Health Check For Mining v7

Conducting a “health check”
of mining practices
ECZACIBAŞI HOLDİNG
Discussion document | December 2017
CONFIDENTIAL AND PROPRIETARY WORKING DRAFT

Any use of this material without specific permission of McKinsey & Company Last Modified 11/12/2017 11:53 Arabian Standard Time
is strictly prohibited Printed
Objectives for today
Last Modified 11/12/2017 11:53 Arabian Standard Time

Review McKinsey proprietary mining ops
diagnostic approach and illustrative example
Discuss potential diagnostic approach for

Esan
Printed
Share perspective on conducting
performance transformation journeys
McKinsey & Company 2

Why we feel we are the right partner for you

Global track record ▪ 959 engagements in mining in the last 5 years
of sustainable ▪ 60% of the top 50 mining companies served, multiple case
impact examples of substantial, lasting impact
▪ Global experience from work in all key geographies (Europe,
Middle East, North and South America, Asia, Africa, Australia)
Distinctive ▪ Comprehensive set of proprietary diagnostic and benchmarking

proprietary toolkit (e.g., mining operations, capital productivity, commercial
diagnostic toolkit excellence, procurement in mining, etc.)
Global group of ▪ 64 partners focusing on mining, 425 consultants on mining
Printed
senior experts and engagements
dedicated mining ▪ Senior mining experts and specialists in all major geographies
specialists
Commitment to ▪ More importantly, long lasting partnership relationship and

Eczacıbaşı Group commitment to Eczacıbaşı Group and Esan success
success

Contents

Introduction to McKinsey mining diagnostic
Our recommended approach for Esan
Perspective on performance transformation journeys
Printed
Appendix – An example client impact journey

Our diagnostic assesses operational performance potential across a
number of dimensions
Key areas assessed
1 Equipment ▪ Maintenance availability and reliability
▪ Utilization and delays
▪ Drilling, digging, crushing, and milling rates
▪ Cycle times and speeds
▪ Payload management
Throughput ▪ Road analysis and inspection 1 2 We performed a snap-shot mine-planning diagnostic to verify the
root-cause of poor planning and execution…
improvement ▪ Long term strategic planning (e.g., block models, pit

Block
2
Plan A1 1 = poor 5 = world class
Mine
D4 models Cost-benefit
compliance A2
models 2 = average 4 = excellent
5 3 = good
Plan Final pit shell
D3 A3
detailing optimization
4
3 Physical pit
Plan A4
D2 design
Planning shell optimization, physical pit design,…)

feedback
2
People and 1
Equipment
organizational D1 A5
optimization
▪
structure
Medium/short term planning (e.g., stockpile Secondary

equipment
dispatch
Primary
C3
C2 B1
A6
Production
geology
Block extraction
schedule
management, mobile equipment strategy,..)

equipment
dispatch
C1 B2
Stockpile
Grade control/ B4 B3 management
quality
▪
Fixed
management Mobile equipment infrastructure
plans plans
Plan execution/equipment dispatching (e.g., grade SOURCE:McKinsey

SOURCE: MineLens, Al Jalamid site observations
analysis McKinsey Recovery & Transformation Services | 27
control, quality mgmt.)

3 Labor ▪ Labor productivity
productivity ▪ Labor staffing
▪ Spans of control
▪ Overtime
▪ Own versus contractors performance
4 Mining Cost ▪ Operating cost per process (drilling, blasting,
Cost optimization loading, hauling, crushing, grinding)
▪ Maintenance cost per process
▪ Cost drivers (e.g., labor, fuel, electricity)
▪ Consumptions (e.g., fuel, electricity, tires) OEE SUMMARY – EXCAVATORS EXAMPLE
Both hydraulic excavator fleets show median utilization driven by median

process delays
▪
Top quartile Median Below median Median Top quartile Improvement Focus
5 Other factors Procured spend

Planned maintenance MTBF
% of total time % of total time
Availability
Capital and other

% of total time
productivity ▪ Working capital

Unplanned maintenance MTTR
Utilized OEE1
% of total time
factors
Waste fleet Fleet 1
Operating delays Process delays

Ore fleet Fleet 2 % of available time % of available time
6 ▪ Sustaining capex
Utilization
Capex
Observations % of available time
optimization
• Availability offers room for improvement for
both excavator fleets by focusing on
reliability External delays Non scheduled production
% of available time % of available time
▪ Capital productivity
• Utilization of pre-strip fleet Fleet 1 could be
further improved by focusing on hanging
times and dispatch practices
1 Utilized OEE = availability * utilization

SOURCE: MineLens; Alpha site information McKinsey Recovery & Transformation Services | 13
McKinsey Recovery & Transformation Services | 5

McKinsey has developed a proprietary diagnostic “MineLens”, which
includes over 200 mining operations – the largest database of its kind
in the world
Equipment numbers Commodities Regions
Open Pit Underground Comminution ▪ Coal (90) South America Europe Asia
(26) (30) (17)
▪ Iron ore (43)
Truck CM Crusher North Oceania
▪ Gold (33) America
Africa
7,425 191 140 (40) (58)
▪ Copper (22) (72)
▪ Zinc (15)
Shovel Roadheader Mill
▪ Diamond (8)
1,270 38 170
▪ Lignite (5)
▪ Stone (5)
FEL Shearer LPDT ▪ Bauxite (4)
663 18 429 ▪ Nickel (3)
▪ Oil sands (3)
Dragline Shuttle car Bolter ▪ Phosphate (2)
135 324 230 ▪ Chromite (2)
▪ Uranium (2)
▪ Salt (2)
Drill Rock Drill LHD ▪ Titanium (1)
858 311 485 ▪ Manganese (1)
▪ Industrial mineral (1)
▪ Potash (1)
Other underground - Shotcreter (25), Explosive truck (23), Transmixer (13), Scaler (10), Raise borer (6), Hoist (5), Roadheader (38), Beam stage loader (8),
Armoured face conveyor (8), Locomotive ( 19), conveyor (103)
SOURCE: MineLens (August 2017) McKinsey Recovery & Transformation Services | 6
MineLens serves the majority of the world’s leading mining companies
Served Not served
Truly global perspective Mining and metals clients served, 2012 -2017 global leading mining
Projects by region, % companies1
Europe/Middle
Americas Europe,
7
East/Africa
Middle
out of top 10 major
29 East &
40 mining companies
Africa
31
Asia/Pacific
Represents all major

commodities
Projects by commodity, %
Diamond
Zinc 3
Other
13
Coal
5 Americas
out of top 10 major
mining companies
6 37
Asia/Pacific1
Copper 9
Gold
14
18
7 out of top 10
major mining
companies
Iron ore
1 Excluding Chinese mining companies
SOURCE: MineLens; Top mining companies according to market capitalization April’17 McKinsey Recovery & Transformation Services | 7
CASE EXAMPLE
Alpha Case Example – Key findings and opportunity identified
EBITDA Improvement
Key findings USD mn
1 Equipment ▪ Equipment utilization (in particular trucks and drills) lower
than median benchmark 3-10 p.p. (equal to 5-17% potential
due to planned maint. losses and several operating delays)
▪ Dragline tempo analysis on internal data shows an ~53%
improvement potential of ~17 percentage points increase in
throughput
Throughput
improvement 2 Mine ▪ Missing proper cascading of planning from long term to
Planning operations dispatching combined with QA/QC systems
▪ Lacking of proper stockpiling and reclaiming strategy to
control input feed variability (grade and size distribution)
▪ Limited quality of physical pit design
~31%
reduction in
3 Labor ▪ Labor productivity lower by 43% compared first quartile costs
productivity benchmark, mainly driven by higher staffing levels,
suboptimal span of control, significant use of overtime
Cost
optimization
4 Mining Cost ▪ Operating & Maintenance cost per process (drilling, blasting,
loading, hauling, crushing, grinding) of contractor in second
quartile, identified levers to renegotiate to 1st quartile
▪ Cost drivers (e.g., labor, fuel, electricity) and consumptions ~15%
(e.g., fuel, electricity, tires) assessment highlight costs above reduction in
median to be targeted capital costs
5 Other factors ▪ Procurement and Working capital practices below best
Capital and productivity practices and benchmark
other factors
optimization 6 Sustaining ▪ Diagnostic of sustaining CapEx showed higher replacement
capital frequency and lower lifetime for key equipment components
+60% EBITDA

