Improving Mining

Efficiency through
Mechanization,
Automation and
Continuous Improvement
MMMM Symposium
Harmeet Katari
Associate Director
KPMG Advisory Services Pvt. Ltd
28 30 September 2012
Session Agenda
A brief introduction to KPMG
The Business Environment in
Mining
The Opportunity in Operations
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
The Opportunity in Operations
Excellence
Methods of Improvement
Continuous Improvement &
Automation
1
KPMG in India is a member firm of the global network of member firms,
providing Audit, Tax and Advisory services, affiliated with KPMG International
We turn knowledge into
value for the benefit of our
clients, our people and the
capital markets
India India among the among the fastest growing fastest growing
member firms in the global network member firms in the global network
NEW DELHI
1993: 1993:
20 20 People
2 2 Partners
CHANDIGARH
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
2
Double digit
annual growth
rates
152 countries
145000 people
7100 Partners
One of the
leading
professional
services firms
Over USD 22
billion in
global
revenues
MUMBAI
HYDERABAD
BANGALORE
CHENNAI
KOLKATA
PUNE
7000 + 7000 + People
200 + 200 + Partners &
Directors
10 10 Offices
2012: 2012:
COCHIN
AHMEDABAD
KPMGs Advisory Services provides specialized offerings by combining
technical, business and market skills for delivering workable service offerings
AUDIT TAX
ADVISORY
Management
Consulting
Risk
Consulting
Transactions and
Restructuring
U.S. GAAP
(including SOX
attestation)
International
Global International
Corporate Tax and
Litigation Services
Indirect Tax
Business
Effectiveness
Financial
Management
Accounting
Advisory
Services
Climate
Corporate
Finance
Transaction
Services
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
3
International
Financial
Reporting
Standards (IFRS)
Indirect Tax
International
Executive Services
M&A Tax
Transfer Pricing
Management
Advisory
IT Advisory
People and
Change
Shared Services
and Outsourcing
Advisory
Climate
change and
Sustainability
Financial Risk
Management
Forensic
Governance,
Risk and
Compliance
Services
Offerings for Mining Industry
Growth & Operations
Strategy
Large Capital Project
Implementation
Management
Corporate Strategy and
Business Planning
Valuations; Financial and
Tax due-diligence
Counterparty Search: Buy-
side assistance; Sell-side
assistance
Corporate Finance/
Transactions Advisory
Operations Excellence
(Lean/ Six Sigma etc.)
Cost Optimization
People & Change Advisory
Organizational
Effectiveness Improvement
Business Transformation/ Capability Building/ Organizational Strengthening
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
4
Management
Business Integration
Business Continuity
Management
Market Entry Strategy
Bid Assistance
assistance
Joint Venture assistance
Assistance in raising debt
Investment advisory to PEs
in auto/ component
situations
IPO Advisory
People & Change Advisory
Business Process
Reengineering/ Risk &
Controls Review
Supply Chain & Logistics
Technology Implementation
Mine Development
Services
Shared Services
Session Agenda
A brief introduction to KPMG
The Business Environment in
Mining
The Opportunity in Operations
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
5
The Opportunity in Operations
Excellence
Methods of Improvement
Continuous Improvement &
Automation
Growing nations causing a structural shift in commodity demand
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Increasing intensities due to demand shift for commodities in emerging markets
Multiplier effect on commodity demand
Energy consumption to rise sharply in growing nations Chinas per capita energy consumption
to double by 2020
Source: Xstrata: Mining opportunities and challenges, CIA Factbook
Global mining sector is facing increasing commodity price variability which
endangers profitability
Commodity Price Fluctuation and EBITDA Margin of Mining Companies
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Commodity price volatility today is much more than it was a decade back
Companies continue to struggle to insulate their profit margins from the industry cycles
2000
2010
Source: Bloomberg
EBITDA Margin of Top 40 Mining Companies by market cap in 2010
All prices in respective units were normalized to 1 as on Jan-2000
Going forward, most of the traditional levers of profitability in this sector
appear to be challenged
Increasingly Complicated
Business Environment
Depletion of Resources Higher Input Costs
Reserves
Source: Natural resources, Canada, Canadian
Minerals Yearbook, 2003-2006, Review & Outlook
Source: Coal mining cost escalation 2003-2008
analysis by Marston
Country Coal Mining Cost
Escalation 4 years
Australia 45%
Indonesia 46%
South Africa 47%
Venezuela 49%
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
8
Impacts:
Mining Rights &
Ownership
Infrastructure Creation &
Operating Model
Community
Compensation/
Involvement Model
Impacts:
Unfavorable geology-
driven costs
Pricing flexibility
Minerals Yearbook, 2003-2006, Review & Outlook analysis by Marston
Impacts:
Operating margin
Operational flexibility
Quantum of risk to be
carried by the miner
Session Agenda
A brief introduction to KPMG
The Business Environment in
Mining
The Opportunity in Operations
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
9
The Opportunity in Operations
Excellence
Methods of Improvement
Continuous Improvement &
Automation
Operational excellence is imperative for bridging the strategic gap
Mining companies are differentiated
less by their portfolio of mining
properties than by the:
Effectiveness with which they
exploit those resources
