Mining Science and Technology, 5 (1987) 309-317 309

Elsevier SciencePublishers B.V., Amsterdam- Printed in The Netherlands

ADVANTAGES OF STRATEGIC MINE PLANNING

A.B. Szwilski

Department of Mining Engineering, College of Engineering, University of Kentucky, Lexington, KY (U.S.A.)

(ReceivedFebruary I987; acceptedApril 3, 1987)

ABSTRACT

Strategic planning is being incorporated into
the business formulation and implementation of
many companies. The objective is to optimize
the utilization of the principal resources (capital,
labor, technology and mineral reserves) and
maximize the strengths and opportunities of a
mining company, while minimizing its weak-
nesses and threats. The present paper outlines
the advantages of strategic planning for a min-
ing company and the principal factors which
affect its profitability (and survivabi#ty) in busi-
ness, such as, productivity and environmental
restrictions.

INTRODUCTION ning, are being incorporated into business

Faced with rapidly changing world markets,
mining companies will have to adapt, restruc-
ture and focus their attention and resources
on the business niche that offers them the
best chance of survival. This will mean less
diversification, changing the present manage-
m e n t / l a b o r culture of the company and a
general streamlining of operations to be more
selective and sensitive to the market require-
ments. Consequently, surviving in the coal
business will require strategic planning in
order to nullify the increasingly complex and
sophisticated nature of everyday business de-
cisions. The principal objective being to make
effective decisions to allocate the limited re-
sources available to the company and to take
advantage of all opportunities. Analytical
models, a very useful aspect of strategic plan-
strategy formulation and implementation of
many companies. One such model, SWOT, is
a useful tool to systematically analyze the
principal factors involved in the development
of a strategy. This term is an acronym for the
internal Strengths and Weaknesses of a coal
mining business and the environmental
Opportunities and Threats facing that busi-
ness [1]. The objective being to develop a
strategy that will maximize the strengths and
opportunities of a coal business while mini-
mizing its weaknesses and threats.
In 1986, the U.S. Bureau of Mines
(U.S.B.M.) conducted a survey of 25 mines
which utilized continuous room and pillar
mining and which produced two to five times
the national average of 336 raw tonnes per
unit shift [2]. Among many other factors which
will be discussed later, a positive l a b o r /

0167-9031/87/$03.50 © 1987 Elsevier SciencePublishers B.V.

310
management relationship and a well above
average safety record (with no outstanding
engineering factors) were recorded as being
significant in improving mine productivity.
These conclusions highlight the importance of
examining all the resource components to op-
timize mine productivity and, as a result,
profitability. This is one aspect of strategic
planning which can serve to formulate and
implement strategies which best enable the
mining company to achieve its objectives.
The coal industry in the United States is
blessed with many key resources, namely, ex-
tensive coal reserves, readily available capital
and ample skilled labor and technology, which
makes the U.S. a principal low-cost producer
of coal. The Appalachian area, for example,
produces more than half of the coal produc-
tion in the U.S. However this share has de-
clined from the figure of 70% in 1970; the
principal competition coming from the abun-
dantly available coal reserves in the western
mining states of Montana and Wyoming. In
sharp contrast to the large surface mines of
the western region, Appalachia is a region
where the small coal mining operation
dominates, the large number of which makes
the industry there highly competitive [3].
Besides the managing of the internal activi-
ties of t h e coal company, the mining execu-
tive also has to consider both the operating
and the external environment which will in-
fluence the survivability and profitability of
his company (see Fig. 1).
The operating environment takes into
account:
• the ease of entry for potential competitors
into the mining business, influenced by the
possibility of profits;
• availability of coal reserves, capital and
skilled labor;
• influence of regulatory agencies and
environmental groups; and
• changing requirements and specifications
of the coal purchaser.
The external environment includes:
eof rernot" /n2~,rntlnn
I/ f' ~
#'<% I \
X'~']OperutingEnvir°men'\
,\ / "l'mpect of / ~ " ~ / - - \
/\/ Remote I X A .corn,pe!ition 1
Eovi~onm,.~ • ~o~ket
I /V~Envir°nmenl le~ttp!rlcna~I i!a21iiiTers )
Fig. 1. Influence of the remote and operating environ-
ment on the fuctioning of a mining company.
• national and international economic condi-
tions;
• social and political changes; and
• technological developments.
MINE PRODUCTIVITY
Over the past two decades the coal in-
dustry in the United States has witnessed
wide cyclical variations in mine productivity.
The dramatic drop in productivity between
1969 and 1978 prompted numerous investiga-
tions (see refs. [4-6]). The principal causes of
the decline in productivity have been given as
[71:
• passage of the federal health and safety bill
in 1969;
• work rule changes in 1968 and 1971;
• poor industrial relations;
• coal price increase;
• opening of new and old mines in less
favorable geological conditions; and
• passage of state and federal surface mine
laws.
On the other hand, the years 1979 to 1986
have witnessed a steady rise in productivity,
 311