CASE EXAMPLE
Alpha diagnostic has identified a throughput improvement potential
by 53%... Potential based on design capacity Calculated based on gap to utilized OEE benchmarks Calculated based on gap to availability benchmarks
Standby mill potential Calculated based on gap to utilization benchmarks Available capacity
Bottleneck analysis
Alpha
Million tons of ore
Potential: xx Mt
+53%
Actual: yy Mt
Drilling & Loading Hauling Primary Secondary Tertiary Milling Floatation

Blasting Crushing Crushing Crushing
1 Based on site discussions

2 Calculated based on gap to top quartile benchmarks
SOURCE: MineLens; Alpha site information and Team discussions McKinsey Recovery & Transformation Services | 9
CASE EXAMPLE
…as well as a cost reduction opportunity of 31%, equal to USD XX/tonne
XX Savings (USD Mn)
Alpha mining unit cash cost

USD per tonne moved
XX XX XX XX
-31%
2013 2014 Improved Cost after Mining cost Reduced Reduced Potential
mining cost mining cost throughput throughput after OEE mainten- operating future
increase improve- ance cost cost mining cost
ment
Park three
shovels/
excavators
Total tons XX XY YY ZZ
Mt p.a
Total cost XX XY YY ZZ
USD Mn
CASE EXAMPLE
EBITDA Improvement
Key findings USD mn

throughput
Throughput
~31%
reduction in
Cost
optimization ▪ Operating & Maintenance cost per process (drilling, blasting,
4 Mining Cost
other factors
+60% EBITDA

CASE EXAMPLE – THROUPUT IMPROVEMENT
1 Below median utilization for drills and trucks highlights a major
improvement opportunities Top quartile Median Below median Median Top quartile No benchmarks
Utilized OEE1 Availability Utilization Tempo2
Drills 54 91 60 77
Potential improvement
areas
Draglines 78 87 91 89 ▪ Below median
utilization for drills,
loaders and trucks
Electrical rope show room for
59 88 76 92
shovels improvement by
reducing idle, standby
and crew change
Hydraulic 56 87 70 85
▪ Median availability for
excavators rope shovels, loaders
and trucks suggests
improvement potential
44 83 58 88 in maintenance
Loaders
practices
Trucks 44 83 58 89
1 OEE = Availability * Utilization

2 Tempo = Equipment average productivity / top quartile (75th percentile) productivity
CASE EXAMPLE – THROUGHPUT IMPROVEMENT – EXCAVATORS EXAMPLE
1 Both hydraulic excavator fleets show median utilization driven by
median process delays Top quartile Median Below median Median Top quartile Improvement Focus
Planned maintenance MTBF

Availability
% of total time
Unplanned maintenance MTTR

Utilized OEE1
% of total time
Waste fleet Fleet 1
Operating delays Process delays

Ore fleet Fleet 2 % of available time % of available time
Utilization
% of available time
Observations
▪ Availability offers room for improvement for External delays Non scheduled production
both excavator fleets by focusing on reliability % of available time % of available time
▪ Utilization of pre-strip fleet Fleet 1 could be

further improved by focusing on hanging
times and dispatch practices
1 Utilized OEE = availability * utilization
1 Engine repair occurs most frequently and show maximum hours
of failure
Failures by frequency Failures by hours
Breakdown frequency Cumulative percentage Breakdown hours Cumulative percentage,
# % Hours %
1,000 100 3,000 100
800 80 2,500 80
600 60 2,000
60
1,500
400 40 40
1,000
200 20 20
500
0 0 0 0
Pneumatic System
Accident Damage
Hydraulic System
Wait under repair
Pneumatic System
Auxiliary System
Elec & Ctrl Parts
Accident Damage
Hydraulic System
Wait under repair

Auxiliary System
Elec & Ctrl Parts

Propel System
Crowd System
Swing System
Drive System
Hoist System
Propel System
Crowd System
Grease/Lube
High Voltage
Swing System
Drive System
Hoist System
Implements
Grease/Lube
High Voltage
Implements
Structure
Structure
Engine
Other
Engine
Other
Duration per failure reason Failures by frequency
Hours per event Cumulative percentage
Hours % ▪ Engine, lubing system, hydraulic system,
attachment/implementation and structural failures are
15 100
80
the top five contributor to unscheduled maintenance in
10 60
both frequency and hours of failure
40 ▪ Development of operator skills can reduce hydraulic
5
20 cylinder damage frequency
0 0 ▪ Backlog management can reduce number of
Pneumatic System
unplanned maintenance breakdowns e.g. change oh

Accident Damage
Hydraulic System
Wait under repair

Auxiliary System
Elec & Ctrl Parts

Propel System
Crowd System
hoses during planned service

Swing System
Drive System
Hoist System
Grease/Lube
High Voltage
Implements
Structure
Engine
Other
1 Unplanned maintenance shows median to top quartile performance
driven by engine and structural downtime
Top quartile Median Below median Median Top quartile Improvement Focus
Structural1 Engine
% of required time % of required time
Unplanned maintenance
% of required time Hydraulics Electrical
EX-5600 (3x)
EX-3600 (3x)
R-994 (2x)
R-996 (6x)
Operational down2 Attachment

Observations
▪ Unplanned maintenance show room for
improvement by focusing on below median
hydraulics and attachment downtime losses
1 Structural failures include frame and undercarriage failures

2 Operational down includes operation related failures ;like low oil, oil top up etc.
1 Alpha hydraulic excavators show top quartile dig rates and annual
capacities compared to global benchmarks
Dig rate1 - Fleet 1 (x m3)

Moved tonnes/ utilized hour Top quartile Median Below median Median Top quartile
Alpha
Annual capacity1 - Fleet 1 (x m3)

Moved tonnes
Alpha
1 Compared with similar size equipment and normalized with bucket size,
CASE EXAMPLE
EBITDA Improvement
Key findings USD mn

throughput
Throughput
~31%
reduction in
Cost
4 Mining Cost
other factors
+60% EBITDA

