408-2012-Major Mine Equipment Acquisition Lecture

8/21/2019 408-2012-Major Mine Equipment Acquisition Lecture

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Major Mine Equipment

Asset Acquisition Strategy

Or

“How not to buy a lemon or a dog or apup”


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Spending millions of your employer’s

money on DOGS and LEMONS might

be funBUT

It could seriously damage your career

prospects……


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THIS is the sort of

equipment that we are

talking about!


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Asset Acquisition Process

• Introduction

– An attempt to generalise the process

– Each company has different procedures

– Multinationals often have global purchasing

agreements with major suppliers

– Surprisingly some companies very lax

– Consultants can be utilised at any stage and oftenare


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Define Requirement


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• Establish the need for the asset (piece ofequipment) in broad terms

• Apply for outline capital approval (process unique

to each organisation) – depends on $’s • Departments involved:

– Mine planning

– Maintenance

– Financial

– Production

– Purchasing

Define Requirement


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Reasons for a New Requirement

• New mine

• Expansion

•

Replacement of old equipment• Whim


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Outline Specification

Define Requirement

Outline approval


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• Define in more detail what is required – Size, throughput, production required etc

• Produce a draft specification

• Will normally be generic and defined within industry

standard classes – eg a 400t class reardump or a 500t classhydraulic shovel

• Departments involved: – Maintenance

– Production

– Purchasing• Often done by committee – involve all stakeholders

• Try to identify what is REALLY important



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Research Suppliers

Define Requirement

Outline approval


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• How might we find suitable suppliers of the

equipment we need?

– Internet

– Trade directories/journals – advertising and

articles

– Networking

Research Suppliers


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• Meanwhile, the method of acquisition needsto be considered because it might beimportant in choosing a supplier

– Purchase – Rent

– Hire with option

– Lease

• Is ownership of the asset important?

• Sub contract may be considered later

Method of

acquisition?


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Research Suppliers

Approach Suppliers

Define Requirement

Outline approval

Method of

acquisition?


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• Decide method of enquiry

• Prepare documents – as detailed as necessary

but not too restrictive• Tender, RFQ/RFP,

• Single source or multiple suppliers

• Use a common basis to review the replies• Draw up shortlist – sometimes it is VERY short


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Research Suppliers

Approach Suppliers

Refine Acquisition Parameters

Define Requirement

Outline approval

Method of

acquisition?


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• In the light of the responses from suppliers it

might be necessary/prudent to revise the

specification for re-submission to those

shorlisted – ie learning “on the hoof”

• Not always necessary

• This step is often included in the final pre-

purchase negotiations


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Research Suppliers

Approach Suppliers

Refine Acquisition Parameters

Negotiate & Purchase

Define Requirement

Outline approval

Method of

acquisition?


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• It is not uncommon to negotiate with more thanone potential supplier at once

• “Dutch Auctions” should be avoided

• High level of integrity and professionalismrequired

• Everybody should win a bit

•

Often very complex• Analysis of bids may lead to a “don’t buy”

decision


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What are some of the factors that

influence the choice of product - 1?

• Performance

• Technical excellence

• Fuel consumption

• Reliability (availability)

• Capital cost

• Dealer support

• Spare part availability

• On site acceptance

• Suitability for the mine

• Personal preference

• Buyback

• Guarantees/warranty

• Cost cap

• Trade in

• Associated “gains”


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What are some of the factors that

influence the choice of product - 2?

• Price – ie cost – but WHAT cost

– Capital cost

– Whole life cost

– Operating cost

– Unit cost

• What factors need to be considered?

– MANY!


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“But (ex) Boss- the machine I bought was

$100,000 cheaper than it’s competition – why

have you sacked me???”

• Upfront capital price is only one part of the

total COST of the machine to the mine. Other

factors effecting it include:

– Availability

– Cost of spare parts

– Fuel consumption

– performance


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Lets just look at availability

Mine scheduled to work 6000 hours/year

yr1 yr2 yr3 yr4 yr5 yr6 yr7 yr8 yr9 yr10

m/c 1 98 97 96 94 93 92 90 90 90 90

Worked hours 5880 5820 5760 5640 5580 5520 5400 5400 5400 5400

0

m/c 2 98 95 94 89 85 85 85 85 85 85

Worked hours 5880 5700 5640 5340 5100 5100 5100 5100 5100 5100

difference (hrs) 0 120 120 300 480 420 300 300 300 300 2640 hrs total difference

Assume is a coal mine with a strip ratio of 10cum/1t coal

assume excavator production is 2500 cum/hr

loss of production over m/c life is 2500 x 2640 = 6,600,000 cum overburden

total coal lost over machine life 660,000

tonnes

@ 70 $/t = $46,200,000

40 $/t = $26,400,000

93% AVERAGE

89% AVERAGE


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“Guaranteed” Availability

• Involves a contractual guarantee tied to

assured maintenance procedures. Contract

can be complex

• Normally only available with a RAMP or where

dealer has a technician monitoring

maintenance and booking of hours

• Penalties are usually token

• Needs good admin practices to keep records


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Fuel consumption

• The hydraulic excavators in the previous

example use about 360 l/hr when digging

• Assume 90% time spent digging

• A 5 l/hr difference (1.4%) gives

– 5 x .9 x 6000 = 27,000 l/yr @ 0.85/l = $23,000/yr


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Other Factors to consider – the product

