powergeneration, townships, railways, and ports, for exam-ple). Accordingly, the operations management task willextend beyond the technical and commercial demandsof the actual operation and include the travel, accom-modation, and off-the-job welfare of the mine siteworkers, family, and local inhabitants. The enterprise-wide business systems of SAP offer integrated systemssupport to include the management of the mine site�sindustrial and social infrastructure.

A Unique, Sustainable Competitive Advantage

The geological and geographic fundamentals of an orebody provide the basis for economic exploitation. Amining company�s ownership of a global quality ore

body provides it with its most important advantage.An inferior ore body cannot be made superior. A su-perior ore body can, however, be rendered useless byinferior operations management, marketing, and so on.Once the ore body has been found and developed,management�s primary focus is on operations conti-nuity, efficiency, and unremitting cost control.

Capital asset productivity and economies of scale drivedecisions about mining and processing configurationsand their on-going management. Generally, ore bod-ies are mined and processed using the largest equip-ment, at the highest sustainable production rate.

Over the last twenty years or more, the mining of manyminerals and commodities has benefited from the useof larger mining equipment. Use of such equipment hasresulted in higher capital intensity, higher productiv-ity, and reduced production costs across the variouscommodity niches, including copper, lead, zinc, andcoal.

SAP business systems enable close management ofcapital assets and provide a sound basis for disciplinedcontinuous improvement.

High Environmental and Social Impact

By their very nature, mine sites (as well as downstreamsmelter sites) are environmentally and socially disrup-tive.

The environmental movement has challenged miningcompanies to perform more responsibly and to engageprinciples of sustainable development. For the mostpart and in the West, companies have responded to thischallenge positively. Minimization and management ofthe environmental impact of mining has become partof operating a mining business.

SAP business systems support and enable environ-mental monitoring and legislative compliance pro-grams.

Highly Complex and Expensive Development

Mining companies reduce the size of their productiveasset (the ore body or mineral resource) each day andeventually need to replace it. However, finding, eval-uating, and developing a new mine is technically andeconomically complex, expensive, and long-term.

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Competition in the industry plays itself out predomi-nantly in competition for new mine projects (acquisi-tions and new discoveries), rather than in a customer-focused approach to winning market share.

Development projects typically have lead times of theorder of 5-to-10 years or more. Effective developmentactivity, together with good day-to-day cost manage-ment, generally mark the long-term players. Poor de-velopment work deprives shareholders of dividends,consumes shareholders� funds, and has huge, attend-ant opportunity costs.

Newly discovered ore bodies require extensive tech-nical and economic evaluation before a company canmake investment decisions. The high cost and risk ofgeological exploration activities and metallurgical testprograms and studies typically cause evaluation toproceed through a series of pre-feasibility studies.Each phase of study is more detailed and more costlyto undertake. Future investment critically dependsupon the quality and cost-effectiveness of the studiesprocess.

Resource studies, in turn, critically depend upon highquality, readily accessible information. The informa-tion required is extensive and includes:

■ Exploration and ore body geology and mineralogy■ Mine planning■ Capital cost data for a wide array of equipment and

construction■ Operating cost data for all possible mining and

processing streams■ Labor costs and productivity data■ Market and pricing data for the expected mineral

commodity or product

SAP business systems support development work bymaking up-to-date capital and operating costs readilyavailable, enabling benchmarking, and by providingsystems support for project management.

Long Business Cycle Times

Long-term (one to five years) supply contracts andlong lead times (5 to 15 years) for resource discoveryand development determine business cycle times (thetime from mine to market and time for capital replen-ishment and mine development) in the mining indus-

try. Thus, much decision-making in the industry in-volves a much longer timeframe than is the case for ITand other suppliers to the industry.

SAP business systems enable retention of company-specific experience by embedding best practices forbusiness processes in the systems configuration, andby providing a single source of integrated, high in-tegrity information.