CASE EXAMPLE – THROUGHPUT IMPROVEMENT
2 Planning involves both physical resource management and
plant/equipment management over multiple time scales
D2▪ Plan feedback: inputting outcomes and learning into upstream plans
▪ People and
D1
organizational ▪ Plan detailing:
D3 ▪ Plan
D4
structure refinement of compliance:
Long-term longer-term Medium- and assurance that Plan execution/
A strategic plans with B short-term plans dictate C equipment
planning operational planning operational dispatching
details activities and
outcomes
▪ Block models: interpretation of
A1 ▪ Production geology: final
B1 ▪
C1 Grade control/quality
Resource exploration drilling data to define definition of the mineral resource management: enforcement of
management location and grade of the mineral through closely spaced drilling, product specifications through real-
resource blast-hole sampling, and visual time instructions to the operators of
▪ Cost-benefit models: calculation
A2 inspection of blasted material mining equipment and processing
of highest-NPV products and ▪
B2 Stockpile management: design facilities
production capacity from customer and management of stockpiles to
value-in-use and production cost optimize equipment utilization and
▪ Final pit shell optimization:
A3 double handling
selection of the outer limits of the pit
in order to maximize NPV
▪ Physical pit design: high-

A4 ▪ Fixed infrastructure plans:
B3 ▪ Primary equipment dispatch:
C2
Infrastructure level design and optimization scheduling of processing instructions to operators of
and equipment of the mineral processing and facility capacity and setup, major mobile equipment (e.g.,
management transportation infrastructure stockpile management, and haul trucks, shovels, drag
required to execute the mine design of temporary lines)
plan infrastructure (e.g., ramps, ▪ Secondary equipment
C3
▪ Equipment optimization:
A5 roads, power lines, crushers) dispatch: instructions to
selection of type and quantity ▪ Mobile equipment plans:
B4 operators of supporting mobile
of equipment to execute the scheduling and optimization of equipment (e.g., water carts,
long-term mine plan equipment tasks across time motor graders, fuel service
▪ Block extraction schedule:
A6 and mining areas trucks)
determination of most efficient
production schedule
SOURCE: Interviews; team analysis McKinsey Recovery & Transformation Services | 18

2 Mine planning diagnostic output helps identify the root-causes of poor
planning and execution…
Block
Plan A1 Cost-benefit 1 = poor 5 = world class
D4 models A2
compliance models 2 = average 4 = excellent
5 3 = good
Plan Final pit shell
D3 A3
detailing optimization
4
3 Physical pit
Plan A4
D2 design
feedback
2
People and 1 Equipment

organizational D1 A5
optimization
structure
C3 Block extraction
A6
Secondary schedule
equipment
dispatch
C2 B1 Production
Primary geology
equipment
dispatch
C1 B2
Stockpile
Grade control/ B4 B3 management
quality Fixed
management Mobile equipment infrastructure
plans plans
SOURCE: MineLens, McKinsey Recovery & Transformation Services | 19

2 …and it is based on a rigorous standardized scorecard Expert view
based on observations
Preliminary tbc
1: poor 2: average 3: good 4: excellent 5: world class

▪ Block models: interpretation ▪
L1 Drill pattern chosen ▪ Drill pattern based on ▪ Drill pattern based on local ▪ Drill pattern based on ▪ Drill pattern based on
of exploration drilling data to randomly local benchmarks benchmarks and value-of-information value-of-information
define location and grade of geologists’ experience models models, updated as
the mineral resource with similar formations preliminary drilling results
received
▪ No reliable block models ▪ Block models are ▪ Block models are ▪ Block models are accurate ▪ Block models are accurate
exist inaccurate or generally accurate but descriptions of all relevant descriptions of all relevant
insufficient to describe obscure some potentially features of the resource features of the resource
key features of the valuable details of the and residual uncertainties
mineral resource resource
▪
L2 Cost-benefit models: ▪ Products are ▪ Products are ▪ Alternative product ▪ Trade-offs of alternative ▪ Trade-offs of alternative
calculation of highest-NPV predetermined based on predetermined based on specifications are product specifications, product specifications,
products and production typical industry local experience evaluated blending options, and blending options, and
capacity from customer specifications processing strategies processing strategies
value-in-use and production evaluated to find optimal evaluated, in conjunction
cost product for mine with detailed customer
value-in-use models, to
find optimal product for
customers
▪
L3 Final pit shell ▪ Pit shells based on price ▪ Pit shells calculated once ▪ Pit shell calculated once ▪ Pit shells regularly ▪ Pit shells regularly
optimization: selection of forecasts and factor costs based on price forecasts based on price forecasts revisited as price forecasts revisited as price forecasts
the outer limits of the pit in that are outdated or and factor costs that are and factor costs that and factor costs evolve and factor costs evolve
order to maximize NPV unreasonable static over time evolve over time and new information is and new information is
gained about the geology gained about the geology
and operation of the mine and operation of the mine,
with each pit shell design
taking into account
alternative scenarios
where possible
▪ Physical pit design: high- ▪ Physical design (slope ▪ Physical design (slope ▪ Physical design (slope ▪ Physical design (slope ▪ Physical design (slope
L4
level design and optimization angles, bench heights, angles, bench heights, angles, bench heights, angles, bench heights, angles, bench heights,
of the mineral processing road widths and road widths and road width and inclination) road width and inclination) road width and inclination)
and transportation inclination) based on inclination) based on based on geotechnical based on latest based on latest
infrastructure required to unsafe or outdated previous experience best practice geotechnical and mine geotechnical research and
execute the mine plan practices and/or textbook answers engineering research and international benchmarks
international benchmarks adjusted for local
adjusted for local conditions, and taking into
conditions account uncertainties
▪ Mine infrastructure ▪ Mine infrastructure ▪ Mine infrastructure ▪ Mine infrastructure takes ▪ Mine designs are changed
designed for fixed rate designed with limited designed with into account uncertainty in where real option value of
of production and fixed expansion/contraction expansion/contraction price, geology, and other flexibility exceeds
pit shell potential potential factors that will affect the additional costs
evolution of the pit

CASE EXAMPLE
EBITDA Improvement
Key findings USD mn

throughput
Throughput
~31%
reduction in
Cost
4 Mining Cost
other factors
+60% EBITDA

CASE EXAMPLE – COST OPTIMIZATION
3 Alpha overall labor productivity shows below median performance
compared to low income countries, but some potential improvement to
reach best practice Top quartile Low income Median low income Top quartile low income 3
Median High income4 Median high income Top quartile high income
Below median
Labor productivity5 Note
Million tonnes2 per employee1 per annum Total employees

considered for the
analysis include
0.45 only operations
0.40 and maintenance
people; overhead
0.35 employees are
excluded
0.30
0.25
0.20
0.15
0.10
0.05
0
Alpha
1 Total Employees includes own operators, own maintainers, contractor operators and maintenance contractors
2 Total tonnage for mine includes prime ore, prime waste, rehandled ore and rehandled waste
3 Low income: GDP per capita of USD 0 to xxx k USD
4 High income: GDP per capita of more than USD xxx
5 Normalized over weekly working hours, weighted average truck payload and weighted average haul distance
SOURCE: MineLens; Alpha site information; World Economic Outlook Database - IMF 2013 McKinsey Recovery & Transformation Services | 22
3 Alpha shows top quartile performances in labor to equipment ratio
comparing to low income countries but some improvement potential
to global benchmarks Top quartile Low income Median low income Top quartile low income 3
Median High income4 Median high income Top quartile high income
Below median
Operations labor ratio Observations

Employees/primary equipment
• Mine shows median
labor to primary
equipment ratio
compared to low income
countries
Labor to equipment ratio • Operations labor to
Employees/primary equipment equipment ratio show
below median
performance when
Alpha compared to other low
income countries,
suggesting a potential
overstaffing of xx people
Maintenance labor ratio
compared to median
Employees/primary equipment benchmarks
• The gap to median high
Alpha income countries
benchmark would
translate in a potential
overstaffing of xx people
Alpha
1 Low income : GDP per capita of USD 0 to xxx k USD

