How to Get Value out of Benchmarking By James Stoddart MAusiMM Principal Engineer, AMC Consultants INTRODUCTION iners are price takers, not price makers, and the ‘metal markets upon which their revenues depend are cyclical. Therefore it is not surprising that as an industry we focus on the reduction of costs to alleviate margin pressure that naturally arises due to this variation. Benchmarking studies are a useful tool that can provide an operation with the opportunity to gamer an independent view of site performance unencumbered from the dogma and palitics that potentially influences internal reviews. Over the last four years AMC has performed over 40 benchmarking studies, looking at both open cut and underground, metalferous and coal operations. The process used provides comparisons of a mining operation to its peers by: * highlighting the inherent and changeable issues that influence a site's performance; * identifying areas of significant variation in relation to peers; and *+ focusing on the divers ofthis variation in order to identity ‘opportunity for improvement In light of cur experience it is AMC’s opinion that the often- heard claim when performing a benchmarking exercise that “You can't compare us, we'e unique!” is unustitie, The author was involved in a study that compared maintenance an operation planning processes of aitines to those of 2 mining company. The rationale behind this ‘comparison was that both businesses employ large exoensive assets that requir significant maintenance, and to maximise profitability both businesses need to maximise the number of operating hours they achieved from these assets Maintenance and operational planning issues are key 10 maximising the number of hours achieved from a piece of equipment, and practices in the arin industry were clearly transferable tothe mining context. All operations/businesses are comparable, but the comparisons need to consicer the piysical constraints under Which a site operates and the context of what is trying to be achieved by the operation. COMPARING PERFORMANCE When comparing performance it is vital to remember what the organisation is there for, It is about extracting as much Value as possible from the deposit that is being mined. Sites are not in the business of moving rock more cheaply than their peers, they are there to generate the greatest possible retum from their operation, Hence, a benchmarking study should be aimed at Understanding the potential of the deposit, how well this is being exploited and how that relates to the market for the ‘operation's products. The aim should be to identify how all the parts of the process come together to drive overall performance. Initially, high level metrics need to be identified and below these a detailed analysis is required of a full range of underlying drivers which demonstrates how these amalgamate to drive the high level performance. From this, an assessment of how well the operation is being run can be made. Experience has suggested that often sites that have a good overall performance do not excel at any single function, but sit just below the highest measure in each function. Effectively these operations are well balanced. Considering @ couple of examples. + An operation is not there to have a low maintenance labour cost. Is it poor practice to have a high number of maintainers compared to a peer operation if it ensures that when a constraint machine breaks down (something, which happens on even the best run site), a maintainer is available? ‘+ An operation should not strive to have the lowest cost rill and blast operations. The easy way to do this is to generate large stocks of poorly broken rock. Working, Capital in the process increases and the efficiency of down stream processes is reduced. ‘A good starting point for considering how an operation is Performing is looking at the return on assets (ROA). For Investment decision-makers, return on investment is what ‘matters. They have no interest in what goes on in the “money making box’. What matters is that it generates enough money to make them want to keep their money there, ‘otherwise they will take it elsewhere. That is when it becomes a real issue for the mine operator. The advantage of using ROA as a measure is that it provides a recognised high level measure. Opportunities identified in the benchmarking study can then be related back to ROA, ‘and communicated to the investment decision-makers, However, diferent operations produce different products sold into diferent markets and require differing levels of capital to exploit the deposit. To understand how this can be influenced by the operation, ROA needs to be deconstructed into its component parts, and these need then to be drilled down on to link them to the fundamental activities in the operation, A useful tool for relating high level measures to the Underlying drivers is a “driver tree". A driver tree provides 2 ‘common and explicit understanding of how the daily physical and financial activities in the mine roll up to the high level Performance. The example presented