Resources Policy 46 (2015) 212–218

Contents lists available at ScienceDirect

Resources Policy
journal homepage: www.elsevier.com/locate/resourpol

A cost management model for economic sustainability and continuos

improvement of mining operations
José A. Botín a,n, Marcelo A. Vergara b
a
Mining Engineering Department, Pontificia Universidad Católica de Chile, Vicuña Mackenna 4860, San Joaquin, Santiago 8940000, Chile
b
Civil Engineer, Tercera Avenida 1260-53, San Miguel, Santiago 8920327, Chile

art ic l e i nf o a b s t r a c t

Article history: The management of operating costs is essential to the efficiency and economic sustainability of mining
Received 1 July 2015 operations and nevertheless, most cost management systems in the minerals industry are designed only
Received in revised form and exclusively to meet financial accounting and reporting needs and lack of focus on decision taking and
6 October 2015
continuous improvement. This paper describes the result of a research program aiming to develop an
Accepted 6 October 2015
innovative cost management methodology that applies Activity-Based Costing (ABC) and PDCA's Deming
Available online 20 October 2015
cycle tools to develop a cost management system for continuous improvement of operational efficiency
Keywords: and cost reduction. The implementation of this methodology in a mining operation would imply a
Mining breakthrough in the corporate approach to operations managements, from the conventional top-down
Operations management
approach to budgeting and control to a bottom-up integration of cost management and accountability. In
Cost management
this regard, the methodology was tested in the Andina underground mine III Panel sector of Corporation
Continous improvement
del Cobre (CODELCO), in Chile. The results of this test and its potential are also discussed.
& 2015 Elsevier Ltd. All rights reserved.

1. Introduction International AACE, 2011). In general, conventional cost budgeting

Cost management is fundamental to profitability of any in-
dustrial project. Even more essential in mining, an industry that
deals with commodities, which prices are dictated by the market
and are beyond the management capacity of the company.
The end of the mining “super cycle” and the advent in 2008 of
the Global Financial Crisis (GFC), placed an end to a decade of
production focused strategies, with operating cost growing at rates
higher than production. The sector was placed on a tough ride and
forced to shift focus to cash preservation and efficient cost man-
agement. Many mining companies have seen themselves into the
urgent need of cost management systems capable of achieving
sustainable productivity gains and consistent profitability.
Cost management is composed of three processes: estimation,
budgeting and control (Moen and Norman, 2006). A number of
conventional techniques, such as benchmarking (Turney, 2008)
and expert criteria (Govindarajan et al., 2008) are available and
have been used for cost estimation and budgeting for many years.
However, most cost control systems in the minerals industry
cannot be referred to as “cost management” since they are con-
ceived to fulfill accounting and reporting needs, rather than to
improve operational efficiency (Michalska and Szewieczek, 2007;
n
Corresponding author.
E-mail addresses: jbotin@ing.puc.cl (J.A. Botín), msvergar@uc.cl (M.A. Vergara).
and control systems in mining are designed and implemented
“top-down” and lack detail and consideration for the management
decisions driving cost. Therefore, they fail as a management tool
and often, lead to undesirable results (Lind, 2001).
Here is where Activity-Based Cost (ABC) models arises. ABC
models are built on the concept that resources usage is not a
function of the amount of final product, but rater, resources are
“consumed” by the elementary tasks and processes required to
produce a unit of the final product. Under this philosophy, oper-
ating costs are allocated to the elementary production activities
and total operating cost is generated through bottom-up con-
solidation of activities, sub processes and processes. Therefore, an
ABC cost model is suitable to accommodate the management
structure of the operation so that managers and supervisors un-
derstand – and take responsibility for – the value drivers of the
operation and the impact that day-to-day decisions have on op-
erating costs (Michalska and Szewieczek, 2007; Turney, 2008).
While the ABC models lend to a manageable cost estimation
and budgeting process, the problem is how to develop the cost
model into a practical management system that will guarantee
results. To achieve this objective, a powerful continuous im-
provement methodology, the Plan-Do-Check-Act (PDCA) cycle
(Moen and Norman, 2006; Sokovic et al., 2010), was introduced.
PDCA, often referred to as the Deming Cycle, contemplates four
repetitive stages which, using the available information, leads to
the continuous improvement of operational efficiency.