Industry Trends

Current trends in the broader industry are profoundand demanding, including:

■ Long-term decline in commodity pricesPressing more and more cost reduction andproductivity improvement, such as a move toshared services and outsourcing of selectedfunctions (IT, mining, and maintenance, forexample)

■ Poor return on capital investedLeading to mergers, divestments, and write-downs

■ Contract (outsourced) miningContract mining, which involves transferring theactual mining operation to a specialized contractor,has become increasingly popular in Australia andNorth America. Contract mining has evolved fromthe heavy civil engineering industry, based uponcapital-intensive, heavy earth moving, and iscontinuously benchmarked by high-volume, lowmargin, and competitively tendered lump-sumcontracts.

■ Current trends impacting operating costs◆ Work practices reform◆ Taxation◆ Infrastructure provision and supply costs◆ Environmental compliance

■ Current trends impacting development costeffectiveness◆ Niche focus (competencies)◆ Native title◆ Statutory approvals processes

■ Mining will become saferLost time injuries have been reduced, but fatalitiesremain at an unacceptable level. More effort will befocused on safety

■ Increasing environmental compliance requirementsRequiring a higher level of data acquisition,

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monitoring, and reporting■ Increasing native title requirements

Requiring specialized investigations, datacollection, statutory compliance, and relationshipmanagement (indigenous communities andgovernments)

■ In some countries, mineworkers will become de-unionizedThere is a trend in Australia toward employing mineworkers with individual contracts. This approachaims at improving work practices (flexibility andmultiple skills), reducing routine overtime, andimproving workplace relations

■ Fly-in-fly-out manning of remote operationsRequiring a higher level of human resourcesmanagement, transport, and supplier management

IT in the Mining IndustryThe mining industry has a long history of developmentand use of specialized, production-related informationtechnology (distributed process control, for example).In geological exploration, mining companies havemade use of the latest database technology in collect-ing, categorizing, and data-mining vast quantities offield data.

Mining engineers have also made use of advances indatabase technology for storing and manipulating thevast quantities of data contained in models of the orebody to be mined. Equally large data sets are manip-ulated in digitally stored mine plans which are re-quired to show the physical and economic mine de-sign criteria and rate, in addition to the sequence andquality of ore to be mined.

In scheduling and dispatching the fleet of heavy equip-ment that performs the mining of waste and ore inopen pit mines, software, such as a mining fleet man-agement system, is used. The software tracks and opti-mizes the in-pit journeys of the mining fleet, ensuringthe best use of what is often the mine�s largest singlecapital asset.

In processing the mined ore, mining company metal-lurgists have worked at the cutting edge of automat-ing metallurgical processes. Unlike chemical and man-ufacturing processes, ore processing can be highlyvariable from mine to mine (even when mining thesame commodity) and is unforgiving of delicate elec-tronics. Today, all but the smallest-scale mining oper-ations have processing plants controlled by sophisti-cated distributed control systems.

Enabling software, such as Excel, Access, and Lotus 1-2-3, is also used extensively to plan and monitor avariety of production processes and to track produc-tion physicals. A typical application for such softwarewould track the company�s metallurgical balance.

In administration, accounting, and human resources,mining companies have generally invested as much inIT as have other industries. Although a high numberof specialized IT applications exist, some are partiallyintegrated across activities and many are not. Muchof the production planning, information collection,

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analysis, and reporting occur by spreadsheet and site.

Finance, accounting, and costs control systems may bebased at the head office and are not integrated withproduction systems. Production information may becollected at several points, at different times, for dif-ferent purposes, and according to different standards.Information integrity across the enterprise is poor andaggregated performance metrics (financial and physi-cal) are difficult to reconcile.

Beyond the mining industry, information systems andtheir supporting information technologies are manyand varied, and were developed for an equal varietyof industrial purposes. They range from geographicalpositioning systems to geological data managementand mine design systems, programmable logic con-trollers, supervisory control and data acquisition (in-cluding fleet data capture, in-stream analyzers, and soon), management information systems, manufacturingexecution systems, materials resources planning sys-tems, transaction processing, and enterprise resourceplanning systems.

The evolution and spread of these various industrialinformation systems is illustrated in Figure 1. The fig-ure also notes their industrial purpose and use in sup-port of management decision-making. The approxi-mate level of use of information technology in themining industry is also shown:

Figure 1: Industrial Use of Information Technology.Source: AMR Research, Inc.

