Value Creation in Mining The Productivity Imperative...Themenworkshop Kanada Berlin KvS 10Dec14...

Value Creation in Mining – The Productivity Imperative

Dr. Konrad von Szczepanski

10th December 2014

Themenworkshop Kanada Berlin KvS 10Dec14 V1.pptx 1

The 'squeeze' is here

75

168 168192 209

228

0

100

200

300

400

20%

2012

313

33%

2011

329

45%

2010

273

$/unit production

Indexed to 2002 price

Cost (Indexed)

39%

2009

230

27%

2002

EBITDA %

2013

288

100

25%

Source: Based on 13 prioritized commodities and 19 companies, CG Value Science; financial reports

Price (indexed)


The mining industry is no longer creating value

1. TSR weighted by market capitalization. Sample cut-off: 2012 MV >$7B or 2002 MV >$1B Sources: Thomson Reuters Datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.

-80 -60 -40 -20 0 20 40 60

TSR rank

Average annual TSR (annual %)

First quartile

Second quartile

Third quartile

Fourth quartile

16% Weighted average TSR for industry sample1 0% -20%

2013 2009-2012 2002-2012


Percentage points of

TSR, 2007-141

Revenue growth 7 11 8 (2)

EBITDA margin change (3) (1) 1 (2)

Profit growth 4 10 9 (4)

EV / EBITDA multiple

change (11) (14) (13) (5)

FCF contribution (1) (4) 1 (5)

TSR (% pa) (8) (7) (2) (14)

Its not easy to 'turn the ship'

1. TSR is calculated in the reporting currency and is from November 30, 2007 through November 30, 2014; Financials are last-12-month data available as of the analysis date (December 3, 2014) 2. LSE listing 3. ASX listing Note: Figures show contribution of each factor in percentage points of average annual TSR; apparent discrepancies with TSR total due to rounding Source: Standard & Poor's Capital IQ; BCG analysis

2 3


0

250

500

750

1,000

1,250

0

200

400

600

800

1,000

2014 2011 2008 2005 2002 1999 1996

Canadian mining output per FTE ($000s per FTE) Euromoney global mining index

Mining industry at (another) pivot point

Source: Bloomberg, Statistics Canada & Mining Association of Canada, BCG Analysis

Geology our friend China Miracle Productivity imperative?

Canadian mining labour productivity

Euromoney Global Mining Index


Productivity is well understood …

Assets

Cost

10–15% cost out

Technology


Myth

Productivity is well understood … or is it?

Reality

Assets

Cost

10–15% cost out

Technology

Mgt systems,

Assets, People

NPV

30%+ NPV

Operating Model

Transformation


Best practice productivity programs cover three fronts

Effective Management

Systems

People Excellence

Efficient Physical Assets

Organization, Roles & Accountabilities

Strategic Workforce Planning

Training & Development

Culture & Employee Engagement

Integrated Planning

Governance, Compliance & Risk

Performance Management

Data, Analytics & Decision Making

Understanding the resource potential

Method, Configuration, Equipment Selection

Process Design & Continuous Improvement

Technology Platform

Employ, develop and engage the right people"

Plan, steer and control the deployment of resources within and

across company boundaries"

Understand the resource body; design, operate, maintain and improve

physical assets from "face to ship"

3

3.1

3.2

3.3

3.4

2

2.1

2.2

2.3

2.4

1

1.1

1.2

1.3

1.4

“ “ “

Source: BCG experience

HSEC Cost Volume Sustaining capital


Don't sell yourself short

NPV improvements of over 30% should be your goal

1. Unit cost reductions from increased throughput are in addition to this. Source: BCG experience

Performance

KPI Example levers Impact

• Enhanced mine planning

• Restructuring mine-system and flow sheet

• Classic OEE

• Real-time end-to-end supply chain management

10–15%

• Re-organise and re-structure

• Procurement and logistics

• De-capitalise, e.g., leaner fleet

• Classic OEE Unit cost at constant volumes1

5–10%

• New operating model (technology)

• Re-organise and re-structure

• Incentives

• Training

10–20%

Throughput Mtpa

Unit cost $/t

Productivity t/FTE


Mining next to a see technology-driven productivity uplift

Source: BCG experience, Technology Advantage Practice

Multi-channel, 24x7, single view of customer Branch, office hours,

account based

Consumer

banking

2000's

Just-in time, automation, global platforms Manual assembly lines Auto

industry

Multiple-brands with common supply chain Manual stocking,

point-to-point logistics

Grocery and

Consumer

Goods

1990's

Customer oriented, hub-and-spoke model Scale game, point-to-point logistics Logistics

Standardised, integrated Local, siloed Industrial

products

2010's

Mining Next Generation Mining Manual, not Integrated,

simple processing

1980's


A bold vision for a new mining operating model

Entire operations optimised from central Integrated Operations Centre

No on-site operators, only basic support teams

Remotely

managed and

coordinated

operations

Smart sensors provide real-time data about ops and assets

Reduced operating variability through predictive analytics

Data-driven

decision-making

Standardised, 'no frills' mining model

Culture that drives low cost, lean operations across value chain

Absolute lowest

cost

Mind shift: supply chain as a big manufacturing plant

Demand 'pull' approach, just-in-time, fully integrated

Manufacturing

supply chain

philosophy

Mobile vehicles, plants and rail fully automated

Core processes self-adjusting without human intervention Full automation


In closing: Get the MOST out of your mines

Source: BCG experience

• Targeted interventions not one-size-fits all

• Value, value, value!

Maturity-based

• Effective management systems

• Efficient physical assets

• People excellence

Optimized

• Skills and training

• Cultural

Sustainable

Transformational

• Operating model shift

• 30%+ NPV step change

3 1 2

Thank you

bcg.com | bcgperspectives.com

Value Creation in Mining The Productivity Imperative...Themenworkshop Kanada Berlin KvS 10Dec14...

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