2 High income : GDP per capita of more than USD xxx
SOURCE: MineLens; Alpha site information; World Economic Outlook Database - IMF 2013 McKinsey Recovery & Transformation Services | 23
CASE EXAMPLE
EBITDA Improvement
Key findings USD mn

throughput
Throughput
~31%
reduction in
Cost
4 Mining Cost
other factors
+60% EBITDA

4 Renegotiating mining contractors can significantly improve the cost
position vis-à-vis global mining benchmarks – Example
Unit mining cost global benchmarks1,2, USD/BCM, 2015 performance
Renegotiated contractor Contractor Cost: XX

Cost: XX USD/BCM material USD/BCM material
AA BB
1st Quartile Median Quartile
1 Cost benchmarks are cash cost only 2 Normalised for haul distance and explosives

4 Alpha total unit mining cost shows below median performance
compared to global benchmarks Top quartile Median Below median Median Top quartile
Loading operating cost Hauling operating cost1

USD/tonne loaded3 USD/tonne hauled3
Total unit operating cost1

USD/tonne moved2
Alpha Alpha
Drill & blast operating cost Loading, hauling and drilling

USD/tonne blasted3 operating costs show below
median performance compared to
Total unit mining cost1 global hard rock mine benchmarks
USD/tonne moved Alpha
Alpha
Loading maintenance cost Hauling maintenance cost1

USD/tonne loaded3 USD/tonne hauled3
Alpha Total unit maintenance cost1

USD/tonne moved2
Alpha Alpha
Drill & blast maintenance cost Loading, hauling and drilling

USD/tonne blasted3 maintenance costs show below
median performance compared to
Alpha global hard rock mine benchmarks
1 Hauling cost is normalized to average haul distance xx km (one-way) Alpha

2 Total tonnes moved for mine includes prime ore, prime waste, rehandled ore and rehandled waste, i.e. xxx Mt
3 Total drill & blast tonnes xxx Mt, loaded tonnes yyy Mt and hauling tonnes zzz tonnes
4 A gap of USD XX to YY million is observed in total Alpha mining cost
performance compared to median and top quartile global benchmarks
Top quartile Median Below median
Alpha total mining cost Potential total mining cost Opportunity
USD Millions
Unit To median To top quartile To median To top quartile
Total mining1 USD/ton moved2 aa xx
Drilling & xx xx
USD/ton moved2
blasting
Operating xy xx
Maintenance xz xx
Loading USD/ton moved2 ya xx
Operating zx xx
Maintenance zz xx
Hauling USD/ton moved2 xx xx
Operating3 xx xx
Maintenance3 xx xx
Others4 “Others” cost is not benchmarked

USD/ton moved2 - -
as typically highly context specific
4 Cost improvement often requires fundamentally rethinking the current
contracting model
Potential improvements and quick-wins
Potential improvements
Payment
▪ Introduce differentiated pricing for ore and waste to encourage focus on quality
structure
▪ Opportunity to price drill and blast cost separately from mining cost
▪ Vary price by hauling distances and elevations (potential for matrix price)
▪ Spell-out KPIs (including quality KPIs) in the contract. Verify that level of detail and KPIs
contained in the received reports (daily, weekly, monthly) is consistent with requirements to
manage contractor in an efficient and effective way
Performance
▪ Introduce intra-day planning requirement to the contractor
management
▪ Establish a robust performance management system, detailing also the daily reporting
▪ Consider the establishment of a Contract Management Office in charge of the contractors’
performance
▪ Include potential pain and gain clauses based on costs, quality, and quantity including -
Incentives – Penalties for impact on KPIs (e.g., production shortfall, impact on downstream activity,
(bonus and equipment utilization, other delays)
penalties) – Potential bonuses for constant and predictable feed to the beneficiation plant
– Include provisions to suspend or terminate work if quality is not met
Variations
▪ Investigate the portion of payment due to variations, and if portion is high re-negotiate the basis to
account for variations
▪ Align contractor on the job, long term training to owner employees to mining capabilities that
need to be developed
▪ Leverage Saudisation clause to develop pool of Saudi talents being involved in the selection
Other
criteria
▪ Ensure proper handovers in case of termination (specifying duration, topics, who will pay for it,…)

Contents

Printed

We recommend to conduct a full mining operations diagnostic for the
zinc/lead mine, while assessing contractor cost performance for IM mines
Focus of diagnostic
Benchmarking approach Typical impact
Proposed approach Areas to be assessed (McKinsey proprietary tools) % EBITDA Increase
Mining contractor ▪ Contracted mining cost (pre-crusher) ▪ Proprietary benchmark of
cost assessment across >30 industrial minerals mines contractor spend per bcm +10-15%
Industrial
1 ▪ Contractor management best practices material moved
Minerals
▪ Should cost model
▪ Proprietary negotiation approach
Full mining ▪ Throughput improvement potential ▪ Full Minelens Diagnostic
operational – Equipment productivity +10-20%
diagnostic – Mine planning practices
Metallic
▪ Cost optimization potential
2 (zinc/lead)
– Labor productivity
mine
– Mining cost
▪ Other factors productivity optimization
To be conducted at ▪ Throughput improvement (e.g., improved▪ Rapid metals plant accelerator

later stage reliability/uptime) diagnostic +10-15%
Magne-
▪ Specific consumption reduction ▪ Processing plants diagnostic
sium metal
▪ Sustaining capital optimization
3 (and other
▪ Kaolin and Feldspar processing plants
processing
operations (throughput improvement,
plants)
specific consumption reduction, sustaining
capital optimization)
To be conducted at ▪ Consolidation support functions ▪ Extensive proprietary benchmarks
later stage ▪ Procurement spend renegotiation (850+ companies, 1,000 -15% work-
▪ Min/Max inventory levels optimization commodities) ing Capital
Cross-
4 ▪ Receivables/Payables optimization ▪ E-procurement tools (e.g., e-auction) -10-30% capex
functional
▪ Optimization of insourcing/outsourcing and library of saving levers, suppliers required
levels profile, etc
▪ Coordination across multiple assets ▪ Support functions FTEs productivity
diagnostic

SAMPLE EXPERT VISIT OBSERVATIONS 1/2
Some positive
aspects observed
during site visit…
• High focus on safety

• Understanding of market dynamics by all crews and levels
• High mobility of people between crews and departments
• Focus on “multi skills” culture
• Traffic segregation between heavy and light vehicles
• Blasted material inventories enable once per xx day blast
cycle
SOURCE: Site visit and discussions with Site teams McKinsey Recovery & Transformation Services | 31
31
Proposed timeline to conduct the diagnostic
Workshops

Data collection, interviews Potential performance Playback and proposed
and analysis aspiration way forward
~2-3 weeks ~4 weeks ~1 weeks
▪ Collect data required, e.g., ▪ Kick-off with top management ▪ Conduct top management
A Key activities – Mining operations ▪ Conduct site visits for Zinc/Lead workshop to play back
mine diagnostic results
– Processing operations
▪ Conduct operational diagnostic ▪ Discuss potential roadmap to
– Financial capture opportunity
for Zinc/Lead mine
– Capital projects ▪ Identify quick win opportunity to
▪ Benchmark contractor mining
▪ Conduct 5-10 interviews with cost and practices for industrial start for immediate execution
relevant stakeholders: minerals mines
Operations, Capital Projects,
Finance ▪ Develop potential top down
aspiration for Esan mining
▪
Printed
Conduct initial benchmarking and operations improvement
analysis (throughput, cost)
B Deliverables ▪ Asset performance review report ▪ Play back of diagnostic results

based on benchmarking analysis ▪ Quick wins opportunity for
▪ Potential top down performance immediate execution
turnaround aspiration based on ▪ Proposed roadmap going forward
benchmarking