Planning, Execution, and ControlThe SAP enterprise system acts as the critical supportsystem across the company. Its integration of commer-cial, production, and support processes rapidly andreliably informs and enables enterprise-wide planning,execution and reporting.

Short-term and medium-term production plans andcapital growth plans are developed to maintain imme-diate business viability and to achieve the longer-termstrategic objectives of the company (such as marketshare growth and portfolio diversification). Measur-ing progress against plans tells us if we are on trackto achieving our aims.

Managers often attempt to set up systems that meas-ure every conceivable thing. They then make all thewidely available data in the expectation that peoplewill choose what they need from it. Such informationsystems and the indicators built into them are oftenbuilt without reference to the cost and value structureof the business, or its strategic needs. The often usedbut misapplied idea that all information should bemade available to all people ignores the reality thatpeople in different roles and at different levels in theorganization have unique information requirements.Providing large amounts of undifferentiated informa-tion (not role-specific) carries with it a large opportu-nity cost and is counterproductive.

Business measures (key performance indicators) drivean organization to achieve its goals. To be effective,the system that delivers those measures must directinformation to the people who need it. The design andimplementation of systems � including the selectionand direction of information to drive business per-formance � is a critical source of competitive advan-tage.

Knowing what to measure � the purpose of key per-formance indicators � and how to act on those metricsis as basic to mining as it is to any other business. Twokey questions arise:

■ What is important to measure?■ What information is critical to whom?

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Key Performance Indicators (KPIs)

The first question must be addressed by referring tothe business value chain, the sequence of activities ina business that progressively adds value to the salea-ble product of the business. The generic mining indus-try value chain (see Figure 2) illustrates the economicstructure of mining operations and how value is gainedand lost along the chain of activities from the mine tothe market.

Key performance indicators draw attention to:

■ The effectiveness of each stage in the chain■ The efficient use of input resources■ Opportunities to minimize waste

There are four broadly different uses for performanceinformation:

■ Planning■ Keeping score

Are we doing well or poorly? Scorekeepingaccumulated and dissected performance data toanswer these questions, such as period-to-datetotals and averages

■ Directing AttentionWhich problems should we look at? Variances inmanagement reports direct attention to operatingproblems, wastage, quality issues, and opportunities

■ Solving ProblemsWhat alternative course of action is best? Thisinformation is used for long term planning such asbudgeting and for special projects

Performance data can also be a source of informationfor systems that manage assets.

Figure 2: Typical Key Performance Indicators in Mining

Cost-related KPIs are output measures of resources andactivities, such as tons, man-hours, meters drilled, andso on. Although many components make up the costof specific mining activities, only one or two will drivethe cost of the activity and its resource needs.

These cost indicators are basic measures of effective-ness, but can also be used to estimate resource require-ments for supply purposes.

For example, materials used in mine development canbe factored on the basis of meters of development.Every meter will have a standard bill of material asso-ciated with it, a recipe.

For example, every 10 meters of advance will con-sume:

■ X kg of explosives■ Y kg of drill steels (of various types)■ Z m of hose

Likewise, every 1,000 tons of ore milled will consume:

■ X kg of grinding steel■ Y kg of lime■ Z filter cloths

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Here, the cost indicators are meters and tons, and theycan be applied to actual meters and tons measuredeach week to estimate all the weekly supplies requiredfor the ongoing support of the operation. If this is donefor every step in the value chain, there is substantialpotential for reducing working capital through bettercoordination of supply and demand.

Appendix A shows typical KPIs and cost drivers ofmining performance, from the mine to the market, to-gether with typical cost indicators for each major step.

Different Information for Different Roles

The levels of aggregation of KPI information and thetime periods embraced by the KPIs must match theaccountability, the authority, and the different levelsor planning horizons of the different roles in the or-

ganizational hierarchy. For example, shift bosses havea shorter planning horizon than mine managers, andwill assess performance using the less aggregatedmeasures. Failure to match critical performance infor-mation with roles, authorities, and accountabilities willlead to information overload (with unnecessary infor-mation), poor managerial productivity, and loss ofsystem credibility.

