Value driver modelling

with Archimedes FACX

for optimising mining
company operations

Ilya Golubinskiy, PwC Russia

9 February 2011

Value driver modelling can help a mining companys

management to address a whole range of important issues

Recently, mining companies costs have gone

up significantly and many companies in the
sector have had to face the challenge of how
to cut their costs efficiently.

Mining company executives most frequently

must address the following issues:

How to enhance the accuracy of planning?

A value driver model (VDM)

can help identify solutions to
these and many other
challenges

What is the most effective way of

incorporating market price fluctuations into
the planning and budgeting process?

Archimedes FACX is a tool for

efficiently building and
managing value driver models

What underlying principles should govern

supply chain optimisation initiatives, from
production to transporting finished goods?

PwC Russia

How to quickly and efficiently assess the

economic effect of new initiatives?

What we are offering with Archimedes FACX

Pit-to-Port full coverage of

the entire value chain

Dynamically tuned tool

A tool that been successfully

used by market leaders

PwC Russia

A value driver model aligns costs and work at all stages of

the value chain, from the production site to the finished
product dispatch point (pit-to-port), enabling a mining
company to monitor its component costs per each tonne
of finished product.
The models dynamic nature also allows the company to
test the sensitivity of its overall financial results to
specific factors as well as assess capital initiatives.

Value driver models have been successfully implemented

and are being actively used at such companies as BHP
Nickel West, Newcrest Gold and Xstrata Coal.
Among recent projects, a value driver model is now being
developed for all of Xstratas coal assets in Queensland,
Australia.

Archimedes FACX provides the flexibility you need

to align operating data with financial results
Key areas where an Archimedes FACX-based value driver model can be used:
Developing an economic business model
Aiding company management in identifying links between specific value drivers
Achieving greater efficiency in the strategic planning process through the use of
more accurate data reflecting the companys potential status

Assessing the economic impact of new initiatives

Obtaining a rapid response to the question: Wheres the money?
Enhancing the effectiveness of KPI systems

PwC

Our approach makes it possible to integrate all process

stages within the overall mining process in one model

PwC

Depending on management requirements, separate divisions can

access only those modules that describe specific operational
sections
Module with data on
production and refining
sections only

PwC

Module with data necessary for

the logistics group

We have developed value driver models for companies

working with diverse types of raw materials and using
various production approaches

Resource

Opencut
mining

Underground
mining

Refining and
upgrading

Rail logistics

Port
logistics

Coal

Copper

Nickel

Gold

Iron

PwC Russia

Slide 7

Our approach

PwC Russia

Slide 8

Our approach to implementing a VDM tool

Stages

2
Project preparation
and data gathering

3
Creating a value
driver tree

4
Developing the
model in
Archimedes

5
Testing the
model

FACX

Adapting the
model at the
client company

Goals

Holding instructional
meetings
Setting goals and objectives
Interviewing key employees
Distributing requests for
information on ongoing
operations

Collecting and
consolidating data in the
form of a value driver tree
Designing required
templates for final model
data
Coordinating a high-level
value driver model
Making any necessary
changes in the model

Deliverables

Archimedes FACX

Requests for information

distributed among heads of
functional units
Instructional meetings
held; employees informed
of project goals and
objectives

Complete list of the

companys production
assets
Map of the companys
operating processes
Productivity levels and
restrictions determined for
production sections,
reflecting geological and
technological specifics

PwC Russia

Creating the value driver

model in accordance with
data received at previous
stages
Aligning cost items with
operating processes
Aligning the principles for
coordinating specific items
with company employees

Initial version of the

mathematical model of
operations built

Completing the model with

actual model data
Testing the logic and
output data
Testing the model with
future key system users
Joint workshop to
coordinate logic and
accuracy of final model data
Making any necessary
changes in the model

Developing training
materials and delivering
workshops for key
employees who will use the
model on a regular basis
Preparing and delivering a
workshop with company
management to present all
of the new models
advantages and
opportunities

Model tests using actual

data completed, and
necessary changes made
Value driver model in
Archimedes FACX built

Training materials
prepared; employees
trained to use the model
Workshops with company
management held;
management fully
informed about model
capacity

Slide 9

Principles of VDM development:

collecting and analysing data on current assets

During an analysis of the companys operations, a list is generated of assets and processes that
directly affect the companys financial results

