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POSTED AUGUST 2017

Disrupting the mining

productivity challenge

By Paul Mitchell, Global Mining and Metals

Advisory Leader, EY
Digital technology can be a key enabler of productivity and allow mining
companies to execute more effective operational strategies

During the super cycle, productivity fell to its lowest rate in more than 30 years, with the sector focusing
on production at any cost due to an unprecedented boom in commodity prices. Over this period, many
miners observed a decline in labour, capital and material (resource) productivity as they chased increasing
production volumes. Interestingly, an additional factor of diseconomies of scale also played a role in the
decline in productivity levels. Many have found that productivity decreased as operations became larger,
and that it was difficult to manage the complexity of these larger operations, particularly given the
additional challenge of high turnover and a lack of staff experienced in driving efficiency. The growth in
mining operations has resulted in complex structures and inadequate functional collaboration. As a result,
productivity has been the number one operational risk for mining companies over the past three years,
and is an issue on which CEOs are firmly focused.

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EY research has found that a lack of communication exists between functional departments, with a silo
mentality creeping into the management of mining companies. We have called this the integration gap.
Research studies suggest that the integration gap in the mining sector can create a productivity loss of
about ten to 20 per cent (McKee, 2013). We believe that it could be even higher. So why has the sector
placed little emphasis on it?

There has been significant progress in short-term cost reduction and a greater focus on cash in the
sector to combat falling prices and ongoing volatility; for example, working capital improvements have
been notable. Attention has also been given to improving labour productivity, and this too has been
successful; however, data indicates that asset productivity has barely changed over this time, and this
appears to be the hardest area for the mining sector to increase productivity. As a result, we looked at
how leading industries, such as manufacturing, have gone about solving this issue.

We recognise that factors such as geographic diversity, orebody knowledge and, at times, even weather
mean that it is difficult for miners to control variability and adopt practices developed by manufacturing
companies. We dont have a silver bullet to remove variability, but we believe that it is possible to address
the management of it and also improve long-term productivity by adopting the following three
approaches:

1. adopting an integrated process model approach to the business

2. aligning digital investments to productivity outcomes and embedding a zero-loss culture in the
organisation
3. supporting such an approach with strong leadership and employee engagement.

Adopting an integrated process model approach

to the business
Gains can be made by aligning with a process model approach. This approach has been adopted widely in
oil and gas and utilities, but not often in mining. In a recent EY poll of over 700 miners, 77 per cent said
that their businesses were not or only partially aligned to a process model (Figure 1). This is consistent
with our view that there has been a take-up of the process model approach for back-office functions and
processes such as shipping where there is less variability; yet this has not been adopted in an integrated
way for service functions such as asset management or marketing, or core functions such as mine
production or mineral processing.
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We believe that a process model approach should be adopted from market to mine, as this will be an
enabler of rapid and effective decision-making at all times and in a variety of situations.

Process models are very effective in improving current business operations and establishing a common
language across the business, and are often used as a foundation for improvement initiatives. By
integrating our processes, we immediately have greater communication and visibility across the line; this
leads to improved and timely decision-making, and, by removing the silos, improved productivity.

Process models allow companies to be more agile and better manage variability from market to mine. This
is especially important in todays market, where miners face the difficult task of responding quickly and
effectively to volatile market conditions.

Aligning digital investments to productivity

outcomes and embedding a zero-loss culture in
the organisation
Effective implementation of technology has been slow in the sector and the industry is poorly rated for
digital intensity; however, digital can be a key enabler of productivity through more effective loss
elimination and execution of operational strategies and plans. A few years ago miners were sceptical of
digital, but that is slowly changing. Of those polled, 84 per cent said that they were considering, have
started or already have digital as part of their day-to-day lives. But digital goes beyond adopting
technology it will be a big enabler in taking a step from the mine of today to a manufacturing mindset.
Using digital provides you with additional data and ways of analysing that data to enhance asset
management, improve reliability and consistency, and also introduce predictive capability. For example,
you make subtle but important changes to your operations in wet weather. Digital enablement could help
determine optimal run rates under different conditions, such as the maximum loads and driving speeds in
wet weather, and pre-empt truck breakdowns through its predictive capabilities.

