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transcript

SMART Toronto Surface Mining Association 5 May 2013

For Research & Technology

WHAT WILL HALT THE

WORLDWIDE DECLINE

IN MINE EQUIPMENT

PERFORMANCE ?

Richard Adsero,

GBI Mining Intelligence, Inc, Olathe, KS

Dr. Graham Lumley,

GBI Mining Intelligence, Brisbane, Australia

• US Bureau of Labor Statistics shows the US mining and petroleum industries’ productivity is down by 7% since 2004

• Statistics Canada shows that mining sector productivity from 1997 to 2010 has dropped 43%

• Australian Bureau of Statistics shows the productivity of the Australian mining industry is down by 48% since 2001

• Mine recorded data shows equipment performance is down by 26% globally since 2006 (North America down by 11%, Australia down by 37%)

• Investors have disconnected mining company value from commodity price

• Driven by the “smart money” selling out – those large institutions which have inside knowledge of the mines and mining companies.

US All Manufacturing US Mining and Petroleum

Australia 12 Select Industries Australia Mining

Australian mining productivity

has fallen off the bench!

• Sources :

• Australian data - http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5260.0.55.0022011-12?OpenDocument

• US data - http://www.bls.gov/mfp/data.htm Canadian Data -

Government Statistics

Canadian Mining productivity has

been declining since 1997!

http://www5.statcan.gc.ca/cansim

• The Australian Mining Industry productivity dropped 10.5% in 2011-12 after a 13% drop the previous year (ABS).

• Australian Mining multifactor productivity is barely more than half as efficient as in 2000-2001.

• Canadian Mining Oil & Gas productivity has declined 43% since 1997 (CanSim)

A Lesson for All

• Government statistics indicate a precipitous decline in mining productivity in general but few details are available

• GBI Mining Intelligence maintains a database of specific mine equipment performance that can be studied for the details

• Other aspects of the decline will be left to others as this paper focuses on equipment performance

Data Resource

OPEN CUT MINING EQUIPMENT PRODUCTIVITY INDEX

* 2003 Result Set at 100

Includes Draglines, Rope Shovels, Excavators, FELs, and Trucks

A pure measure of mining efficiency

Productivity Index by Country

Worldwide Australia North America

• Essential for survival in Australia, important for ongoing viability in North America – The mining industry in Australia is facing

viability (short term) and sustainability (medium term) crises

– AusIMM – Australasian Institute of Mining and Metallurgy (similar to SME organization) is preparing a program for board approval to engage with industry on this subject.

• The outcomes will be a guide for all mining

• What is the Canadian Mining Industry doing?

• The viability crisis has already hit the Australian coal industry – Production cost has doubled in 4 years.

– More than 50% of Aust. coal mines are currently losing money

– Thousands of jobs cut

– Fast tracking cheaper coal mines (Indonesia –thermal, Mongolia and Mozambique – Met.)

– Big push for alternative energy sources

– Aust. electricity prices rising exponentially

– Aust. mines have closed and others will close

Historical Performance Data

• Excavators

• Rope Shovels

• Mining Trucks

• Draglines

• Front End Loaders

Draglines

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Australia Africa North America South America Asia

Impact of Country

Excavators

Electric Rope Shovels

Mining Trucks

50,000

55,000

60,000

65,000

70,000

75,000

80,000

Make and Model

-22% -12% -16%

Ultra Class Mining Trucks

The different colored bars are different manufacturers

Class of Equipment Year Peak Occurred Median Performance Decline to 2010

Best Practice Decline to 2010

Draglines 2003 15% 15%

Electric rope shovels 2003 41% 8%

Excavators 2008 39% 17%

Front End Loaders 2007 39% 5%

Mining Trucks 2006 41% 44%

Class of Equipment Best Practice better than Median in 2010

Draglines 32%

Electric rope shovels 124%

Excavators 168%

Front End Loaders 169%

Mining Trucks 112%

The potential

For significant

Improvement

is real!

Example –

Gold Industry since 2006

1. Grades dropped from 2.0 g/t to 1.3 g/t

2. Strip Ratios up by 18%

3.Equipment performance down by 40%

Consequently, gold mines in 2012 require, on average,

[(1.18 / (1.3/2.0)) / (1-0.4)]-1 = 200% more mining

input per ounce of gold produced vs 2006

Equipment performance is the only reversible factor!

Investors • PIERRE LASSONDE C.M., OQ

• Chairman, Franco-Nevada Corporation

• Keynote Speaker – Denver Gold Forum, 10 September 2012.

• In the last 10 years gold equities, as represented by the XAU, have gone up 250%. However gold bullion has outshined the equities being up over 500%.

• From the lack of meaningful discoveries, to low grading, to an ever lengthening schedule to production, to the increasing risks brought by resource nationalism, the challenges faced by the producers are not likely to go away soon.

• On the other hand, the Demand side of Gold has never been more robust.

• Investors' disappointment and downright disillusionment is seen in the lowest valuations ever for equities.

• Sources :

• USD Gold Price - - http://finance.yahoo.com

• Barrick Data - http://finance.yahoo.com

Commodity and Equity

values disconnected

• Sources :

• Commodity Prices - http://www.rba.gov.au/statistics/frequency/commodity-prices.html

• BHP ASX Graph - http://www.etrade.com.au

Disconnect

• “In the past twelve months, gold mining companies have been on the receiving end of heavy criticism from investors and shareholders. Disappointing returns, cancellations of projects, failed acquisitions and questions over reporting accuracy were all reasons for this criticism – and this led to changes in senior management at some of the largest gold producers.”

1. “Good times” do not promote the focus

required to increase (or even maintain) high

equipment output (Australia)

2. When mine strategy is to produce “as much as

possible” the easiest response is get more

equipment (or contractors); combined with

new unskilled labour

3. New developments with cash available,

deliberately acquired excess capacity for a

bright future of increasing sales

Productivity Index Aust. and N.A.

Worldwide Australia North America

ance t

apacit

• Understand the details of past performance

• Analyze internal and external data carefully

• Determine the true capability or capacity

• Measure the gaps - performance to capacity

• Take action for

change – Use data and analytics

to micro-manage

Class of Equipment Best Practice better than Median in 2010

Draglines 32%

Electric rope shovels 124%

Excavators 168%

Front End Loaders 169%

Mining Trucks 112%

Top 10 actions leading to best practice

mining operations.

1. Transformational leadership

2. Value-focused safety systems

3. Accurate mining/engineering

plans/schedules

4. … Best Practice actions for Mining, Truck & Loader, and Dragline

operations are presented in a GBI Best Practice Seminar Series

Full Range Leadership Model - Bass and Avolio

GBI Subscribes

to the full range

leadership model

of Bass and Avolio

briefly described in

this graphic.

Transformational

leadership practices

seem to coincide

with Best Practice

operations.

• As an industry, why leave all that productivity (money) on the table?

• All equipment has the ability to be Best Practice (within a comparable population). – Do you know your real productive capacity / potential?

• Wrt Internal and external performance.

• Compare with a valid and statistically significant population?

• Use a valid timeframe (e.g. 2012 vs 2011-2012 industry performance)?

• Use valid metrics?

– Do you know where you stand?

• If your operations are Best Practice, keep it going - keep improving – that is what best practice operations do!

• If not Best Practice, why not? – take action to make them so!

Thank-you!

Richard Adsero GBI Mining Intelligence Inc

North America

Richard.Adsero@gbimining.com

913-839-3973

913-901-7443

www.gbimining.com

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