http://dx.doi.org/10.1016/j.resourpol.2015.10.004
0301-4207/& 2015 Elsevier Ltd. All rights reserved.
 J.A. Botín, M.A. Vergara / Resources Policy 46 (2015) 212–218
This paper summarized the result of a research program aiming
to develop and test a powerful and innovative methodology for
cost management of mining operations. The methodology com-
bines ABC cost modeling and PDCA management tools into a
sustainable cost management system for continuous improvement
of operational efficiency and cost reduction.
It is worth mentioning that the implementation of the pro-
posed system would imply changes in the corporate strategy and
policies. Specifically, it implies a breakthrough in the corporate
approach to operations managements, from the conventional top-
down approach to budgeting and control to a bottom-up in-
tegration of cost management functions and accountability. In this
regard, the research program comprised the validation and testing
of the methodology in a real Block Caving mining operation. This
were carried out at Andina underground mine III Panel sector of
Corporation del Cobre (CODELCO), in Chile.
2. ABC and PDCA cycle, a powerful tool
The philosophy of the proposed ABC cost model lies in col-
lecting cost data down to the elementary mining activity level, two
or three levels down the conventional systems. This philosophy
has been widely adopted in the manufacturing industry but, per-
haps due to the particular features of mining, there are very few
examples of its applications in the minerals industry (Lind, 2001;
Michalska and Szewieczek, 2007). In fact, its implementation may
be costly, but it is far superior to traditional models (International
AACE, 2011). The main advantages comes down to three: (i) It
lends to a more precise, “bottom-up”, cost estimation and bud-
geting processes; (ii) It may be designed to reflect the manage-
ment structure of the operation at its lowest level of accountability
so that first line managers and operators understand the value
drivers of the operation and the cost impact of their day-to-day
decisions and to notice the weaknesses and strengths of their
parcel of operation (Turney, 2008); and (iii) It focus on efficiency at
activity levels, thus allows sustainable costs reductions without
affecting the quality and safety (Michalska and Szewieczek, 2007).
The PDCA cycle has been widely used in different industries –
including mining – as a continuous improvement and quality
control tool in matters of environment, safety and maintenance
(Watzman, 2014). Fig. 1 represents the PDCA model for cost
management.
The combination of ABC and PDCA's Deming cycle generates a
very powerful management tool for continuous improvement of
the mining operations process (Bunch, 2010; Croser, 2004). The
objective is to optimize the different operational activities starting
from the deviations detection that the ABC model allows. The way
the model must be complemented with the PDCA cycle is shown
Fig. 1. PDCA cycle.
213
in Fig. 1 and explained below.
The “PLAN” stage (Fig. 1) refers to the construction of annual
budget through the bottom-up integration of elementary mining
activities. The data is obtained from historical records and is fed
into the cost model. The budget generated this way becomes a cost
baseline for the year under the expected operational conditions
and the results demanded by the company. Since the model can
achieve the detail that deemed appropriate at its construction – in
the next section this will be explained in depth – it allows to
analyze thoroughly the current state of the operation not only in
order of detecting problems, but also to track their possible causes.
At the “DO” stage, the actual operational results are captured
and registered. If it is the first PDCA cycle in study, the real op-
erational parameters under current operational conditions will be
obtained. Otherwise this stage allows to register the real opera-
tional parameters after the changes implemented in the Act stage
of the previous cycle.
The “CHECK” stage allows to detect, quantify and understand
the deviations relative to the budget – in the next section this will
be explained in depth. With the information provided it is possible
to inquire into the deviations sources and identify a set of pro-
blems and potential solutions, evaluate its economic impact. Fi-
nally, a plan of action is decided and implemented in the “ACT”
stage. Once the plan of action is implemented, a new cycle starts to
detect other deviations and new enhancement opportunities, thus
pointing to the continuous improvement of the entire operational
process.
2.1. Model construction
The first step in the construction of the cost model consists of
identifying the activities which integrate the value chain of op-
erations and characterizing them with the desired level of detail.
In the proposed model, these activities are integrated at three le-
vels: unit activities, mining sub-processes and mining process. A
unit activity is defined as the elementary unit of operation which
resource consumption is directly related to one, and only one,
measurable unit element of production (e.g., a rock bolt, a meter of
drill hole, etc.). A mining sub-process integrates all unit activities
contributing to produce one unit of mining sub-product (e.g.,
meter of tunnel). Finally, the mining process integrated all sub-
processes which are required to produce a unit of mining process
(e.g. tons mined). Therefore, the model will determine the total
cost bottom-up as shown in Fig. 2:
Once the activity model has been determined, the next step is
the detailed bottom-up integration of cost elements by its nature
into the total operating cost. A nature of cost is defined by the
fraction of the cost element which can be quantified by the con-
sumption of a certain resource. The natures of cost included in the
214 J.A. Botín, M.A. Vergara / Resources Policy 46 (2015) 212–218

Table 1 shows the activity matrix for a Block Caving operation.