SAMPLE EXPERT VISIT OBSERVATIONS 2/2
…as well as issues to be addressed

1 Poor 2 Fair 3 Good 4 Best practice
MQA results MineLens Rating
Area Insights Improvement Opportunity

1 2 3 4 5
Road • Construction takes place largely according • Survey department assists with
construction to plan (high level and granular). measurements to ensure compliance.
Construction is continuously measured and Sign-off takes place at the end
Technical checked against plan
Systems
Drilling operation • Rates are calculated but receives little • Performance management includes targets
monitoring attention for rates and poor performance is
addressed
KPI’s • KPIs tracked are tonnes, m and m² blasted • Develop consistent KPI cascade with
• Performance KPIs are not adapted to metrics adapted for each role
personal performance tracking • Automate data capturing and sharing
• Follow up on corrective/disciplinary actions • Finalize set up of performance screens
proposed by supervisors
Performance • Performance review is frequent but mainly • Formal performance evaluation once a
Tracking top down. Some compensation based on year. Good compensation structure linked
Management review to reviews
Infrastructure
Coordination • Operations don’t participate in monthly • Full partnership between operations and
with planning planning but recommend methods during planning in well-defined planning process.
the initial planning discussions
Coordination • No planning and management of • Monthly planning and management of

with processing intermediary stockpiles to ensure intermediary stockpiles to ensure
integration of mining and process functions integration of mining and process functions
Behaviors • Pockets of excellence among individuals at • Establish mechanism to install a sense

all levels ‘Impact oriented’ with high sense of accountability and ownership across
of ownership the workforce
Mindset and • High absenteeism amongst workforce
(~10% )
Capabilities
Continuous • Mainly managers/ supervisors are involved • There is a dedicated cross-functional CI
Improvement for continuous improvement. team
SOURCE: MQA analysis, MineLens analysis McKinsey Recovery & Transformation Services | 33
EXPERT VISIT RECOMMENDATION
Mine X should focus on improving roads as well as reducing spillage

Roads conditions improvement
From Actuals To Best Practices

Soft areas with high rolling resistance • Optimal road design (materials, position as well
observed as gradients)
• Construction as per standard (sub base, base, and rolling
layers)
• Dedicated road team responsible of construction and
maintenance with sufficient resources
• Implementation and control of global water management
plan
• Team structure and KPIs aligned to ensure accountability of
road and dump conditions
With the increased focus on payload, • Investigate options to reduce spillage of trucks:
spillage is a frequent occurrence • Optimal load positioning
• Optimal load capacity
• Correct ramp grades
• Longer dove tails on 793s
• Increased urgency around cleaning up of spillage:
• Entire workforce to take ownership of cleaning spillage
• Adequate secondary equipment capacity
to allow timely cleanup after identification
EXPERT VISIT RECOMMENDATION
Utilising visual KPI boards will assist crews with the tracking of
performance and using Root Cause Analysis to prevent reoccurrences of
preventable delays
Area From Actual To Best practice Potential impact
Operations • KPI’s focused • KPIs visual management • Improvement of visibility

monitoring mainly around • KPIs aligned to site constraints to ensure effective around section performance
production tracking of key processes • Improvement of work quality
targets and a reduction in rework
• KPIs address rate as well as quality components
• No visual • Reduce the reoccurrence of
communication • Implement root cause analysis methodology to
reduce the reoccurrence of preventable delays preventable delays
of KPIs to crews
Resources needed
• Tools/Material
• Shift change area preparation
• Performance monitoring facilities
• Management
• Standard procedures
• Formal targets and KPIs plan
• Mindsets
• Training (supervisors, dispatchers)
Site visit – proposed agenda Site visits/observations Data
Meetings/Presentations management
Monday, 14th Tuesday, 15th Wednesday, 16th Thursday, 17th Friday, 18th
7-8
6.00 – 9.00 : Shift
change 8.00 – 9.30 : : Catch up
8.00 – 9.00 : Arrival + observations 1 with responsible
presentation of agenda to
8-9 Site GM/leadership
personnel about data
collection / clarifications
8.00 – 11.30 : :
8.00 – 12.00 : : Catch Catch up with
9-10 up with responsible 9.30 – 11.00 : : Catch responsible
personnel about data up with responsible personnel about
collection / personnel about data data collection /
9.00 – 12.30 : Catch
clarifications collection / clarifications 9.30 – 12.30 :Pit visit:
10-11 up with responsible
personnel about data
clarifications - Coaling
- Truck & Shovel
collection /
clarifications
11-12 11.00 – 12.30 :
Discussion with Mine
Manager
12.00 – 15.00 :
12-13 Maintenance workshop
walk-through:
12.30 – 15:30 : Pit drive 12.30 – 14.30 : Wrap
Around/general visit - Working areas up with Site GM and
13-14 - Stores alignment on next
13.00 – 16.00: Planning - Look out points - Condition steps
department - Roads inspection(s) monitoring system
- Waste dump(s) 13.00 – 16.00 :Pit visit :
- Maint Planning
14-15 - Drill & blast planning - Stockpile(s) - Drilling area
- Charging block
Department
- Load & Haul planning
- - General short term
planning 15.00 – 16.00 :
15-16 15.30 – 16.30 :
Discussion with
Maintenance
Discussion with
Manager
technical services
manager
16-17
1 Dependant of shift times

Contents

Printed

Conducting a performance transformation is often not easy – We have
distilled a number of lessons learned from similar situations
1. Most transformations fail. ~70% either don’t hit their target, take too long or
aren’t sustainable. Many sputter and never really get off the ground
2. Focus on execution. Knowing what to do is seldom the issue; getting it done at
scale, at pace and sustainably typically is
3. If you rely on “business-as-usual” people and processes, you’ll get BAU
results. Very few managers have the experience required to drive large scale,
radical performance improvements
4. Changing mindsets is critical. Helping the workforce understand how their
behaviours link to outcomes and making them care more about those outcomes is
the most important ingredient for success
5. Aligning incentives pays. Private equity approach of incentivizing management
(and your partners) around a common measure can have large ROI

We structure transformation programs across five elements
Execution
Bottom-up Transformation
1 Diagnostic
2 planning 3 Implementation
Establishing the Developing a Launching a full-
trajectory and full transformation plan scale effort to drive
potential of the (initiatives and financial value to the
Sequence business using an projections) which is bottom-line
investor due fully owned by the
diligence line leaders
6 weeks (+ 2 weeks
upfront data request) 8 weeks 6-12+ months
Rapid execution of immediate opportunities
Change
4 management
Taking tactical action to change the mindsets and
behaviours necessary to sustain the transformation
Support
Performance Using a relentless cadence to ensure superior
5 infrastructure execution and value delivery to the bottom line