Ability to bring project on schedule
Deliverance of projects within costs
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Deliverance of projects within costs
Deft management of labor (one of
the highest expenses in the sector)
Managing energy costs
Source: Xstrata presentation on Mining: opportunities and challenges by Mick Davis, CEO in June 2011
Level of mechanization remains low in Indian mining industry
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Source: Report on Working Group for Coal and Lignite for Formulation of 12
th
Five Year Plan, Planning Commission, GoI, Nov 2011
Mining Operations, especially in UG, there remains ample opportunities to move from
current semi-mechanization levels of SDL/LHD to mechanized CM and LW
At the same time, it needs to be ensured that these assets (mechanised equipment)
are utilized properly
Session Agenda
A brief introduction to KPMG
The Business Environment in
Mining
The Opportunity in Operations
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
12
The Opportunity in Operations
Excellence
Methods of Improvement
Continuous Improvement &
Automation
In the face of increasingly difficult extraneous performance drivers, Industry
Players have turned to operational excellence for some time now
Business Excellence
System (Started ~ 2007)
Profit surge of 158% and cash
flow from operations increase by
163% despite cost inflation of
Alcoa Production System
(Started Late 1990s)
30% CAGR in profitability after
the program despite Al price
plunge
Operational Initiatives Overall business impact
ALCOA
NEWCREST
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
163% despite cost inflation of
8.2%
13
Improving Performance
Together Program (Started
~ 2005)
For e.g. in RT Coal Australia, the
program contributed $975 Mn in
3 years
Source: Company Websites, KPMG Analysis
NEWCREST
RIO TINTO
Automation in mining and other processes is central to the operational
excellence initiatives taken by various companies
Mining Innovation
driven by the need to find and access new
resources to meet rapidly growing demand, often
in complex and difficult to mine environments
Incremental
innovation
Step up
Innovation
gradual
improvements in the
mining processes,
but imply only
limited changes to
business-as-usual
operations
significant change in
the extant technologies
/ process ; requires
material time and
investment
Automation
the intelligent
management of a
system using
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
14
Asset health
System
Miner Assist
Technical
Equipment
Water and
environmental
process
improvements
System to
monitor the
equipment
performance on
real time
System to
assist miners
interact (video
link etc) with
specialists to
address
equipment
breakdown
Multiple
technologies
aimed at entire
mining value
chain
Airborne
exploration
technologies
Mineral
processing
system using
appropriate technology
so that its operation
can occur without direct
human involvement
Source: BAE
Various facets of automation/ mechanization for a mine
I/P
O/P
CONTROLS
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
I/P
O/P
TOOLS
Mine
Higher mechanization is the way forward
Example: IPCC system in place of Truck dispatch system in OC mines
Cost Comparison: IPCC system vs Truck dispatch system for an Indonesian open cast Coal mine (20
The Installation of IPCC is a profitable working which
significantly reduces cost of transportation by Truck
The big difference in the total handling/ operating costs
mainly result from the low costs for the conveyor
transport
Payback period of approx. 2 years
It also has Environmental Advantages
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
16
Cost Comparison: IPCC system vs Truck dispatch system for an Indonesian open cast Coal mine (20
MTPA)
8.3
16.5
26.1
0%
20%
40%
60%
80%
100%
Cost Break-up for Truck only system
(INR/ton)
Estimated total
trucking cost
Primary rehandling
cost
Primary crushing
cost
Total Cost:
50.9 INR/
ton
No Initial
Investment
9.6
1.3
4.2
3.2
0%
20%
40%
60%
80%
100%
Cost Break up for In-pit crushing-cum-
conveying system (INR/ton)
Spares cost
Energy cost
Labour cost
Capital cost
Initial
Investment: 190
INR crore
Total
Cost: 18.4
INR/ton
Crusher Capacity: 333 tph
Source: Coal Trans Asia 2003
Indian mining industry needs to start its journey towards higher
mechanization & automation, as others are progressing very fast
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
17
Source: Rio Tinto presentation on Innovation: the key to sustainable development March 1, 2010
Sustainable EBITDA
Improvement Levels
Sample Initiatives Examples
5 8%
OEE Improvement
Energy Efficiency
Consumable Optimization
Crusher uptime
improvement
Electrical wiring overhaul
Tire life improvement
E-Procurement Reverse auctions
Aggressive targets can be set for operational improvement in mining through
continuous improvement (CI), higher degree of mechanization and use of
automation technologies
2012 KPMG, an Indian limited liability company and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
8 15%
E-Procurement
Recovery Improvement
Haulage efficiency
Reverse auctions
Flotation cell circuit
improvement
Conveyor layout
optimization
20 25%
Process centralization
Integrated value chain
initiatives
Capex operating model
Shared services
Supplier collaboration &
strategic LCCS
Innovative asset
ownership models
18
For additional details:
Harmeet Katari
Associate Director
KPMG Advisory Services Private Limited
KPMG, Floor 8, Building 10,
DLF Cyber City, DLF Phase II
Gurgaon 122021
India
Mob: +91 9811762700
Email: hkatari@kpmg.com
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