Employees may still have access to the supportingmeasures and the ability to drill down for data, as theymay need it.

The role description or duty statement of employeesindicates different information and measures requiredfor planning, execution, and control. In a typical min-ing operation, critical, minimum information require-ments for roles would appear as indicated in Figure 3.

Figure 3: Role Requirements for Information

Quarter Control

Quarter Control Planning

Month Control Planning

Week Control Planning

Day and Shift Control

Examples cash flow$/t metal$/t oret/year

major contractsmine life left

turnoverdisabling injuries

compliance

Budget variancesPlanning

$/t mined, milled,etc.

outputquality

utilizationLTIs

weekly targetsrecoveries

gradeslosseskg/t

kWh/t etc.tph

availability

daily targetsproductivitycrew mngt.

process controldowntime

supplylost timeaccidents

TimeframeCorporate &

Mine ManagerDepartmentManagers

ProfessionalStaff

Coordinators &Shift Bosses

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Resource-Pushed Planning

Mining operations generally exploit a finite mineralresource. However, you often have a range of possi-ble options for how to make the best use of what na-ture provides throughout the life of the mine.

Production planning in a mining environment is notdriven by market demand in the sense that it is in mostmanufacturing industries. Critically, the whole-of-business planning process is driven by the medium-to-long-term need for optimal exploitation of the min-eral resource, leading to the maximum investmentyield from the resource.

Evaluating the Ore Reserve

During the life of a mine, you use geological informa-tion obtained through analyzing ore samples fromexploration drilling, geological surveying, and actualmining production to evaluate the ore body continu-ously. Using geotechnical and geostatistical analysis,you establish a geological block model representingthe ore body. Each block has certain predicted char-acteristics such as ore grade, geological zone, and rocktype. Additional information such as overburden depthand haul distance could also be captured for eachblock. All this information is selectively merged intoa single data set sometimes referred to as the mineralresource inventory, which forms the basis of any sub-sequent mine planning activities.

Based upon this knowledge about the mineral re-source, we need to answer the following questions:which blocks are viable to be mined (pay blocks) andin which sequence should we mine these blocks?

The answers to these questions lead us to the complextask of mine planning and the phases related to thisactivity.

Phases of Mine Planning

Mining operations generally exploit a finite ore body.This finitude constrains the number of options availa-ble for optimization throughout the life of the mine.The phases of mine planning are outlined in Figure 4.

Figure 4: Phases of Mine Planning

Life of Mine Plan

The life of mine (LOM) plan spans the period from thecurrent time until the year the final block of ore ismined, giving the name life of mine. The LOM plantypically delivers a set of practical stope and pit de-signs (scenarios), estimated net present value (NPV),tons to mine, and final product recovery figures.

This process is clearly focused on a close integrationof planning and optimization systems to the geologi-cal and mining systems.

Information from the mineral resource inventory,practical design criteria, and sales and marketing in-formation such as price, demand, and risk parametersare used to plan the life of mine. SAP System collectsthe necessary information for the derivation of theseparameters and models from the technical mine plan-ning systems and feeds them into the business mode-ling system.

Long-Term Plan

You select the most suitable expansion option from theLOM plan and create a long-term plan covering a pe-riod of about five years. The long-term plan outlinesannual capital developments, the general direction ofmining in the ore body, annual production quantities,and costs.

All planning is subject to and optimized for giveneconomic constraints and parameters. It is performedwith long-term outcomes in mind to ensure the returnon investment expected by the optimal exploitation ofthe ore body.

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The long term maintenance and capital expenditurerequirements form part of this plan and provide theinstalled capacity available for each year in the longterm plan period.

The annualized LTP sequence may serve as input intoSAP System where it is costed. You can use the plan toestimate NPV/IRR outcomes for capital projects pro-posed for the period.

Operational and Short Term Plan

The short-term or operational plan typically expandsthe first one to three years of the long-term plan intomore detail, using defined development sequences andproduction quantities and rates. Production operationsare planned with a monthly resolution using the actu-al physical resources. Quarterly forecast plans andfour-month mining plans are all categorized undershort-term plan (STP) because they all work at the samelevel of resolution and represent a technically feasi-ble and revised (improved) manifestation of the LTP.