2 In the Bottom Up Phase, the target is broken down to the core group
of executives at N-1/N-3 and initiatives are developed and planned
Top-down Targets How the plan is built Bottom-up plan
Top-down targets 1▪ Top-down diagnostic is read out to line
are allocated over time leaders and fully explained, showing rationale
and clearly assigned behind targets
to responsible leaders
2▪ Specific targets are assigned to line leaders (top
a Overall target to be set by Board/CEO 20-30 company executives at N-1/N-2/N-3 level)
125
85
3▪ Line leaders develop initiative ideas and
prioritize with help from RTS turnaround
12 months 18 months professionals (~200 initiatives)
b Break down of target to “Top 30/50” executives

4▪ Initiatives are validated by Transformation
Office and finance teams
CEO 85
▪ Result of bottom-up
Direct
reports
1
Procurement OPS
2
Sales
3
SC
4 5
Fin 5▪ Week by week implementation plans are built plan is a set of
19 20 20 16 10 with sign-off done by Transformation Office team initiatives fully- owned
a 7 a 2 a 2 a 2 a 3
by line leaders
b 3 b 2 b 4 b 1 b 2
6▪ Plan is compiled and performance
c
d
5
3
c
d
3
3
c
d
4
3
c
d
1
5
c
d
4
1 management tools set up, allowing for rigorous ▪ Initiatives add up to a
e 1 e 4 e 3 e 1
management of turnaround new turnaround plan for
f 4 f 2 f 3
the business which can
7▪ Weekly execution routine is introduced and
g 2 g 2 g 3
be quickly executed
employees are trained
Core goal: transfer ownership of diagnostic targets

to line organization and prepare it to execute the turnaround

3 Implementation is driven through a relentless execution engine
Senior Management Team mandate and communication about the “transformation

story” – focus on transformation NOT a project (re-enforced with incentives)
Weekly Problem solving meeting in each working team

performance attended by initiative owners and executives to
drumbeat discuss progress against commitments
Dedicated
leadership & Dedicated full time leadership with teams
cross functional consisting of cross-functional staff from various
teams functions co-located to drive results
Trans-
formation Training and mentoring (including external hires to
Skill building
Office role model “what good looks like”) to up-skill
Tool to track weekly progress and commitments –

Tools provide “one source of truth” across the
company
Finance team serves as independent

Financial
“gatekeeper” to ensure initiatives deliver real
gatekeeper
impact

4 Dedicated effort to improve the organizational health of the business
including capability building and empowering the front line
Transformation Performance Health

Development
Engagement Office initiatives initiatives
Engagement of Embedded in Specific actions Targeted Capability building

leaders and the weekly TO built into initiative interventions to to turbo-charge
front line to support cadence and plans to ensure shift mindsets and change
delivery meetings sustainable behaviours
initiative delivery

Selected client references – please reach out and hear their stories directly
Further detailed
Client reference Context and impact Contact details
▪ Jimmy Wilson, ▪ ~$4bn value delivered during 18 ▪ TBC
Former President months RTS transformation
1 BHPB Iron Ore ▪ Resulting in 40% improvement in unit
cost
▪ Record safety performance and
improved employee engagement
▪ Sandeep Biswas, ▪ Full-scale transformation launched in ▪ Sandeep.Biswas@new

MD & CEO 2014 across production, cost and crest.com.au
2 headcount ▪ Assistant Nancy
▪ Over (~$15b) in shareholder value Sequeira
created with share price going from nancy.sequeira@newcr
(~$7 to ~$22), FCF going from basically est.com.au
zero to ~$1 billion
▪ Anthonie De Beer, ▪ Comprehensive due diligence of African ▪ adebeer@ethos.co.za

Partner Mining Contractor with identification of
3 ▪ Richard Fienberg, opportunities to substantially increase
Partner financial performance
▪ TBC ▪ Integrated producer with mining, ▪ TBC

Leading Mining smelting, and finished goods production
4 operations, ~1,500 employees, ~$1B in
Player
revenues/costs
▪ $275M of cash savings captured within
the first 7 months, $500M over 2 years
Contents

Printed

CLIENT EXAMPLE
Transformation in action – Global specialty minerals business
Situation Approach Results

Client Operational transformation Substantial short-term cash recovery
▪ Integrated producer with mining, smelting, ▪ Re-designed the org (incl. lay-offs) ▪ $275M of cash savings captured within
and finished goods production operations the first 7 months, $500M over 2 years
▪ Deployed lean operating practices
across 2 continents
▪ Redesigned maintenance planning ▪ Sustaining capital envelope was
▪ ~1,5000 employees, ~$1B in costs practices, coached line leaders
reduced by ~50% (3 year track record)
Situation Commercial strategy revamp ▪ Working capital was improved by
>$200M including inventories, AP, AR
▪ Rapid deterioration of top line: Market ▪ Re-built cost allocation model and
prices for the client’s finished products identified unprofitable products ▪ Cost reductions enabled to secure new
declined ~50% in the past 2 years sales and grow the top line (again)
▪ Made significant changes to the
▪ Cash crunch: Needed to reduce CAPEX commercial strategy, and supported the Organization better suited for the future
and OPEX costs rapidly to protect the
company’s balance sheet
renegotiation of client’s largest contracts ▪ Rates for goods and service contracts
External spend reduction addressed were reduced by 15-20%,
▪ Changes in operating plan: Needed to ▪ Renegotiated all major contract, and discretionary spend shrunk by 40%
Printed
reduce production quickly, but in a
coordinated fashion across multiple plants
enhanced procurement practices for ▪ Organisation was streamlined by 30%
small spend (contractors, parts)
▪ Unionized and established workforce: ▪ Management capabilities were
▪ Challenged current year’s CAPEX elevated significantly through coaching
Overall staffing levels above benchmarks,
envelope and cancelled or pushed back
and productivity extremely low
all non-critical work (-50%)
▪ Best practice performance manag.
infrastructure deployed across sites
Overall objectives Working capital optimization
▪ Stabilize cash situation asap ▪ Redesigned critical business
▪ Re-calibration of integrated planning processes (S&OP, spend controls,
▪ Resize the business and reduce costs model and reduction of raw materials, maintenance planning, shut down
sustainably to enable the company to be WIP, and finished goods inventories planning, etc)
competitive and grow again ▪ Extension of most accounts payables’ ▪ Renegotiated major contracts to
terms and reduction of receivables increase margins by 5-10%

Case example - Integrated industrial complex turnaround
The client

▪ Integrated producer with mining, smelting,
and finished goods production operations
▪ Part of a larger mining conglomerate
▪ ~1,500 employees, heavily unionized
▪ ~$1B in revenues/costs at the time
The context
▪ Rapid deterioration of top line: market Sales EBIT
prices for the client’s finished products
shrunk by ~50% in the past 2 years Start
Printed
of the
▪ Changes in operating plan: needed to turn-
around
reduce production quickly, but in a
coordinated fashion across plants
▪ Client had already gone through a
rapid restructuring (2014) focused on
cash levers (capex, working capital) 2011 12 13 14 15

The journey consisted in 3 major steps with parallel focus on capability
building and sustainability

A B C
Implementation
Independent Due Bottom-up
Diligence Planning Operational
Restructuring Grow again
turnaround
▪ Review strategy ▪ Set-up ▪ Restructure ▪ Improve process ▪ Launch sales