Mining Process 2.3. Analysis of cost deviations

Due to the structure that the equations presents, the following

Mining sub-process Mining sub-process methodology will allow to track, identify and quantify each de-
1 2 viation of the real cost respect to the estimated or budgeted one at
elementary variables level. Starting from the equation structure
used before to determine the budgeted cost of nature for an ac-
Unit Unit Unit Unit Unit tivity, the real cost of nature for an activity can be expressed as
activity 1 activity 2 activity 3 activity 4 activity 5 follow:
where:
Fig. 2. ABC model activities categorization. CnR : real cost of nature for an activity.
∆I : intensity of use deviation from budget.
model are: ∆Pr : unit price deviation from budget.
∆P : performance deviation from budget.
 Production man-hours In other words, the real cost is nothing but the budgeted cost
 Maintenance man-hours affected by several deviations. Working on the equation, it is
 Operating materials possible to obtain the next expression:
 Maintenance material I*∆Pr ∆I*PR ⎛ I*PR ⎞ ⎛ ∆P ⎞
 Energy CnR=CnB+ + –⎜ ⎟* ⎜ ⎟
P P ⎝ P ⎠ ⎝ P +∆P ⎠
 Others
where:
I * ∆ Pr
Once the sets of unit activities and the nature of costs have : cost deviation explained by a price deviation
P
been determined, the cost of each unit activity for each nature of ∆I*P
: cost deviation explained by an intensity of use deviation
P
cost should be modeled by a polynomial as a function of unit price, I * PR ∆P
[−( P )*( P + ∆ P )]: cost deviation explained by a performance
intensity of use and performance, with the following structure:
Once these expressions have been established, they are ap-
I*Pr plicable on every equation of the model to understand not just the
CnB=
P magnitude, but where and why the deviations from the budget are
where: produced. This utility will allow to effectively identifying problems
CnB : cost of nature for an activity. and their roots to apply the PDCA cycle
I : intensity of use of a resource related to the cost of nature to Again, the above equations are generic expressions, and are
be estimated. applicable to every cost of nature equation. As an example, equa-
Pr : unitary price of the resource needed to perform the activity. tion for LHD energy cost is shown below:
P : performance at field executing the activity. ∆PriceOil *ConsumptionOil PriceOil *∆ConsumptionOil
The previous equation is a generic expression, suitable to CER=CEB+ + −
PerformanceLHD PerformanceLHD
model the “nature of cost” for each unit activity in Table 1. To give
PriceOil *ConsumptionOil ⎛ ∆PerformanceLHD ⎞
an example, the LHD energy cost expression is presented next: *⎜ ⎟
PerformanceLHD ⎝ PerformanceLHD + ∆PerformanceLHD ⎠
ConsumptionOil *PriceOil ⎡ USD ⎤
CE= ⎢⎣ ⎥
PerformanceLHD tonne ⎦ In the above equation, the LHD energy cost deviation (CER-CEB),
is split in three different terms, associated to price, intensity of use
where: and performance deviation, respectively.
CE : energy cost in USD by moved metric tonne.
PriceOil : oil price in USD. 2.4. Case study
ConsumptionOil : LHD's Oil consumption in liters per operating
hour.
The model was tested in the underground mine III Panel sector
PerformanceLHD : the performance of the LHD machine in moved
of the Andina Mine (Codelco). Model validation was limited to the
metric tonnes per hour.
activity of Draw point Load–Haul–Dump (LHD), consisting of
Replacing each variable for its units, it results in the energy cost
loading the ore at the draw points, transport it through the tunnels
associated to move one metric tonne by the LHD. In the study case
to finally dump it into the shafts which derive to the reduction
section, more sets of variables will be used.
level.
For the example, the intensity of use is the LHD's oil con-
Fig. 3 shows the percent cost deviation from budget for this
sumption rate, but in general terms it refers to the demand of
production activity, for the period between January 2014 and
supplies from an activity to complete its tasks. About the perfor-
August 2014.
mance, in general terms it is related to each activity's KPI, in the Fig. 3 shows that monthly cost deviation for the LHD produc-
case of the LHD is the moved metric tonnes by unit time. tion is negative every month, this is that actual cost for the activity
is below budget cost. A first glance to Fig. 3, leads to the conclusion
2.2. The ABC matrix that the budget for this activity was on the conservative side, and
this conclusion is reinforced by the amount of the deviation, which
The activity model is expressed by the activities matrix Aijk, exceeds the acceptable 10% (International AACE, 2011) in five of
which relates unit activities i with mining sub-processes j and the eight months, even reaching a 25% in March. However, the
processes k by binary values. Combining the activity matrix and information in Fig. 5 does not allow for cost management since no
the activity cost models, an ABC cost matrix ABCijk is generated, useful management decision can be drawn. It becomes obvious
where each cell contains the unit cost associated to one activity. that a more detailed analysis would be required.
Table 1
ABC matrix.