some of the contributing factors have been

noted [7]: [ Labor,Mana~. . . . t
- motivation
• increasing experience of workforce; - training
- skills
• technological improvements;
• labor peace and decreasing unionization; MINE PRODUCTION U N I T ~
- productivity . mechanization
• decreasing coal price; and
• more spot orders filled with unwashed coal.
- a°f°iY .....
.
ioes
monitoring

Therefore, there are numerous factors

which influence the ability of the mining
company to do well, as illustrated in Fig. 1.
These factors may be categorized as the oper-
ating and remote environments, where the
operating environment represents the more
@ from state

Regulatory Authorities
- MSHA
state inspectorate
to state

Fig. 2. Principal resources of the mine production unit

short-term controllable business features and
the remote environment comprises govern-
mental and societal changes. Each of these
factors impacts upon the mining company in
different ways and ultimately effects mining
productivity. Figure 1 also illustrates the re-
cent and current phenomena of increasing
legislation, such as the acid-rain proposal that
is currently under consideration. The increas-
ing size of the circles in the diagram repre-
sents the increasing total impact of the exter-
nal environment on the m i n i n g company
which effectively restricts and limits its op-
tions and flexibility in surviving the complex
and uncertain mining business, and to which
the mining company generally has no re-
course.
A national or world recession is an eco-
nomic factor of the remote environment. Also
inflation and cost of capital influences the
ability of the mining company and its compe-
titors to perform. The maturing of the mining
workforce can be described as a social factor;
tax changes and environmental protection are
political factors. Technological advances are
generally manifested in the marketplace and
available to all.
The operating environment defines the
competitiveness of the mining company in
terms of a company's ability to utilize com-
m o n resources such as labor, capital and coal
reserves for its competitive advantage. The
key factors for success in the mining business
required to achieve the objective of high productivity
and safety.
are: sales and financial leverage, price com-
petitiveness, productivity and production
capacity.
Above all other factors, mine productivity
is a function of the resources available and
made available at the business end, i.e. the
mine production unit. Figure 2 gives an out-
line of the key factors which affect the two
principal objectives: high productivity and
safety. The recent survey made by the
U.S.B.M. [2] indicated that twenty-five highly
productive mines of Appalachia had one third
the national average of citations per inspector
day (0.43 versus a national average of 1.46)
and none of the mines exceeded the national
average.
As discussed previously, in referring to Fig.
1, the external environmental factors are gen-
erally fixed in the short-term; but they are
perhaps variable (usually worsening) over the
long-term. The geologic environment, human
resources and technology are factors of the
operating environment that are controllable
a n d / o r optional.
Geologic environment
The mineability of a coal seam, for under-
ground and surface operations, affects both
312
unit costs and mine productivity. The factors
that influence coal seam mineability are: coal
quality, seam thickness, roof parting and con-
trol, overburden thickness and lithology. Of
the twenty-five mines surveyed by the
U.S.B.M., 21 sections operated in coal seams
greater than 1.21 m (4 ft) and 10 sections in 3
m (10 ft) or greater. It was noted that, as
most of the mines relied on shuttle car
haulage, car capacity could be doubled from
a 1.21 to 2.42 m (4 to 8 ft) thick seam,
improving productivity.
Coal price, which is more of an external
environmental factor, has an indirect in-
fluence on the geologic environment or condi-
tions of the production unit. In the boom
cycle of the coal market, the increased de-
mand for coal (and energy) increases the price
of coal. As a consequence, previously uneco-
nomical mines and coal seams are opened, or
reopened, resulting in a fall in mine produc-
tivity; defined as tonnes per labor-shift. In
contrast, a recession cycle lowers the price of
coal (and energy), forces high-cost mining
operations/companies out of business and
the companies which survive to close down
their high cost operations, thereby reducing
costs and increasing mine productivity.
The continuous depletion of coal reserves
is another significant factor that promotes
deteriorating geologic conditions; the best coal
being mined first.
Human resources
During their survey of the 25 highly pro-
ductive production units, the U.S.B.M. "were
struck by the quality of l a b o r / m a n a g e m e n t
relations . . . . and that an atmosphere of trust
and confidence prevailed as a common fea-
ture of every unit" [2]. The mine superinten-
dents invariably ranked the quality and atti-
tude of the workers more important than any
other factor. Also, incentive schemes seemed
to play an important role in improving mine
productivity. Therefore, the attitude of
management and incentives generally helped
to motivate the workforce, the input of whom
improved both productivity and safety.
In sharp contrast to this present recession
cycle phenomena, the boom cycle of the 1970's
witnessed both labor unrest and the entry
into the coal business of inexperienced en-
trepreneur and labor. The increasing work-
force and stoppages contributed to lowering
the mine productivity.
The influence of unionization on mine pro-
ductivity is open to debate. Some studies [7,8]
have concluded that non-union deep mines
are more productive than union mines. This
may have been the case in the 1970's, how-
ever, the U.S.B.M. survey noted that half of
the highly productive mines were represented
by the United Mine Workers of America,
emphasizing the need of both labor and
management to share common goals and
motivation.
The quality of the training programs and
skills of both the workforce and management
defines the quality of the human resources as
a valuable asset available to the mining com-
pany in order to improve its competitive posi-
tion in the coal business. It is apparent that
the human resource is the most volatile and
variable of all the components, as indicated in
Fig. 2. When nurtured it has enormous poten-
tial to improve mine productivity, yet when
ignored and taken for granted it could signifi-
cantly reduce the mining company's chances
of survival in business. Above all, the greater
equity a manager or employee has in the
company, the greater will be the sense of
commitment toward company productivity
and profitability.
Technology
Advances in monitoring, remote control,
automation and electronics, in general, have
begun to make an impact on reducing the
heavy workloads and mining hazards, as well
as mine productivity. However, the difficult
 313