High level of automation when building the model - Archimedes FACX features libraries of mining
assets and operating processes which can be used at a mining enterprise

PwC

10

Principles of VDM development:

factoring in opportunities and restrictions

To ensure the accuracy of the model, it is important to determine the capacities of all production
assets which impact the key production cycle and are a source of significant costs

Any interdependencies or restrictions should be taken into account to correctly reflect the
companys capabilities

Truck fleet
Operating

19,414 hours

Maintenance

5,557 hours

Dragline

Speed

400 bcm / hour

Operating

6,711 hours

Maintenance

1,579 hours

Speed

3,750 bcm / hour

PwC

11

Principles of VDM development:

aligning transactions with financial results

Aligning the trial balance with cost sources

Analysing cost types and aligning cost allocation by groups of fixed and variable costs

Aligning variable costs with cost factors by type of activity

PwC

12

Principles of VDM development:

data consolidation in Archimedes FACX

The companys value driver model is based on detailed information obtained at previous stages

A specialised tool accelerating the process is used to create this model

A mandatory project element will be training in Archimedes FACX operations for employees
who will use the tool in the future

Apart from using the current version of the model, company employees will be trained how to
update the model for its permanent upgrade in the future (change in performance of each
section, introduction of new equipment or a whole area)

PwC

13

Benefits of Archimedes FACX

Creating a value driver model from scratch can be a time-consuming process and, thus, expensive

At the same time, however, except for significant differences between opencut and underground
mining, processes using in mining operations are relatively standardised

PwC has developed its own Archimedes FACX tool, based on Microsoft Excel and featuring an
extensive database with potential processes and mining enterprise assets

As a result, model implementation takes less time and, thus, costs less. Also, the tools user-friendly
interface helps company employees make any necessary changes

PwC

14

Applying a VDM in practice

PwC Russia

Slide 15

An Archimedes FACX-based VDM can help identify key cost

drivers and monitor their impact on the entire value chain
The model will help you to consolidate and align operating and financial data

Negative impact is marked red,

while positive impact is marked green
Double click to unfold the next
level of detail in each area
Difference between
current data and modelled
scenario are shown in
absolute and percentage
terms

PwC Russia

Slide 16

Determining cost reduction opportunities

Understanding key operating cost factors and their impact on final results

Ranking operating factors with the highest cost reduction potential

Determining the most material indicators for quantitative assessments of costcutting initiatives

PwC

17

Example of setting priority areas for cost-cutting

Impact of a 10% change in the value of each factor on production volume and cost

Impact on production volume and cost of a 10% change in each driver

Improvement
Opportunity

Decreasing $ / ROM t

PwC

Increasing
production

Building a VDM at the EBIT level if required

Efficiency factors

Change (%) in EBIT

-1.00% -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% 0.75% 1.00%

Longwall idle
time

Longwall operating
delays

Conveyor maintenance
delays

Longwall
change-out

time

Development
unit
Development
unit cut rate
cut rate

CPP unsheduled

time

Development
idle time

Impact
on EBIT
of -5%
change
in value driver
EBIT
impact
of +5%
change
to driver
EBIT
impact
of -5%
change
to driver
Impact
on EBIT
of +5%
change
in value driver

PwC

19

Scenario analysis

Conducting a multi-scenario cause-and-effect analysis (using the what if method)

and monitoring the impact on various factors

Detailed analysis of deviations to identify the actual reasons for changes that had an
impact on production cost and volume

PwC

20

Benchmarking

Archimedes FACX can help you benchmark your operations against both intra-company assets and
industry leaders

PwC has assembled and extensive library of performance indicators in the mining sector, which can
be utilised by software users for benchmarking purposes
140
$ / Development metre

120
100
80
60
Benchmark

40

Mine

20

Company
0
0

PwC

2 Million 4
tonnes per6 annum 8

10

21

Archimedes FACX is a tool for optimising

the operational performance of mining
enterprises using a value driver model
Ilya Golubinskiy
Manager
Advisory Consulting
ilya.golubinskiy@ru.pwc.com
Tel.: +7 (495) 967 6094
This presentation has been prepared for general guidance on matters of interest only, and
does not constitute professional advice. No action should be taken based on information in this
document without prior discussions with professional consultants. No representation or
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