/ commercial transformation organization yield and ops
offer engine planning
▪ Reduce external ▪ Increase
▪ Benchmark ▪ Conduct a spend throughput and ▪ Review pricing
spend and G&A bottom-up reduce unit cost and contract
planning
▪ Increase cost negotiation
▪ Review exercise
transparency ▪ Adopt digital
Maintenance and automation ▪ Launch product
Printed
and Operations ▪ Launch quick- innovation
strategy, wins
performance
and cost
Capability building and sustainability

Independent Diligence
We conducted a 6 week independent diligence that identified $325M of

A
potential, 6x more than what the client was expecting
What we did (highlights)

Commercial/strategy External spend
▪ Calculated the asset’s position on the global ▪ Used McKinsey’s procurement
cost curve and set a cash target for the asset to database to size potential by spend
be competitive in the long run category (contract by contract review)
▪ Analyzed each product’s margins using ▪ For top 5 contracts confirmed potential
Periscope, identified unprofitable products and either by obtaining other quotes or clean
opportunities to increase prices sheeting supplier economics
▪ Analyzed 2-3 spin-off options
Operating labor G&A

▪ Benchmarked manning level with similar plants
▪ Benchmarked cost and resource level
by function to peers using McKinsey
(leveraging our industry databases) and
support function benchmarking tool
conducted several walkthroughs with experts
▪ Benchmarked the organizational health using
▪ Compared spans and layers to industry
best practices by job type and role
Printed
McKinsey’s OHI survey tool
▪ Developed a new organization blueprint
▪ Analyzed historical cost vs driver trends
Operations Maintenance
▪ Compared each plant’s performance KPIs to ▪ Reviewed maintenance strategies by
peer set (yield, EE, throughput, quality) equipment in relation to criticality
▪ Brought in lean and industry experts to assess ▪ Developed alternative operating
operating and management practices scenarios and simulated labor cost
▪ Conducted OEE (root cause for losses) analysis ▪ Put forward a plan to shift from largely
on bottlenecks, sized throughput increase fixed to variable maintenance costs
potential and identified levers to focus on

Diligence Bottom-up
read-out kick-off
Given the diligence results, the management team decided to set a

A
$250M value capture target for themselves and launch a turnaround

Independent diligence read-out Bottom-up kick-off
What we did What we did
▪ Codified our independent perspective on ▪ Organized an offsite to play back results
the business full potential in a report that to the top 50 managers of the client
would serve as the basis for the next phase ▪ Crafted and coached the executive
▪ Spent a half-day with management to team in delivering the change story
discuss our findings and align on their ▪ We presented our findings and the
aspiration ($ and health) for the business management shared their aspiration for
▪ Set a cash target and program architecture the site, the target for next year and
“I never thought there would be so much potential in our
launched the bottom-up planning phase
business, but the evidence is clear and we have no
choice but to do it”
Printed
– General Manager

Bottom-up planning
Over the next 6 weeks, we set-up the transformation engine, coached

B
client workstream leads in developing plans and launched quick wins

Set-up the transformation engine with Wave
▪ Detailed the program architecture (workstreams, leads)
▪ Trained ~100 clients in using Wave, our web-based tool
▪ Established cost/ton and spend targets by manager and
incorporated those in the standard reporting/lean boards
▪ Set-up a weekly cadence of workstream and central
transformation office meetings to accelerate execution
Conducted a bottom-up planning exercise Launched quick wins

▪ Coached each of the 8 workstream leads and gave ▪ Launched new spend controls, resulting in
Printed
them access to our idea bank by functional lever an immediate reduction of ~30% of spend
▪ Held over 50 workshops with hundreds of client front ▪ Updated 18,000 equipments criticity rating
line employees to generate. 375 specific ideas in SAP and changed maintenance routines
▪ Assigned owners to each idea and turned them into ▪ Cancelled “out of the money” contracts
initiatives by defining the business case and plan including raw material and service contracts

Bottom-up Implementation
read-out kick-off
At the end of the bottom-up phase, clients truly owned their plans and it
B
was the client leads presenting to the organization

A client-lead bottom-up read-out
Who’s who
Executive director
N-1
Workstream leader
High potential mid-level
manager
Head of HSE
N-1
Printed
Plant manager
N-2
“This is our transformation – not

McKinsey’s. You can count on me to lead
the charge”
– CFO

Wave #1: restructuring
The turnaround was structure against 3 waves of work, the first focused
C
on cost restructuring and delivering $100M of cash in 3 months

Restructured the organization Increased cost transparency
▪ Let go ~15% of the staff, and re-tasked another 30% ▪ Created new weekly spend reports
of the top managers to new roles (number of (vs. target) by sector and incorporated
movements were required to delayer and streamline) in weekly lean board meetings
▪ Shrunk by ~10% the workforce (unionized hourly em- ▪ Established specific cost/ton targets
ployees), leaning out the sectors with less utilization per plant (by cost item) such to empo-
▪ Discouraged and quickly reduced overtime wer leaders to manage their costs
▪ Created mechanisms to ensure plant
managers felt accountable for results
Printed
Scaled back external spend
▪ Went back to market (RFPs) for ~all commodities
▪ Returned any non-critical mobile equipment to
vendor and stopped almost all discretionary spend
▪ Renegotiated top 5 external labor agreements
▪ Cut back about 20% of addressable spend overall

We implemented an holistic approach to achieve savings in external

C
spend

Lever Ore treatment plant opportunity Example initiatives
▪ Reset expectations, change the culture, ▪ Close majority of open POs
Implement and create barriers to curtail non-critical ▪ Reset budgets for balance of the year
spend controls spend in goods and services ▪ Create daily visibility and reviews on spend per sector
▪ Review spend authority
▪ Shift current input mix ▪ Increase share of local mix, pay product quality penalties
Expand ▪ Source different company electrodes ▪ Build supply sources in Asia and mix with incumbent suppliers
tolerance to ▪ Blend de-sulfuring agent ▪ Reduce gap of paid price vs. reference index either through
materials specs ▪ Negotiate or source from Company “x” negotiations with incumbent or increased sourcing agility
for additives & alloys
▪ Several Ore treatment plant ▪ Replacing frag with rejects of steel billets
Optimize opportunities exist to reduce production ▪ Modify refractory brick layout in steel ladles and their replacement
production costs across the process (cold charge, period to reduce TCO
processes ladle bricks, replace ore “z” with scrap ▪ Mix ore “z” with scrap metal
Printed
metal)
Reduce ▪ Shift to cheaper mix of outside ▪ Reduce use of consultant x and consultant y (shift work to
engineering engineering support cheaper firms with same capabilities
spend ▪ Reduce overall engineering spend or ▪ Reduce engineering spend percentage over capex spend
renegotiate rates
Re-negotiate ▪ Renegotiate top 5 service contracts and ▪ Review insurance contract given the current production levels
main service
contracts
consider all levers to reduce TCO ▪ Analyze key contract and find cheaper alternatives for what is
non-core

Maintenance example: centralizing part of the workforce would reduce

C
overtime and external work EXAMPLE FOR
DISCUSSION

Daily Labor supply and demand in the steel plant and the smelter
Daily labor hours, January-February
Current baseline Optimized peak

Current peak Total site demand
Current situation
Optimized baseline ▪ Craftsmen dedicated to
On a total of hours above current a single plant, including
2,800 peak supply, part of hours or of vacation replacements
peak demand would be covered and shift employees
2,600 by pooling workers ▪ Limited pool workers
2,400
2,200
2,000
Proposed solution
1,800 ▪ Craftsmen on shifts
Printed
1,600 allocated to plants on a
needs basis
1,400 ▪ Pool workers on shifts
without overtime during
1,200
shutdowns
1,000 ▪ Able to meet more than
peak demand
200
0
1 4 8 12 16 20 24 28 32 36 40 44 48 52
Weeks