in this paper takes the ROA measure and connects it down to the daily physical performance of the trucking fleet. This is an example of only fone branch of the driver tree: the full tree will combine all the functions to the one high level measure, Figure 1 shows the first level of the driver tree, deconstructing the return on assets to the revenue, cost and ‘asset base components, For a cross-sectional comparison between sites the asset base and unit revenue are of litte Interest for reasons discussed previously. But, from a temporal perspective, if the driver tree is being used to compare or benchmark Performance across time, they are very useful measures to ‘explain changes in high level metrics. Margin comparisons can be more informative as they provide ‘2 measure of how sensitive the operation is to price or cost > MarebvApel 2008 [63How to Get Value out of Benchmarking ‘at Base tur on 6 o ‘ea Proauction (tera Uns) [sme agin Unt Revenue a (iota Unt) Unit margin (SiMetl Uni) “Lost to hata (SiMeus Use) Figure 1: Level 1 aver tee fiuctuations. Comparison of, for example, margin as a percentage of revenue is a useful high level metric, particularly if this is considered in light of the world cost curve for the operations products. The graph shown in Figure 2 is the world zine C1 cost curve and is taken from the Brook Hunt Global Zinc Study. This information is vital to corporate decision-makers as it assists them to understand how markets will influence their profitability and the level of risk their operations are exposed to when prices fiuctuate. Clearly with prices around the 35 cilb level, operation B should be significantly more Concerned than operation A about its costs increasing or the inevitable fluctuations in price. Also, mining efficiency Improves over time and older less efficient operations close, redefining the supply curve ever lower. This shift is rarely balanced by the increases in the demand curve, hence downward pressure is continually being placed on commodity prices. These curves are vital for strategic decision-making, but some serious questions need to be asked: ‘+ Isthe performance due to good work or good geology and ‘geography? + Is the performance sustainable? + Has the low cash cost position been bought through capital expense? Figure 2: Brook Hunt CI zine cost curve (source: Brook Hunt Global Zine Study). 64{ Marehvaoril 2004, ‘When looking at the world cost curves, the questions should be where is the operation on the curve? Why is it there? And what can be done about it? Before any assessment regarding what levels of performance can be achieved the factors which are beyond the control of the management need to taken into account. These are best described as: geology, and geography. What grade is the orebody? How deep is it? How weathered is it and what are its metallurgical properties? Where is the orebody? Is unit labour cheap or expensive, and what are the local skill levels? How far do supplies and the work force have to be transported to the site? These are just a few of the issues controlled by geology and geography. One study the author was involved in reviewed a site with a very high cost to metal. But when geography and geology were taken into account it was demonstrated to be extremely well run and without such good performance would have been closed long before. The driver tree in Figure 3 starts this process. on | tenes moe naz Figure 3: Level 2 and 3 otiver toes. Clearly, the cost to metal is driven by the cost per tonne of ore and the amount of metal recovered from the ore. Levels, 2 and 3 look speciticaly at the issue of metal recavered from the resource which is considered economically viable, what metal is planned to be lost in the design process, what additional metal is then lost through mining, and finally, what of the mined metal then goes to tails. Analysis of this quantitative data requires an understanaing of the mining ‘method and otebody, but a clear presentation of the data in this manner highlights the tevenue opportunities that are being lost through the mine design, mine operations and metal extraction processes. Itis worth reiterating at this point that the purpose of a mine is to extract as much value as is possible from the resources available, not move rock as cheaply as possible. Often sites will compare a cash cost per tonne of rock mined, A low cost is often associated with a large scale operation, However, the comparison being made may be inappropriate {or the orebody being mined. Over recent years operations have increased in size, but orebodies have not. ‘The author has on a number of occasions seen orebadies boing mined at rates that are not sustainable for the geology ‘of the deposit. The outcome of pushing an orebody harder than is sustainable is, more often than not:How to Get Value out of Benchmarking Ore + Waste = More Ore! The graph in Figure 4 illustrates what happens when a deposit is pushed too hard — the head grade plummets. Every orebady has a rate beyond which the grade being mined is unsustainable. fa site has 2 narrow