support

• Reputation of local dealer, experience in this typeof product

• Availability of service labour

• Availability of parts• Promises made by dealer/manufacturer

• Support options offered

–

R&M (RAMP, MARC), Parts Cap, Service contracts – Consignment parts

• Availability of finance, deferred payments etc


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In the end…

• IF the numbers stack up and most other

factors are equal, the choice is often made

because of “gut feel” or confidence

• Sometimes decisions are unfairly and

misguidedly influenced by personal opinion –

Cow Harbour

• Often, the decision is made for you (financeavailability – single source)


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TRANSITION

• NEXT PRESO COMING…..


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Mobile Surface Plant

Maintenance Options

• Although based on mobile surface plant

(shovels, trucks etc) the principles apply to all

plant fixed and mobile

• An overview of some of the options available,

and their pro’s and con’s but not exhaustive –

would take a book!

• Every mine is different


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What are the options?

• There are many options when it comes tochoosing how to maintain a fleet of miningequipment

• We will consider a fleet of, say,10 x 220tdumptrucks, two matching 29cum hydraulicshovels and a pair of 450kW ‘dozers all from thesame manufacturer

• “Single sourcing” is worth considering – allows: – a rationalisation of parts holding and the ability to

consider comprehensive maintenance packages

– Consideration of “consequential” downtime claims


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Maintenance Strategy Options

• 1. Do it yourself

•

2. Do it yourself with some help

• 3. R&M, RAMP MARC

• 4. Parts Cap


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In House Maintenance• Very popular in large organisations

• Customer has total control of maintenance and repair• Customer supplies facilities (workshops, field vehicles,

cranes, parts storage, welfare areas)

• Customer supplies labour – supplemented by hired in

specialist when necessary (line boring etc)• Customer holds some stock and relies on dealer for back up

and large items

• Customer budgets for maintenance expenditure andassumes the risk

• WARRANTY on new machines and parts is important• Organisation is essential - record keeping, stock control etc


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In House Maintenance

•

Advantages – More control over maintenance

– Can be cheaper than RAMP

–

Cash flow better than a level payment RAMP – Ability to take risks that dealer won’t take (NOT of

course unsafe ones…)

– Ability to use 3rd party parts and “will fits” once

out of warranty period


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In House Maintenance

• Disadvantages

– Costs not fixed – lots of potential for“ass biting”!

– More own labour, organisation control, skill gaps

– Training issues

– Needs slick systems

– Pressure often to delay maintenance from own

people – No one to blame! Always grey areas in warranty


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Service & Inspection Contracts

•

Dealer carries out routine servicing andregular inspections

• Customer responsible for repairs

•A “halfway house” to R&M

• Helps keep up with condition of machines and

plan repairs

• Some of the risk shared with the dealer


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R&M, R.A.M.P or M.A.R.C

• The dealer takes full responsibility for themaintenance and repair of the machines

• Dealer supplies all parts and labour and employsan “exchange before failure” principle

• Customer is charged per hour worked – NB worked hours or SMR – different- why?

• Hourly rate is inflated annually by an agreedmechanism

• Dealer usually has a “back to back” contractwith the manufacturer


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R&M, R.A.M.P or M.A.R.C - 2

• Advantages

– Guaranteed cost per hour for life of contract

– Enables customer to consider a guaranteed

availability clause – penalties?

– Warranty not an issue

– Often, infrastructure is funded by the dealer

– Dealer responsible for labour – no training issues

– Can exclude some items if desired


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R&M, R.A.M.P or M.A.R.C - 3

• Disadvantages

– Customer still responsible for misuse and abuseand some exclusions

–

Bad cash flow in early years – “stepped R&M” – Might be more expensive than own maintenance

– Need trust in dealer/manufacturer

– Tendency for own staff to “disown” the machines

– Might pay for parts not fitted

– Needs a really good contract


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Parts Cap Contract

• Like an R&M without the labour

• Guarantees the MAXIMUM cost per hour of spareparts

• Can exclude some parts if desired• Annual reconciliations of actual vs guaranteed

• Customer supplies labour

•

Warranty is calculated into the contract• Usually supported by the manufacturer

• Can include G.A.S.P or service level guarantee


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Parts Cap Contract - 2

• Advantages

– Parts budget is fixed, only have to cover labour

– Only “upside” on parts costs

– Can opt to exclude some parts

– Allows mine staff to “own” the machine

– No warranty issues

– Usually have a regular inspection contract withdealer


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Parts Cap Contract - 3

• Disadvantages

– Labour problems remain with customer

– Potential conflict if parts fitted badly

– Guaranteed availability not available

– All parts must be bought from dealer. No cheaper

suppliers allowed


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Summary of Maintenance Options

• All mines are different

• Availability of resources will form a key part of

the decision of how to maintain

• Hybrid schemes are possible


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Komatsu Mining Germany


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THANK YOU!

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408-2012-Major Mine Equipment Acquisition Lecture

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