Here, SAP System becomes an extension of the short-term plan created by the mine planning system. Theshort-term (one to three-year) mining demand (slotsin sequence, characteristics, quantities, and rates) aretransferred to SAP System to determine the materialand capacity requirements, transfer cost center re-quirements, and estimate planned costs.

The main focus of this plan provides performance re-porting and assists in deriving the annual budget forboard approval. This is therefore the first planningphase that has a clear requirement for capture in SAPSystem for reporting.

Production Plan

This is the detail production plan (crusher feed andhead feed prediction). You can set the plan time frameby shift or daily, although most mines would plan aweek or month ahead at this level of detail.

This detailed level of planning no longer requires tightintegration to the geological systems. Mining optionsare fairly limited, because only exposed material canbe accessed. Also, block and material properties areno longer derived from geological modeling, but pre-dominantly from laboratory assays of blast-hole drill-

chip samples.

This is not to say that there are no options left: theplanning engineer normally has several choices andcan select a combination of ore sources for a suitablehead feed through the crusher. In an open pit envi-ronment, blasted composites are often deemed eco-nomic ore or waste on the ground, and you can choosebetween blending stockpiles and a selection of un-blasted blocks. In an underground mining operation,different stopes can be mined at different rates.

The following is the sequence of events for detailedproduction planning:

■ The mine planner will suggest weekly demands forquantities of crushed ore and waste to be met fromspecific available blocks and stopes (normalcomposite, waste composite, stockpile, and plannedblock).

■ Each ore block has a set of characteristicsdescribing the geographical location, geologicalproperties, qualities, and equipment rates associatedwith it.

■ Planning will be an iterative process optimizing forgrade, other ore qualities, capacity, and cost. Aftera specific planning run the planner can evaluatethese constraints visible in the crusher feed andhead feed prediction report, accept the plan orselect different ore sources, quantities, andresources for a subsequent run.

■ The plan will include derived quantities to orestockpiles, marginal waste stockpiles, and truewaste dumps.

SAP System � Enabled Planning

A range of highly specialized mine planning, geolog-ical, and geotechnical software systems have beendeveloped and used over time in the mining industryto support ore body analysis, mine design, mine plan-ning, and scheduling. Historically, these were stand-alone systems, with no integration to each other or tothe business systems or the downstream productionsystems.

Because mine ore body analysis and mine planningwork is concerned with the core issue of the invest-ment quality of the business, they drive the operations

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strategy. All downstream activities must respond to theoutcome of this work.

The production planning for process industries com-ponent of SAP System (PP/PP-PI) provides integrationbetween the mine planning systems and the R/3 Cost-ing, Financial, Materials Management, Human Re-source and Plant Maintenance components (see Fig-ure 5).

Figure 5: SAP System Mine Planning Integration

The SAP-enabled functionality mainly plays a role inthe short-term and production planning phases. Asillustrated in Figure 6, you can integrate the long-termplan into SAP System in a similar manner, althoughthis issue falls outside the scope of in this paper.

Short-Term Plan

Here, SAP System becomes an extension of the short-term plan created by the mine planning system. Theshort term (one to three-year) mining demand (blocksin sequence, characteristics, quantities, and rates) istransferred to R/3 to determine the material and ca-pacity requirements, transfer cost center requirements,and estimate planned costs. SAP System uses this in-put as a production demand and then plans monthlyproduction requirements, which you can then sched-ule in detail.

Figure 6: The SAP Role in Short-Term Planning

At this point, integration with geological systems aswell as with maintenance planning systems is equallyimportant. The new release of SAP System allows forthis integration.

Short-term planning is an iterative process, and SAPSystem will allow for storage of several versions of theplan. The mine planner can resequence, change blocks,add new stockpiles or stopes, and reload the demandinto SAP System.

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Production Plan

SAP System has successfully been used as the plan-ning tool for this detailed planning phase. This basisprovides tight integration between planned and actu-al values, as well seamless integration with all otherSAP components.