high-grade orebody which requires selective mining techniques, attempting to reduce mining cost by bulk mining is @ sure fire way to destroy value. Blindly chasing lower cost without consideration ta the orebody has. potential to destroy more revenue than the cost saved. Absolute measures of metrics such as head grade or throughput provide litle information regarding what is happening on the site, but 2 useful measure is the variability, of the performance. Variability compares an operation's actual performance compared to plan month on month. The graphs. ere Had grade (9) a a 500 1,000 1500 2,000 ‘Anrwal production (kt) Figure 4: Head grade versus production rate (Mt Charlotte 1966-2000) (Mikula and Lee, 2000). in Figure 5 illustrate how variability is measured and how the distribution of performance drives down mean performance. Variability of actual to plan is good indicator of the site's understanding of both orebady and whether the capacity of the orebody to deliver its potential grade and tonnage is being pushed to the limit. Also, variability is a good measure of how ‘well an operation is utilising its capacity, Distributions of rates are always below the capacity limit, and a high variability implies that the capacity available to the operation is not being utilised to its full potential Variability is also 2 good general measure of how well the ‘operation is running. Experience has suggested that sites that track actual to plan closely are operations that are being managed well. This does, however, need to be considered in the context of the plan that is attempting to be followed: one site which tracked plan extremely well, did so because they ‘were operating well below the capacity of the orebody to deliver ore and had a large surplus of equipment. ‘The next stage is to consider the cost side of the equation. Figure 6 shows the level 4, 5 and 6 driver trees where total cost is drilled down on first to three high level functions of General and Administration (G&A), mill and. mining cost, Then mining cost is further drilled down on to the underlying functional costs ‘Two other significant elements of geology and geography are addressed here. Firstly, mining cost in an open pit is driven rot by ore tonnes mined but the total tonnes mined, so before the cost can be further drilled down on, the strip ratio needs to be considered to transform this into a cost per tonne of rock. This can then be broken into the functional areas of engineering and supervision, dill, blast, load, haul and ancillary. However, haulage cost is not driven by putting rock in the back of a truck, but by how far itis taken once it has been placed in the back of the truck, so a denominator of tonne.km is required. This in itself is not sufficient to fully understand the efficiency of haulage operations: clearly the depth from which the material is being hauled influences Capacity oe ee : us i = j =o “ i| geo ; is e | = : 20% 2 . aE a Sc vasesereswnn I = i] rT 1234567 8 810 Performance Figure 5: Varabity Marchi 2008 [65How to Get Value out of Benchmarking Racost Eng. & Super. Labour 110%) (S/tReck) 3) _. Gastto or cost nt Energy (sO) 1108) ‘sp Reto (511 Roce) o orert Roo) ‘Tota Haul Mining Cost Blast Cost Supplies (61t0~) (8/04) 8) @ Maing Cost (8/1 Rock) Load Contacts (took) Mesa Hou 8) (EPA ke) Haul opt (8/1 Rock) ®) Hou Ancilay (Stem Rook) (618 Rock) Total Work xm). Figure 6; Level 4, 5 and 6 driver trees (EFH = effective at hau), level of productivity. This requires an effective flat haul (EFH) to be calculated. The author and his colleagues have developed a time-based model which considers the time taken for a truck to travel up and down one metre vertically fon a ten per cent ramp, and equates it to how far the truck would have travelled on’a flat surface. The model considered both loaded and return times and gave a multiplier of 28, or 1 m vertically is equivalent to 28 m on the flat. This was ‘ested using haulage simulation software and found to have an acceptable level of accuracy. When considering cost, it has been found much more informative to assess total cost rather than unit cost. A unit cost is the gradient ofa line on the cost to output graph from the origin to the point the site is operating at, hence achieving 2 unit rate below plan for greater than plan production may not indicate good performance. Figure 7 shows the relationship of total haulage cost versus total work. The cost includes a lease component which has been calculated on similar terms for each site. This accounts for the capital that has been used to purchase the capacity and ensures that how well the equipment Is operated is compared, and not the management's ability to raise finance. Figure 8 shows total cost versus capacity on site, defined as the sum of the tray capacity of the trucks on site. Although the relationships in Figures 7 and 8 show a strong correlation between total cost and both capacity on site and total work, they highlight potential for improvement on sites in the range of up to 15 per cent. ‘The relationship in Figure 7 implies 2 fixed