Unit activity Mining process Development Operation Support activities

Mining sub-process KPI Tunneling Fortification Shafts and draw-points Undercut Production Reduction Transport Global Support

Unit activities 1 Undercuting radial drilling m/h x x

2 Manual scaling m/h x x
3 Mechanized scaling m/h x x
4 Moneo Step/h x
5 Radial holes manual load and blasting Step/h x x
6 Radial holes mechanised load and blasting Step/h x x
7 LHD's load, haul and dump Ton/h x
8 Mobile Rockhammer reduction Boulder/h x

J.A. Botín, M.A. Vergara / Resources Policy 46 (2015) 212–218

9 Fix Rockhammer reduction Boulder/h x x x
10 Mobile Rockhammer secondary reduction Boulder/h x
11 Secondary reduction drilling m/h x
12 Secondary reduction load and blasting g/Ton x
13 Shafts and draw-point drilling m/h x
14 Support rock-bed construction m/h x x
15 Draw-point manual load and blasting Step/h x
16 Draw-point mechanised load and blasting Step/h x
17 Draw-point steel-frame instalation Draw-point/h x
18 Cable-bolts drilling m/h x
19 Cable-bolts anchorage Step/h x
20 Cable-bolts instalation Step/h x
21 Reduction chambers cleaning m/h x
22 Mining truck transport Ton/h x
23 Floor cleaning m/h x x
24 Horizontal drilling m/h x
25 Horizontal drilling load and blasting Step/h x
26 Mucking Ton/h x
27 Dwydag bolt drilling m/h x
28 Bolt grouting Step/h x
29 Dwydag bolt instalation Step/h x
30 Mesh instalation m/h x
31 Shotcrete application m/h x
32 First layer floor paving m/h x
33 Second layer Floor paving m/h x
34 Floor repair m/h x
35 Raise borer drilling m/h x
36 Ventilation CFM x
37 Water pumping m3 x
38 Supervision positions x

215
216 J.A. Botín, M.A. Vergara / Resources Policy 46 (2015) 212–218

Draw Point LHD Activity

Cumulative Year-to-date Cost: Estimated vs Real
2,500,000

2,000,000

1,500,000

USD
1,000,000

500,000

0
1 2 3 4 5 6
Month

Model Actual

Fig. 3. Draw point LHD activity. Percent cost deviation by months. Fig. 4. Draw Point LHD Activity. Cumulative Cost, Model vs. Actual.