Figure 7: Production Planning Recipe

SAP Recipe Structure

Within SAP System, a recipe is a way of linking a setof business processes to enable improved managementand optimization of the whole. (See Figure 7.) Recipesappear as user-defined master data in the system. Dif-ferent mining operations and methods will requiredifferent recipe structures. Recipes model the opera-tion in terms of a sequenced set of processes and a listof materials.

In the continuous parts of the operation, an SAP proc-ess order would represent a sequence of processes overa defined period such as a shift or a week. In the plan-ning process, process orders are created using the rec-ipe master data. These process orders are the businessobjects used for planning execution and control.

The process orders integrate with all other functionalmodules of SAP (FI, CO, MM, PM, HR, SD, and QM) aswell as with the Production Information ManagementSystem (PIMS) for the collection of actuals data.

In Figure 7, the mining recipe simulates loading fromeither a stockpile or blasted ore from a specific block.Power and diesel consumption is calculated independ-ently of characteristics for each routing scenario in therecipe. If a block were 100% waste, the process ordercreated from the recipe would include only the haulto waste operation. The work rate of a shovel, dragline,or LHD would be derived during the MRP.

A demand to load from a planned block will automat-ically trigger the drill and blast recipe to plan the blastin time for the mining recipe. Again, the duration ofthe drill and blast process and all consumable quanti-ties is calculated from characteristics if required. Inturn, the drill and blast recipe has a demand for ex-plosives, which triggers the purchase of the requiredexplosives (based upon best materials managementpractice).

The relationship between the treatment recipe and themining recipe is designed to push the crushed orethrough the treatment plant. In other words, a set oforders (one per block) created for the mining recipeis grouped together for a specific time period (day,week, or month), all the qualities and grades are aver-aged to single figures, and this head feed is consumedby the treatment recipe.

The treatment recipe produces final products as SAPco-products.

A conceptually similar recipe structure can be de-signed for different scenarios. For example, transport-ing ore, ship loading, and blending through stackersand reclaimers have concepts similar to the miningrecipe in that there is more than one possible oresource and destination connected by various possibleoperations.

Costing Model

Costs are modeled in SAP System per process orderusing the recipes in PP-PI, and are typically eitherfixed or variable. True variable costs are consumablesmeasured accurately such as reagents, diesel, or deto-

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nators. Indirect variable costs are those items notmeasured exactly per block or order and charged at astandard rate from a cost center to an order (drill bits,for example). Fixed costs can include labor or someoverhead cost. Any fixed cost can be apportioned inSAP System to production orders up to full absorp-tion costing.

You can cost single mining blocks by aggregating thecosts of all orders for a specific block and apportion-ing processing costs to that block on a tonnage basis.Costs can be rolled up by any of the stored character-istic values that will allow comparisons between dif-ferent locations, rock types, and so on. In an under-ground mine, costs such as rock bolting can be trackedper stope.

Cutoff Grade Management in SAP

In any mining operation the operating costs are � forthe most part � proportional to the tonnage of materi-al to be mined and handled. For a given tonnage ofore, the production costs are fairly constant and inde-pendent of ore quality (grade). However, the revenuegenerated from selling a final product (concentrate, forexample) is driven by the amount of product sold and,in turn, by the ore grade. That is, the revenue is (pre-dominantly) proportional to the ore grade.

For a given mineral ore body, a grade of mineraliza-tion exists below which the revenue to be derived fromproduct sales will be less than the cost of production.This grade is called the economic cut-off grade (seeFigure 8).

Figure 8: Mining Cutoff Grade

By modeling the production processes using SAP rec-ipes in the PP-PI component (including data inputs forthe blocks to be mined), you can use SAP System toassist in cut-off grade determination and on-goingmanagement. SAP integration provides immediate ac-cess to accurate operations cost information needed todefine economically recoverable ore.

Execution and Control

During execution of the production schedule, data iscollected from the mine and plant control systems. Thisdata is most often used to represent the mining andplant business processes to operators in a way thathelps them operate the mine and plant optimally. Inthe mine, typically, the location and condition of keymobile equipment might be shown. Using this onlineinformation, operators can control all mining opera-tions, making allowances for disturbances from theproduction plan generated in SAP System. In the caseof equipment breakdown for example, maintenancepersonnel can be dispatched to the site to make repairs.