cost of around $5 million and a variable component of approximately $0.10)t.km, so clearly unit cost is going to be a function of total production. The relationship in Figure 8 is very important, as it highlights that a significant amount of the total cost will be incurred by just having the capacity on site. Operators and maintainers will be employed, capital and ownership cost will be incurred ‘and the engine will be run for at least some time. Figure 7 shows sites A and B required a similar level of work, yet at site B it cost significantly more to perform the work. From 66] MaretvApri 2008 Figure 8 it can be seen that site 8 had significantly more capacity on site and the cost of having this capacity was not out of line with what would be anticipated Having the right equipment on site forthe job that is required is the best way of controlling the cost at the operation. This has, of course, to be balanced against the requirement of ensuring the process is not interrupted by not having equipment available. ‘The next issue, once the equipment is on site, is what work it performs. Figure 9 shows levels 7 and 8 on the driver tree, capturing the two most important elements of productivity, Firstly, once on site how many hours does the machine work for? And secondly, what does it do during those hours? Effectiveness is a measure of how well an operation utilised the capacity it has available. In the case of haulage, it represents the work performed in tonne.km, divided by the site haulage capacity (the sum of the capacity of all the trucks on site). For a truck, this equates to the average number of EFH km hauled by a truck in a year. The strength of this as a metric is that it includes the three main drivers of overall output, maintenance (through availability), capital Utilisation and operational efficiency. To drill down on utilisation and availability, a standard time ‘model must be applied to ensure comparability between sites The model applied by the author and his colleagues breaks the 8760 hour per annum into the following classifications: + Operating — performing useful work. + Standby — not required. + Process delay — prevented from doing useful work due to mining process interference, eg blasting, weather, meal break, re-fuelling, pre-start checks, meetings, etc. These delays are then broken down into: © scheduled; and » unscheduled ‘+ Equipment delay ~ prevented from doing useful work due to the equipment not being available to be operated, ie ‘maintenance. These delays are again broken down into: >= 1000 2000 © 3000 © 4000 © 500.0 “otal Work (Mk) Figure 7: Tota haulage cost versus total work 500 450+ 1004 Total Cost (Ms) = 1900 2000 3.000 4,000 5.000 6,000 “otal Capacity () Figure 8: Toa! haulage cost versus capacity. © scheduled, and © unscheduled. From the experience of studies performed to date, this is the area that offers the greatest potential to improve site performance. Sites that have a high cost for the work they perform generally get 2 low number of hours from the equipment they operate. This is one of the areas of greatest controversy when results are presented. Site definitions of ratios such as availability and utilisation often hide the true picture of how well the machine is being operated. The only true measure in this area is how many of the 8760 hours available in the year did the machine operate Figure 10 shows a breakdown of how the 8760 hours in a year have been used at a range of sites. Each site has a range of issues that drive their performance and it is vital to understand the context under which the performance was achieved. For example, the number of pieces of primary earth moving equipment has. system implications for the maximum number of hours achievable, Consider extreme examples of a site with a single loader and a site with, for example, six loaders. The site with a single loader, when performing maintenance on the loader will be able to perform maintenance on perhaps one of the trucks, Unless of course @ huge maintenance capability is available hich is idle most of the time, Hence, when the loader is being maintained a significant number of the trucks would be idle. In the case where there are a large number of loaders, the maintenance of the loader and truck fleets are effectively decoupled. Hence, for example, using the 7000 hours per ‘annum per truck achieved for a site with multiple loaders as. a target for an operation with a single loader is setting a terget ‘which is impossible to achieve from the system in place. At this level, use of truck hours has been normalised to an acceptable level. Whether it is a CAT 777 operating from 200 m below surface or a Komatsu 830E running long flat hauls, it is operator shift arrangement, maintenance procedures, hot seat changes, use of relief operators etc that drive how many hours are utilised. How much work is performed while the truck is operating requires further analysis. The efficient use of the working time is dependent on the average haul distance: a machine working a shorter haul will have a greater overhead in