The equations that model the production activity (“PLAN”) are per hour.
shown below:
⎡ USD ⎤
CostLHD=((1)+(2)+(3)+(4))*(1 + Others ) ⎢
N °workers*mhlabor *(1 + %Absenteeism) ⎡ USD ⎤ ⎣ Tonne ⎥⎦ (5)
Clabor = ⎢⎣ ⎥
PerformanceLHD Tonne ⎦ (1)
Where:
where: CostLHD : LHD Production activity cost measured in USD by
Clabor : labor cost in USD/Tonne. moved tonne.
N °workers : nominal operators and maintainers needed per Others : adjustment factor accounting for all not modeled items
shift. Using the five equations above, a budget plan was prepared
mhlabor : man hour value in USD which represents the expected operational results. The chart in
%Absenteeism: factor to account for real number of men to cover Fig. 4, compares the cumulative LHD activity cost calculated using
the shift. the model with the actual cost. The percent deviation was 3.7%,
PerformanceLHD : the performance of the LHD machine in tonnes therefore the cost model achieves a more than acceptable fit to
per hour. reality, significantly better than that obtained using conventional
Pricetire *N °tire ⎡ USD ⎤ methods. Therefore, the model is a valid and useful cost budgeting
COM = ⎢ ⎥ tool.
PerformanceLHD *Lifetire ⎣ Tonne ⎦ (2)
Table 2 compares the LHD activity unit cost obtained using the
where: model with the actual values for each nature of cost.
COM : operating materials cost in USD by moved metric ton. With the deviations control methodology previously exposed,
Pricetire : LHD tire price in USD. it is possible to know in detail the differences between the reality
N °tire : number of tires in LHD machine and the budget at nature of cost level. Fig. 5 chart shows the total
PerformanceLHD : LHD machine performance (tonne/hr.). deviations effect split up in detail.
Lifetire : LHD tire life-hours. Fig. 5 presents a detailed analysis of cost deviations which can
Although the LHD has operating materials other than tires (e.g.,
be efficiently used for cost management and continuous im-
bucket); a Pareto analysis of the operating material expenses de-
provement of operations. In Fig. 5, the black bars represent the
termined that over the 84% of cost where product of tire expenses.
budget (left) and the real (right) cost. The gray and white bars
The effect of the others operating materials expenses is absorbed
represent the deviations associated to each nature of cost (i.e. la-
by the “other” factor present in Eq. (5).
bor, materials, and energy) that impact on the budget cost. A gray
Spa re consumptionLHD ⎡ USD ⎤ bar represents a positive deviation (higher cost), and a white bar
CMM = ⎢⎣ ⎥
PerformanceLHD Tonne ⎦ (3) represents a negative deviation (lower cost).
A first glance shows that there is a cross-subsidization in terms
where: of cost of nature, with a negative deviation (cost below budget), in
CMM : maintenance materials cost (spare parts) in USD/tonne
maintenance materials which is hiding positive deviations in the
moved.
other costs. Furthermore, the analysis allows the detection of in-
Spare consumptionLHD : LHD spares consumption in USD/h.
efficiencies, problems and opportunities in the operations, which
PerformanceLHD : LHD machine performance (tonne/h).
would be unnoticed if conventional cost accounting in Fig. 3 had
The LHD uses hundreds of spares, running a Pareto analysis
been used.
resulted not useful. To be able to model the maintenance materials
cost, it was decided to study the average monthly cost.
Table 2
PriceOil *ConsumptionOil ⎡ USD ⎤ Model results.
CE= ⎢⎣ ⎥
PerformanceLHD Tonne ⎦ (4) LHD ABC Real

where: Labor (USD/tonne) 0,083 0,090

CE : energy cost in USD by moved tonne. Operation materials (USD/tonne) 0,058 0,062
PriceOil : oil price in USD. Maintenance materials (USD/tonne) 0,248 0,238
ConsumptionOil : LHD's Oil consumption in liters per operating Energy (USD/tonne) 0,120 0,131
Others (USD/tonne) 0,036 0,045
hour. Total (USD/tonne) 0,545 0,566
PerformanceLHD : the performance of the LHD machine in tonnes
 J.A. Botín, M.A. Vergara / Resources Policy 46 (2015) 212–218 217

Draw Point LHD Activity Measures impact and implementation difficulty

Analysis of Cost Deviations J
10
0.570
9
0.565 H I
8

Implementation difficulty
Cost (USD/Tonne)

0.560 7
L Q A
0.555 6
N
5
0.550
K
4
0.545
CE
3
0.540 F O D G M
Maintena 2
Budgeted Operating
Labor Energy nce Others Real cost
cost materials P B
materials 1
Effect (USD/Tonne) 0.007 0.004 0.011 0.010 0.009
0
Cost (USD/Tonne) 0.545 0.545 0.552 0.556 0.546 0.557 0.566 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Impact
Fig. 5. Draw point LHD. Analysis of cost deviations.
Fig. 6. Measures impact and implementation difficulty.
Table 3
In Depth analysis of cost deviation by nature. material properly, there is a higher risk of getting a flat tire. Under
this assumptions the responsibility of the cost increases could rely
Variable Deviation (USD/ Explained
tonne) percentage on the LHD operators and/or the tunnel construction crew. Just
like this cost of nature, the rest were equally analyzed. Table 4
Tire's life effect (USD/tonne) 0,00343 87 summarizes the deviations, together with some possible reasons
Tire number effect (USD/tonne) 0 0
and management decisions which may be considered. Table 4
Tire Price effect (USD/tonne) 0 0
Performance effect (USD/tonne) 0,00053 13 represents the set of sources of deviations and the potential cor-
Operating materials deviation 0,004 rective actions and demonstrates the potential of the model as a
(USD/tonne) powerful cost management tool.
Budget operating materials cost 0,058
(USD/tonne)
Real operating materials cost 0,062 2.6. The Action Plan (“ACT”)
(USD/tonne)