nature of the mining environment has limited

Hiss~on]
the application of these advances. The mining
industry has traditionally been conservative
and will probably continue to be inflexible to esources Company External ;
Potential Environment|-i
changes, and respond slowly, until forced to l wnat i s /
do otherwise by an economic crises. Want?/
It will probably be a combination of the Analysis
application of technology and improved min-
ing methods which will have the most im-
mediate impact on mine productivity. These Objectives rl-I Strategies
methods include longwall mining, supersec-
tions and remote control continuous mining
machines which permit deeper cuts. The Jv I
1 ...... i
U.S.B.M. [2] indicated however, that only four - - ! ~ Evaluationi~ Operation
L. . . . . . . . J

of the twenty-five mines cut 9.1 m (30 ft) or

more, and eight mine units utilized a super- Fig. 3. Strategic planning model outlining the process
section. Thus, there may be more untapped by which a strategy may be institutionalized in a mining
company.
potential in human resources than that im-
mediately available in technology to improve
mine productivity.
External environment describes the vari-
ables which influence t h e coal business that
OVERVIEW OF STRATEGIC PLANNING cannot be controlled by the mining company.
Being able to anticipate changes in Federal
Strategic planning can be defined as [1]: a and State regulations, for example, could
set of decisions and actions resulting in the ultimately decide the success of mining pro-
formulation and implementation of strategies jects.
designed to achieve the objectives of an Analysis assesses the interactive variables
organization. Figure 3 outlines a strategic of the mining company and its environment.
planning model which incorporates the major Effectively, it is the second half of the SWOT
components and provides a very convenient analysis which identified the most beneficial
means of conceptualizing the coal company's opportunities to which the company can com-
business situation. A recent survey [9] of small mit its resources.
businesses determined that only a few compa- Objectives of the mining comPany in the
nies use strategic planning (see Table 1). long-term include: productivity, safety, return
The key components of the strategic plan-
ning model are outlined below.
TABLE 1
Mission defines the scope of the mining
Company use of strategic planning
operations which makes any given company
unique and more successful in comparison to Number of Percentage with
its competitors. employees strategic plan
Resources outlines the total resources of 1 - 25 24
the company, such as the coal reserves, capital, 26- 50 18
51-100 49
quality of management and skilled labor. Also
101-250 46
an SWOT profile can assist in identifying 251 + 48
future successes for the mining company.
 314