Maintenance example: workload reduced by demand management

C
levers and transferring work to operators (~30% total cost reduction)

Internal labor (including overtime)
Maintenance work that can be completed by operators Transferable work

Internal Labor, percentage of total cost Non-transferable work
100%
▪ Industry benchmark
information reveals that
part of Prev. Maint. work
can be completed by
operators
▪ Expert interviews suggest
-22% that any work that is
LOTO by operators strictly visual or that
has already been fully involves cleaning or
implemented in one of greasing can be
the product without completed by an operator
Printed
major hurdles
▪ Company labor agreement
78% currently allows
-2% operators to help with
-1% simple maintenance tasks
0
78 -4% ▪ The change has been
71%
unevenly implemented
71 across plants
Total Demand Adjusted Prev. Routine Cleaning Lock Out Technical
Labor reduction labour Maint. inspec. and Tag Out work
greasing4

Wave #2: operational turnaround
Once costs were brought down, we focused on stabilizing and improving

C
operational performance (and throughput) of the plants

Process yield improvements
▪ Quantified the value of each yield loss, educated front-line
employees and co-developed technical solutions to raise yield
▪ Increased coordination between plants by enhancing planning
and scheduling processes, increasing energy efficiency
▪ Coached front-line supervisors on managing performance
Throughput and unit cost

▪ Focused on bottleneck plants and identified technical and
behavioral levers to increase production by 20-30%
▪ Analyzed consumption of raw materials vs. specs, identified
Printed
over quality, and adjusted process to reduce associated costs
Digital and automation

▪ Worked in partnership with an engineering firm to identify
technical solutions to automate manual tasks
▪ Brought in experts from McKinsey Digital Labs to design a
workflow management tool that would eliminate time losses

Wave #2: operational turnaround
Significant value created by limiting metal flow leakages and energy

C
costs

Ore treatment / plant
Lever opportunity Example initiatives
▪ Reduce spillages ▪ Improve drill and mud gun performance

Reduce
material ▪ Improve process ▪ Review mixing and finishing procedures
leakages
related waste ▪ Reduce iron/steel ladle and tun dish residues
▪ Reduce off-spec material from atomization
▪ Better align ▪ Align Product y operations with CO availability (furnace

Optimize gas production and Ore treatment plant consumption) to
consumption operational strategy
with CO gas minimize natural gaz consumption
availability ▪ Increase use of CO gas at Product “y”
Printed
▪ Reduce consumption ▪ Turn down motors outside of critical operations hours
Optimize of equipment that ▪ Install controllers to adjust capacity with need
electricity can be put on idle – E.g., compressors/blowers used to control CO gas,
consumption recirculation pump
▪ Repair fume extractor

Wave #3: grow again
Once the business was profitable and operationally stronger, we shifted

C
our focus towards pursuing growth and increasing margin

Sales and operations planning
▪ Implemented a new S&OP process across the business, enabling
faster and better coordinated responses to market opportunities
▪ Updated the inventory strategy and stock levels for most profitable
products resulting in an increase in service level by 5%
Pricing and contract negotiation

▪ Renegotiated the largest customer contract after reverse-
engineering their economics and showing a 10% price potential
▪ Calculated margins, SKU by SKU and identified ~10% of SKUS
were unprofitable, which lead to re-pricing and curtailment
Printed
Product innovation
▪ Worked with with R&D and sales to calculate margins of new
products and ensure R&D efforts were focused based on value
▪ Conducted a full review of process waste (i.e. rejects that were
disposed of) and identified for $30M of valuable content
▪ R&D succeeded in creating new products and those were trialed
and produced at scale, lifting sales, margins and competitiveness

Conclusion
What success looks like

Performance
Asset went from 4th quartile to middle of the industry

cost curve, trending to 2nd quartile (in progress)
The 5 year plan stretch targets were achieved in
1 year – for both cost and revenues
Addressable cost base was reduced by 13% within 3
months, and by ~20% after 6 months
The client still has more than $150M of initiatives in
the pipeline, and new ideas are flowing in each week
Health
Business is growing again - +30% in core product
Printed
sales after vs. before, showing positive momentum
Core processes (cost governance, S&OP, production
planning) are now reflecting best industry practices
Mindsets and capabilities have changed – people
know their cost/ton and how they can impact it
All initiatives managed by the PMO were reconciled
with the P&L and reflected in the actual bottom-line

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Conducting a “health check”

Discussion document | December 2017

CONFIDENTIAL AND PROPRIETARY WORKING DRAFT

Last Modified 11/12/2017 11:53 Arabian Standard Time

Discuss potential diagnostic approach for

McKinsey & Company 2

Last Modified 11/12/2017 11:53 Arabian Standard Time

Distinctive ▪ Comprehensive set of proprietary diagnostic and benchmarking

Global group of ▪ 64 partners focusing on mining, 425 consultants on mining

Commitment to ▪ More importantly, long lasting partnership relationship and

McKinsey & Company 3

Last Modified 11/12/2017 11:53 Arabian Standard Time

Perspective on performance transformation journeys

McKinsey & Company 4

improvement ▪ Long term strategic planning (e.g., block models, pit

Planning shell optimization, physical pit design,…)

Medium/short term planning (e.g., stockpile Secondary

management, mobile equipment strategy,..)

Plan execution/equipment dispatching (e.g., grade SOURCE:McKinsey

control, quality mgmt.)

Both hydraulic excavator fleets show median utilization driven by median

5 Other factors Procured spend

Capital and other

productivity ▪ Working capital

Operating delays Process delays

1 Utilized OEE = availability * utilization

McKinsey Recovery & Transformation Services | 5

Represents all major

1 Excluding Chinese mining companies

McKinsey Recovery & Transformation Services | 8

Drilling & Loading Hauling Primary Secondary Tertiary Milling Floatation

1 Based on site discussions

Alpha mining unit cash cost

1 Equipment ▪ Equipment utilization (in particular trucks and drills) lower

McKinsey Recovery & Transformation Services | 11

Utilized OEE1 Availability Utilization Tempo2

1 OEE = Availability * Utilization

Planned maintenance MTBF

Unplanned maintenance MTTR

Waste fleet Fleet 1

Operating delays Process delays

▪ Utilization of pre-strip fleet Fleet 1 could be

1 Utilized OEE = availability * utilization

Wait under repair

Wait under repair

Elec & Ctrl Parts

unplanned maintenance breakdowns e.g. change oh

Wait under repair

Elec & Ctrl Parts

hoses during planned service

Operational down2 Attachment

1 Structural failures include frame and undercarriage failures

Dig rate1 - Fleet 1 (x m3)

Annual capacity1 - Fleet 1 (x m3)

1 Equipment ▪ Equipment utilization (in particular trucks and drills) lower

McKinsey Recovery & Transformation Services | 17

▪ Physical pit design: high-

SOURCE: Interviews; team analysis McKinsey Recovery & Transformation Services | 18

People and 1 Equipment

SOURCE: MineLens, McKinsey Recovery & Transformation Services | 19

1: poor 2: average 3: good 4: excellent 5: world class

McKinsey Recovery & Transformation Services | 20

1 Equipment ▪ Equipment utilization (in particular trucks and drills) lower