Future digital transformation of the mining and metals sector will be critical to addressing the industrys
productivity and margin challenges, as referenced in our recent report: The digital disconnect: problem or
pathway? (EY, 2017). However, the current rate of digital progress is out of sync with the scale of
opportunity for many companies.

The mining and metals sector has a long history of adopting new technologies, including plant control
systems, GPS technologies, automated haulage and data storage. Yet many companies face substantial
challenges in turning their long-term digital vision into a reality. The concept of digital mining is not new,
despite the sectors reputation for falling behind other industries in embracing digital. Companies have
been quick to take advantage of technological developments in the past. However, we now see a
disconnect between the potential of digital transformation and the poor track record of successful
implementations.

A number of common pitfalls are driving the digital disconnect between mining and metals companies
vision of a digital future and ability to actually achieve it. They range from a perception of high costs to an
ill-defined business model and a lack of detail on the implementation pathway.

Companies are nervous when it comes to digital investments. Many have experienced failed attempts in
the past, and they want to avoid that road again. Many lack a clear view of what their current capabilities
are or where they want to go in the future. Its navigating this path that is key (Figure 2). Those miners that
are working towards defining their digital future are on the right track. Its those that do not take
advantage of digital advances that are putting their future at stake.

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Companies need to apply the same rigour to their digital transformation that underpins other change
programs, treating it as a business issue and not only a technological one. Only then will miners achieve
the end-to-end process change the sector needs to achieve the next level of productivity.

A shi! in leadership and culture

Ultimately, a shift in leadership and culture is required. What got us here is unlikely to take us to the mine
of tomorrow. It appears that there is very little systems thinking in the mining sector and hence a silo
mentality is adopted as soon as a mining operation starts. Once operational, the silo mentality continues
to disrupt the different company departments.

As per the old adage what gets measured gets done, its clear that KPIs are still based on volume-based
metrics, which are incompatible and inadequate in the current environment where driving end-to-end
efficiency is key. Change needs to be driven from the top. Yet with the level of autonomy and
empowerment currently given to site managers, this could be difficult, and there may be a need for
recentralisation in order to enable strategic decision-making. This comes down to driving an
organisational culture thats open-minded and broad enough to actually understand, acknowledge and
embrace a whole-of-firm benefit, as opposed to the mindset that my piece is the only piece that matters.

The conversation has to change from performance versus plan to one of performance versus potential. It
means embracing and celebrating loss, incorporating a focus on loss into the business culture and
treating it as every employees responsibility. Like zero harm, it can transform the business. It also means
applying this discipline across the whole mining cycle. With end-to-end elimination of loss as a key
capability and a source of reward, we can challenge ourselves to take the next step in bridging the
productivity gap.

Whether the objective is a rapid uplift in productivity, or long-term sustainable change, the principles
remain the same. Companies need to embed sustainable loss-elimination practices through employee
engagement and an integrated end-to-end approach for a long-term sustainable improvement in
productivity.

References

EY, 2016. How do you prepare for tomorrows mine today? [online]. Available from:
http://www.ey.com/Publication/vwLUAssets/EY-how-do-you-prepare-for-tomorrows-mine-
today/$FILE/EY-how-do-you-prepare-for-tomorrows-mine-today.pdf.

EY, 2017. The digital disconnect: problem or pathway [online]. Available from:
www.ey.com/Publication/vwLUAssets/EY-the-digital-disconnect-problem-or-pathway/$FILE/EY-
digital-disconnect-in-mining-and-metals.pdf.

McKee D J, 2013. Understanding Mine to Mill, 96 p (The Cooperative Research Centre for Optimising
Resource Extraction (CRC ORE): Brisbane).

Feature image: Dane-mo/Shutterstock.com.

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