on investment, costs and employee enrich-
ment and development. Each objective should
be clearly stated and understood, and
achievable as well as measureable.
Strategy which the company delineates for
operating under is based on the desired objec-
tives; i.e. a plan of action which outlines the
means by which the objectives can be
achieved.
Operation includes the components of
objectives and strategy which are to be com-
municated throughout the mining company
structure. These c o m m o n goals and positive
attitudes should be promoted in the daily
routine of all the employees.
Monitoring and evaluating any change,
strategy or policy implementation should be
constant and modification should occur if
deemed necessary.
Table 2 outlines an SWOT analysis for a
medium to large size coal company. This type
of exercise is very helpful in obtaining a com-
plete picture of the mining company and its
position in the industry prior to formulating a
business strategy.
COMPETITION IN THE COAL MINING IN-
DUSTRY
The competition in the mining industry is
predominantly influenced by: the bargaining
power of the coal buyers; the threat of sub-
stitution of other energy sources, principally
fuel oil, natural gas and nuclear power; entry
of new mining companies; and influence of
suppliers (see Fig. 4). The general trend in the
coal industry is the shakeout of the high-cost
operation, such as in Appalachia, thus in-
creasing the industry concentration ratio [10].
The larger companies, especially the energy
conglomerates, have the resources, capital and

TABLE 2
A SWOT analysis for a coal mining company
Strengths Weaknesses Opportunities Threats
Abundant coal reserves Excess production Stable/growing utility Acid-rain bill
capacity demand
Skilled, ample, mobile Industrial relations Clean coal combustion Imported coal
!abour technology
Work ethic, culture Marketing,
selling Export growth (5% in Loss of export markets
1990's)
Low R&D National energy policy Transport monopolies
Capital intensive Synfuels Substitutes--nuclear
Public i m a g e Monitoring/remote con- Tax policy
trol technology
Inadequate lobbying Alternative transport Shift in energy use
system
Terminating long-term U.S. & world energy Excessive legislation
contracts growth
Inflexibility to business Worsening mining con-
and technologicalchange ditions