In the plant, SCADA systems graphically represent theplant and its operating status, including trending andalarm information. A subset of this event data is re-quired to inform certain business and logistics trans-actions in SAP System, such as confirmation of mate-rials consumed and product made. The raw data is col-lected form the various process control systems,contextualized (integrating raw data from tons/hour),verified (through mass balancing), and then electron-ically up-loaded to the relevant SAP PP-PI process or-ders.

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The SAP Mining SolutionEnterprise Systems Technology

In simple terms, the technology of enterprise informa-tion systems can be thought of with two main opera-tional features (see Figure 9). First, there is a single,shared information repository for all company com-mercial and operations information. This repositorycan be considered the backbone of the ManagementInformation System (MIS). Subject to predefined ac-cess authority, this information can be accessed by allof the system�s users.

The second feature is transaction processing. Transac-tions are business-related exchanges such as the fol-lowing:

■ Making salary payments to employees■ Issuing invoices for sales to customers■ Making payments to suppliers■ Reordering critical consumables■ Instructing the overhaul of mobile equipment■ Instructing a specific production campaign

Transaction processing enables systems users to dotheir work: to place work orders, raise invoices, payaccounts, and place supply orders. Transactionprocessing makes use of the common information andupdates the common information as each transactionis performed. Using SAP components (such as FI, CO,MM, PM, and HR), transaction processing can be usedin a range a company�s work functions.

Because these components of business systems are in-tegrated across the company, the requirements andoutcomes of the real-time transaction processing areavailable across the whole system. Employees can nowsee what is happening, what orders are being placed,and what work is being instructed.

Figure 9: A Simplified View of Enterprise InformationSystems Technology

When integrated into the work of a company, the twofoundation features of the enterprise systems techno-logy are elaborated into many more features andfunctions, including the following:

■ The system is process-focussed and crosses multiplefunctions and organizational boundaries

■ No single group or individual possesses ownershipof the system and its data

■ Reports from the system are required for multipleaudiences and at differing levels of detail

■ The enterprise system will probably integrate anumber of different computing technologies

■ The enterprise system will engage the whole of thecompany�s work activities

■ Work processes, enabled by the system, will be re-engineered (business process re-engineering andcontinuous improvement are synonymous with theuse of the system)

■ The enterprise system will enable strategic goalssuch as improving existing products and service,developing new products and services, changingthe existing industry and its characteristics,improving productivity, reducing costs, andimproving response time

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The Mining Solution

In line with many other large-scale businesses, manymining companies have become interested in recentdevelopments in business systems technology. Duringthe past three years or so, a large number of majormining companies have purchased SAP System as theircore business system and have committed to on-go-ing extension of its use.

The projects under way in the mining industry showgood success with the application of SAP System tothe core commercial business processes but with mod-est levels of application into and integration of the coreproduction processes. Although there has been somepioneering work done by customers and partners inthe production area, there remains great potential forfurther use of SAP (including integration with third-party products) in this critical part of the customers�business.

For the most part, mining companies buy SAP Systemwith a view to developing an integrated, enterprise-wide (end-to-end) business system. They do not nec-essarily expect the R/3 System to provide functional-ity for all of the company�s business processes, butthey do seek seamless, effective, and supported inte-gration of existing, specialized systems into the ERPsystem.

The SAP Mining Solution management program ac-knowledges this potential and is based upon an end-to-end solution tailored for the mining industry. Crit-ical elements of the program include:

■ A program of Complimentary Software Products(CSP) focused on the mining industry

■ Regional and global mining industry focus groupsand a customer engagement (collaboration) process

■ Oil and Gas and Mining IBU solution softwaredevelopment program

■ A Mining Solution template

Figure 10 shows key elements of the SAP Mining So-lution management program.