Once the possible measures have been identified (Table 4),

2.5. Analysis of cost deviations and possible solutions: action plan
A detailed analysis of cost deviations can do much more. It can
help management to perform an in-depth analysis at elementary
variables level for each cost of nature (“CHECK”). Just as an ex-
ample the operating materials deviations analysis is shown in
Table 3.
The overall deviation in the cost of operating materials is 0,004
USD/tonne is mainly (87%) due to a lower-than-expected tire life
and, in a lower amount (13%), to a lower LHD performance. As the
result, the tire life variable should be studied in depth. A possible
explanation of the tire's behavior can be found analyzing both, the
floor conditions in the tunnel and the LHD operator's skills. If the
floor has not been well paved or the operators do not handle the
expert criteria is applied to allocate the available (scarce) financial
resources to each measure, using a 2D impact-difficulty model
(Fig. 6). Experts are asked to assess the implementation difficulty
and the economic impact of each measure. The assessment of
implementation difficulty is based on the evaluation of im-
plementation time and cost and how reversible the measure is.
Economic impact is assessed considering activity costs savings,
performance improvement, and externalities.
The results are shown in Fig. 6, where the 17 improvement
opportunity measures in Table 4 have been plotted on the 2D
impact-difficulty model in accordance with expert criteria. The
more attractive opportunities are B, M and K, which plot on the
4th quadrant. Measures plotting on 2nd Quadrant (low impact-
high difficulty) are the least attractive.

Table 4
Analysis of deviations.

Cost of nature Deviation Possible reason Possible solution Measure

Labor Higher work force needed Underestimated workforce  Hire more workers. A
 Better shift planning B
Higher absenteeism than expected.  Attendance bonus. C
Operating materials Lower tire life than expected Poor floor conditions.  More cleaning rounds. D
No proper material handling.  Availability bonus. E
 Training workshop. F
 Production Supervising. G
Tire Quality.  Change supplier. H
Energy Higher oil consumption rate Natural equipment wear.  Overhaul. I
 Buy new equipment. J
Field condition modification.  Repave floor. K
 Change the current paving material. L
Operating condition modification.  Training workshop. M
Total cost Lower Performance than expected Lower bucket filling factor.  Bucket Modification. N
 Training workshop. O
Lower effective utilization.  Better maintenance planning P
Material movement poor planning.  Shorten cycle time. Q
218 J.A. Botín, M.A. Vergara / Resources Policy 46 (2015) 212–218
3. Conclusions
After a decade of “super cycle” with production focused stra-
tegies and rampant increase of operating costs, the minerals in-
dustry is being forced to shift focus to cash preservation, and many
mining companies are placed in urgent need of achieving sus-
tainable productivity gains through cost reductions. This paper
present the results of a research program aiming to develop and
test an innovative cost management methodology for mining
operations.
The proposed methodology implies a shift in corporate policy,
from the conventional top-down approach to budgeting and
control to a bottom-up integration of cost management functions
and accountability. In this regard, the methodology had to be
tested in a real mine, which was carried out at the Andina un-
derground mine III Panel sector, a Codelco copper mining opera-
tion in Chile. The test results have demonstrated the potential of
the methodology as a mine management tool for achieving sus-
tainable gains in operations efficiency and productivity.
The methodology is based on Activity-Based Costing (ABC) and
PDCA's Deming cycle tools, both full proven techniques in manu-
facturing industries. However, the combined application of these
tools to mine operation management as proposed here, produced
an innovative and powerful tool that stands out for efficiency and
ease of application. The results of the Case Study here presented,
have proven the capacity of the model to generate a bottom-up
baseline cost budget, to identify and understand cost deviation
sources and to suggest possible solutions in a continuous im-
provement cycle.
The key feature of the model lies in its alignment with the
management structure of the operation so that managers and
supervisors understand – and assume responsibility for – the va-
lue drivers of the operation and the impact that day-to-day
decisions have on operating costs. Though the model was tested in
an underground mining operation, the cost modeling methodol-
ogy is easily adaptable to any other mine and plant operation.
Acknowledgments
We would like to express our gratitude to Corporacion del
Cobre (CODELCO) for the funds provided for this research work
through the Codelco-Mineria UC Research Group. Our sincere ap-
preciation to the staff and supervision of the Andina Division of
Codelco for their support and assistance during the execution of
the field work.
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