loading, and tipping than a machine working a longer one. The graph Utiisation %) ‘Time per Truck (res) Availabilty %) Number of Trucks «@ Mean Truck Size © Total Work Time (hrs) Total Work (km) Effectiveness (thot Capacity) Work Rate (tkmihn) ‘Total Capacity © Figure 9: Level 7 and 8 criver tree. 658] MarehvApni 2004 Haul Rate (kr)How to Get Value out of Benchmarking Fleure 10: Average truck annul hour usage. [Pecans Stes Devine [Beeson onaeabawner in Figure 11 compares the performance work rate (EFH korvhr) to mean haul distance (EFH km). The relationship above clearly demonstrates the importance ‘of drilling down to the fundamental driver of performance. Basing an assessment on tonne.km alone, even when normalised for vertical haul distance through EFH, does nat provide an accurate picture of performance. If a truck is hauling on a 2.5 km haul and is only 20 per cent less efficient than one on a 4.5 km haul, then the short haul ‘operation is performing significantly more effectively than the longer haul operation ‘The discussion above looks only at haulage and highlights a number of significant issues that need to be considered when performing a benchmarking study. A similar detailed approach to any part of the mining process identities important relationships and allows the site geology and geography to be normalised to a greater or lesser extent. There will, of course, be issues that cannot be quantitatively normalised, but these can be addressed through placing the data within the context of the site and then selecting appropriate targets to aim for. The next stage of the benchmarking process is to identity from the data what the ‘opportunities are, and how to achieve the identified better performance. IDENTIFYING OPPORTUNITIES, After considering all this data the question is whether there is an opportunity for the operation based on what as been learned. Say for example that the C1 cost to metal is high on ‘the world cost curve. From the analysis above it can be drilled down on to answer questions such as: the operation get all the metal planned from the resource? Was as much ore treated as was planned? Is, the operation metal production constrained by mining, treatment or the market? Is there potential to optimise the cut off grade and the production? + Is the Cl cost of ore high? Which area is driving it ~ treatment, mining or G&A? If it is mining: © Was it the strip ratio? If it was high, will it be staying, high or was there big stripping requirement curing the study period? Was the cost for rock mining high? 200 250 300 360 400 450 «5.00 Mean Haul Distance (EFH km) Figure 11: Mean bau! versus haut rate. EFH clstances are one way for both mean distance and productivity © If the haul cost was high, was it driven by physical constraints? Was the mean haul distance greater than. other sites? © Was the site getting an appropriate number of hours from the trucking fleet? © Was the site achieving appropriate production during those hours? Once shortcomings have been identified based on the comparison with other sites the operation needs to Understand wh. For example: + If the site is getting a low number of hours out of the ‘truck fleet, what are the shift arrangements? Are hot seat changes used? Are relief operators used during shift changes? How much equipment down time is there and how much is un-planned? What are the maintenance planning processes? + Ifthere is @ high variability between plan and actual, how do the planning processes operate? How are plans ‘communicated to the operations supervisors? How are results reported to management, and do reconciliation processes drive changes in the pit? + If there is low productivity from the equipment, have explicit decisions been made to have additional capacity? ‘Are loaders deliberately over- or under-trucked? How are ‘trucks allocated to loading equipment? If a truck dispatch system is used, Is it overridden by supervisors? * How is information gathered, stored and analysed? How is it transmitted around the operation? How do the Personnel and various departments around the site communicate, for example, are meetings held regularly? ‘Are they punctual? Do they have agendas and are they followed? Itis these qualitative issues that bring about the quantitative performance discussed earlier, and to be able to improve performance it is vital that an understanding of these issues is also gathered during the benchmarking process. Unfortunately for engineers, these are much more difficult issues to truly assess. However, the effort is justified as it is, What brings about the improvement in the numbers. > Marctvapa! 