Figure 10: The SAP Mining Solution Development Program

The SAP Mining Solution does not detract from orreplace traditional mine planning, geological, and geo-technical systems, but rather allows SAP System to be-come an extension of these systems integrating theminto the rich business and logistics functionality of theR/3 System. This current solution configuration andscope has been developed in collaboration with arange of current mining customers in Australia andSouth Africa; many of these customers are global min-ing companies. Some of the key principles that under-lie the development of this solution include the fol-lowing:

■ The customer must drive business and businessprocess (systems) change. SAP business systems willenable change and process improvement.

■ Enterprise-wide systems change that includes coreproduction and mining processes is significantlymore involved than systems change in theaccounting and commercial processes.

■ Effects on core production systems can beminimized by using proven off-the-shelf solutionsand by correctly staging and phasing the projectimplementation.

■ Integration software will be easily configurable andhave sufficient flexibility to change with thebusiness.

■ The use of people with in-depth knowledge andexperience of production work is critical toapplying enterprise systems technology to coreproduction processes.

■ Mining customers perceive that the core productionarea has very high potential for SAP systemsapplication. This area typically can represent about80% of total business costs.

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With this holistic approach to enterprise informationsystems, the systems picture for a mine and process-ing site will emerge as shown in Figure 11.

Figure 11: Building a Mining Solution

Building the enterprise-wide system will affect the waythat people do their work. SAP systems, together withthe third-party products that make up the businesssolution, will be implemented to ensure assimilationinto the workplace while obtaining the maximum pro-ductivity benefit from the system features (such asintegration of information across business processes).Figure 11 illustrates a progression of system imple-mentation moving from the stand-alone specializedsystems, to business integration with common data-bases and processes (moving inwards from the extremepoints of the triangle). It is a progression that allowsfor systems learning in the workplace.

To help systems integrators, customers, and consult-ants analyze a company�s systems needs (through theuse of gap analysis, for example) and to develop apicture of the likely enterprise solution, SAP has de-veloped an industry solution map for mining. This mapis useful to customers, partners, and suppliers in anumber of different ways. However, its primary pur-pose is to map the common business processes in theindustry and overlay the SAP Solution over the proc-esses.

The solution map (see Figure 12) comprises the min-ing value chain with its supporting or enabling high-level business processes of enterprise management,customer relationship management, and business sup-port. This high-level view of the mining business proc-esses is expanded on the second and third-level

business processes illustrated in subsets of the map (notshown in this document).

Figure 12: The SAP Mining Industry Solution Map

The solution map reinforces the fundamental relation-ship between SAP System and business processes. Themap documents business processes common to andacross the mining industry. In providing the basicstructure of the business processes or systems of work,the map assists customers in:

■ Determining key systems drivers for strategicdirection

■ Improving company-internal and company-suppliercommunications on business process discussions byproviding a common terminology and taxonomy

■ Providing a framework for business process re-engineering and whole-of-business continuousimprovement

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SAP Systems Integration

The primary features of systems integration include:

■ All reporting on operations is based upon aconsistent data set resulting in one version of thetruth.

■ The actual measurements from the systems at thecontrol level can be reconciled with the plan in SAPto determine operational performance. Actualagainst plan comparisons can be carried out againstproduction cost, effectiveness, people andequipment utilization, and so on. This designprovides a closed loop between planning andexecution.

■ Equipment breakdowns, picked up and known to thecontrol systems, can trigger a maintenancenotification in SAP System, resulting in a timelyresponse to equipment breakdown as well asaccurate collection of equipment performance data.

■ Planning through SAP System balances equipment,human resources, and material requirements.

■ More accurate cost of alternative plans in a muchshorter time frame saving hours of manual costing.

■ What-if analysis capability is added to planningcycle due to tight integration between planningsystems and SAP System.

■ Integration provides a real versus actual planevaluation for each production process.

■ Mine block costing and characteristic-basedcosting verifies and provides the cost andproduction drivers used for process optimizationand continuous improvement, as well as providingrapid economic cut-off grade analysis.

■ Improved inventory control through materialrequirements planning reduces cash locked up inunnecessary stock.

■ Quality control through monitoring intermediateand final quality.

■ Integration to process control and MES layersystems using third-party products eliminatesmanual intervention in highly mechanized mines orcontrolled processing.

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Appendix A: Typical KPIs and Cost Drivers

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SAP Mining Solution

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