COAL MARKET
Buyers Power
- contracts
spot market
SUBSTITUTE
INFLUENCE
NEW MINING
COMPANIES
ION IN TH
INDUSTRY
-Roclear power
.petroleum
• n a t u r a l gas
SUPPLY MARKET
- availability
- cost
Fig. 4. Principal factors that influence competition in
the mining industry.
productive capacity to maintain or increase
market share. Also, the larger companies have
"economies of scale" in terms of sales and
financial leverage and coal preparation facili-
ties and are thus better able to negotiate
long-term contracts. In fact, many coal com-
panies are able to survive this current reces-
sion on previous long-term contracts. Unfor-
tunately, m a n y of these contracts will
terminate by the early 1990's, thereby trans-
fering a large volume of coal to spot market
prices [7].
The major competition in the coal industry
is not necessarily with other mining compa-
nies, but with their customers and suppliers
for bargaining power. However, selling to a
powerful buyer, such as a utility, can be to
the advantage of a low-cost producer and
often results in better-than-average profits.
Therefore the principal strategy for the min-
ing company should be to sell a good prod-
uct, meeting specifications, and have a low-
cost position both in the boom cycle and
especially in t h e recession cycle. Rivalry in
the Appalachian coal area is intense as the
industry growth is slow. The coal product
generally lacks differentiation and fixed costs
are high, especially for the older mines. In the
national coal industry, the sulphur content of
coal will differentiate the coal produced in
315
the Illinois Basin from that of Appalachia
and will benefit Appalachian mines consider-
ably. The coal industry also suffers from ex-
cess capacity resulting in the healthier compa-
nies suffering as the weaker companies hang
on. The companies with the higher exit costs
(from the market) will tend to hang on longer.
During the boom years of the 1970's, the
high price and demand for coal offered easy
entry into the mining business. An en-
trepreneur with a basic knowledge of operat-
ing readily available small equipment, such as
bulldozers, could profit easily from develop-
ing a surface contour mine. Under these cir-
cumstances the sins of high costs were masked.
A single-unit underground mine mining a coal
outcrop, commonly referred to as a " p u n c h
mine", requires capital of at least $2 million
to produce 100,000 tonnes per year, that is, a
capital intensity of $20 per tonne. In contrast,
a surface strip mine would require, typically,
$120 million capital investment to produce 3
million tonnes per year, resulting in a capital
intensity of $40 per tonne capacity.
As a result of the gradual depletion of the
reserves of the "easily gotten" and low price
coal, future competition will demand large
capital investments to be made in large-scale
mining operations. As a result, underground
mining will be utilized more in poorer and
higher cost geologic conditions. There will
also be a trend towards vertical integration to
improve the coal product service from the
"face to the customer" with the objective of
lowering costs. The size of this investment
will be quite a barrier to entry into the mining
business. Additionally, there is the ever in-
creasing fixed cost imposed by the external
environment, such as increased permit appli-
cation costs and lead times.
The future of coal depends largely on the
global energy scenario in general and the
local utilities more specifically. The antic-
ipated demand for electricity, in the United
States, should be about 2.5% annual growth
to 1990 and 2.0% from 1990 to 2000. In 1986,
316
ENERGY
PRICE
PI i
/ ~
Po
~ _
VOLUM
Fig. 5. Supply-demand curves demonstrating the direct influence of the global energy price on the price and
production of coal in the long-term; with respect to small changes in energy and coal supply elasticities.
coal contributed 57% of the electricity; nuclear
16%; hydro 12%; natural gas 11%; oil 4% [11].
Therefore, coal is an integral part of the
global energy scene, which is a significant
influence in the external environment, since
the price of coal is tied closely to the overall
demand for energy, which in turn is in-
fluenced by the G N P (of the country) and
other economic and political factors. Al-
though the energy market has been quite
volatile, especially regarding petroleum, caus-
ing temporary shortages, in the long-term en-
ergy shortages should not exist. As Fig. 5
demonstrates, there will always be energy
available at a price. The character of the
demand and supply curves may change,
ultimately affecting the energy price and
volume produced, which could be the cause
or the effect of the boom/recession cycles.
Again, this is a significant component of the
external environment of the coal company.
Figure 5 also suggests that the coal market is
led by energy price, which, depending on the
substitute effect, ultimately governs the coal
price; and coal volume follows.
CONCLUSIONS
Strategic planning is a useful means of
conceptualizing aspects of the mining busi-
Increasing COAL COAL
..~.~e st i c i t y PRICE SUPPLY
___ P~
I
Pc
/,ncreosi°g
demand
[o (consumption)
I
I
VOLUME
ness, and serves to formulate and implement
strategies that can best enable the company
to achieve the basic objectives, principally to
improve mine productivity and safety. The
characteristics of the coal mining industry
include abundantly available coal reserves
having a worldwide geographical distribution,
while developing a low-cost mining business
is relatively easy. These factors make coal
mining very competitive since there are a
large number of coal producers.
There are a relatively low number of con-
sumers and little vertical integration between
the mine and the consumer. As coal is not a
homogeneous product, its quality is an im-
portant factor for the success of a mine. The
acid-rain proposal, as well as other factors of
the external environment, can impose severe
constraints on the mining company. The
sulphur content of coal could become a very
significant factor in product differentiation,
whereby, the Illinois Coal Basin and the
northeastern coalfield would lose coal markets
and central and southern Appalachia would
gain.
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1981.
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