2008 [69How to Get Value out of Benchmarking Finally, in any discussion on benchmarking, consideration needs to be given to measuring performance. MEASURING PERFORMANCE ‘The most contentious point in any benchmarking study is comparability of data. For a study to be of any value to an operation, they need to be confident that the definitions of the data compared are similar and that the data has been gathered and compiled in a rigorous manner. Definitions It is not acceptable to gather consolidated data such as availability, utilisation or unit cost data from sites. Every site Visited will have different definitions for the measures they use. Sites have been visited which base utilisation on scheduled hours, so only 20 hours a day may be considered rather th 24. Other sites use terms such as “cash cost of productor in reports. Discussion with management implied they believed this related to the cash which had been spent during. the period, while discussion with accountants highlighted that this number included deferred waste cost which had been expensed during the period. Even a tonne is not 2 tonne: one site visited re-handled 2 significant amount of material during the study period, but reported against the primary material mined, not total material moved. There are few definitions that can definitively be held as absolute. As long as the people using and generating the measures understand the definitions used for temporal comparisons they are fine. However, if cross-sectional comparisons are to be made across site, then a single definition has to be used, Data gathering To ensure comparability between sites, data needs to be gathered at a fundamental level, cost data atthe lowest level it has been compiled to, one level above transaction. Time data needs to be gathered at the level of detail in which it was collected, by the time codes used on site. Collecting at this level allows the data to be compiled in standard formats and ensure comparable definitions Gathering data in this manner has highlighted a number of Geficiencies in site information systems. At one site, for example, analysis implied that drill rigs were operating at a fue! cost of less than $3/hour. Clearly the fuel was being allocated incorectly and adjustment had to be made on estimated burn rates. A second issue when gathering cost Gata isa chart of accounts, which has been designed based on financial accounting rather then management accounting requirements. It is nat unusual at the lowest compiled level to have a single account for load and haul, with tens of millions of dolla in it, while there is another account for postage with hundreds of dollars in it. At best this limits opportunity to split the load from the haul component and assess them individually. At worst it prevents analysis of Potentially very different types of ioad and haul operation. Its also useful to consider the methads used to collect data on site. Time data may be gathered electronically by a truck Gispatch system or manually. fit is gathered manually it could MarcivAeri 2008 range from a specifically designed sheet with the shift broken into, for example, 15 minute divisions, to a sheet filed in at the end of the shift with approximations of the work done. Additionally, the performance measures of the people gathering the information can influence what is gathered. For example, @ maintainer who is measured on availabilty, if doing opportunistic maintenance while a piece of equipment is idle may well not allocate the time to maintenance. If an ‘opportunity were then identified to reduce the amount of idle time, reality would be that the time identified was not available as maintenance was being performed. Many of these issues cannot be overcome during the benchmarking process, but it is important to be aware of them and to develop an understanding of not just the data being gethered, but also the quality of that data. This provides an important input into understanding why performance has been achieved. Generally, experience suggests that sites with good overall performance have a ‘much greater focus on gathering good quality data, CONCLUSION Benchmarking is a useful tool that provides important information to mining operations. It is not a simple or easy process and in order to provide truly useful insight the process has. 1. Consider the inherent and changeable issues that influence a site's performance: ‘+ identity and normalise for the geology and geography of the resource. 2. Identify areas of significant variation in relation to peers: + ensure the validity and comparability of the metric assessed. 3. Focus on the drivers of this variation in order to identity opportunity for improvement: + drill down to the fundamental drivers of performance; + understand the qualitative management processes that influence performance; + link the high level metrics in a clear and explicit manner to the underlying drivers of the performance. 4. Focus on the potential to improve profit not just reduce cost: + ensure that opportunities to reduce cost do not reduce revenui *+ look for opportunities to optimise the cut-off grade, ‘mining method and throughput. In order to maximise value when considering the results from benchmarking, the context in which it was performed must be considered. Focusing on single elements within the process may lead to “best practice” in that area, but overall site performance may suffer as a result. Members can view the full version of this paper in the Members Only section at wwwwzausimm.com