Navigating volatility:
do you change your
business or the
way your business
works?
The better the question.
The better the answer.
The better the world works.
I ntroduction
V o l a ti l i ty h a s been a n o n g o i n g c h a l l en g e f o r c o mp a n i es s eek i n g
to ma i n ta i n a s tr o n g ba l a n c e s h eet a n d dev el o p p l a n s f o r l o n g term profita t
a c a enge t at management
nee to
ea t for ome t me
F l u c tu a ti o n s i n c o mmo di ty p r i c es h a v e bec o me mo
a n d f r eq u en t a s c o mmo di ty dema n d h a s bec o me i n
npre cta e
e onger term econom c o t oo
l ea di n g to th e p o s s i bi l i ty o f s u bs ta n ti a l r ev i s i o n s to
meta l p r i c e f o r ec a s ts a n d ma k i n g i t h a r d f o r mi n i n g
compan e to p an for t e f t re
r er a p id
c r ea s i n g l y
a o o at e
l o n g - ter m
a n d meta l s
e mpact of
na an emerg ng mar et eman
a o ffic t
to n er tan or pre ct o a pr ce
ct ate an t ere
l i mi ted p r i c i n g o r dema n d v i s i bi l i ty , ma n a g emen t i s s tr u g g l i n g to
p an operat on an cape
Quarterly commodity price fluctuations, 1980–2016
80
60
40
% c h a n g e
20
0
- 20
1980 Q
1981 Q
1981 Q
1982 Q
1983 Q
1984 Q
1984 Q
1985 Q
1986 Q
1987 Q
1987 Q
1988 Q
1989 Q
1990 Q
1990 Q
1991 Q
1992 Q
1993 Q
1993 Q
1994 Q
1995 Q
1996 Q
1996 Q
1997 Q
1998 Q
1999 Q
1999 Q
2000 Q
2001 Q
2002 Q
2002 Q
2003 Q
2004 Q
2005 Q
2005 Q
2006 Q
2007 Q
2008 Q
2008 Q
2009 Q
2010 Q
2011 Q
2011 Q
2012 Q
2013 Q
2014 Q
2014 Q
2015 Q
2016 Q
- 60
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
2
- 40
W o r ldc o a l p r ic e
W o r l d c o p p er p r i c e
W o r ldg o ldp r ic e
W o r ldir o n p r ic e
So u r c e: O xf o r d Ec o n o mi c s , EY a n a l y s i s
o fac tate
ne
r a an gro t
ne
trateg an
n e tment ec on
nee to e re e e an a
te a
th e l o n g - ter m ec o n o mi c o u tl o o k a n d th e a s s o c i a ted l o n g - r a n g e
ne foreca t e g meta energ pr ce
rate
are p ate
an ar
e c ange n ong term foreca t of part c ar
i mp o r ta n c e to s en i o r ma n a g emen t a n d c o r p o r a te s tr a teg i s ts , a s
n e tment ec on
nee to e ma e an
ne
trateg
et c t at t e factor n t e ar a t n o t oo
1
e fo o ng grap
trate o copper pr ce an
arter
l o n g - ter m c o n s en s u s p r i c e f o r ec a s ts h a v e c h a n g ed s i n c e
| Na v i g a ti n g v o l a ti l i ty : do y o u c h a n g e y o u r bu s i n es s o r th e w a y y o u r bu s i n es s w o r k s ?
C opper
C o p p er p r i c e
(r ea l , 31 M a r c h 2016; US$/l b)
5.00
4.00
3.00
2.00
1.00
0.00
2000
2005
2010
2015
2020
Ti me (da te)
C o n s en s u s f o r ec a s t a t p a s t f o r ec a s t da te (n a r r o w s o l i d l i n es )
Hi s to r i c s p o t p r i c e
opper pot pr ce an
o rce
on en
arter con en
conom c
foreca t from
Lo n g - ter m f o r ec a s t a t p a s t f o r ec a s t da te
an ar
ana
e e to cce
to e ag e t re re a c ange n m n et
an more mportant
a ng a pro ct e e manage an
co t effect e en to en a e c a n
r or
t m n ng
compan e a e pe
ent f t e fo o ng
foc area
th a t c o mp a n i es s h o u l d c o n s i der i n o r der to mo r e ef f ec ti v el y
ma n a g e c o s ts , r el ea s e c a s h a n d p o s i ti o n ba l a n c e s h eets f o r
f t re gro t
S ix lev ers
C os t
reduction
W orking
capital
P roductiv ity
a gat ng o at t
C apital
ef f ectiv enes s
o o c ange o r
P ortf olio
s trategy
ne
or t e a
F inancing
o r
ne
or
2
1
C os t reduction
C reating s us tainable and long- term
r ng t e m n ng oom m ner a co t e ca ate n ome ca e
o er
c a f e energ an peop e n t a
g er
c o mmo di ty p r i c es ma s k ed th es e c o s ts , bu t a s p r i c es h a v e f a l l en ,
t e e em e e
g er co t a e een mpact ng ottom ne
As p r i c es dec l i n ed, mi n er s s ta r ted el i mi n a ti n g c o s ts f r o m a l l
a r ea s o f th e bu s i n es s , i n c l u di n g r edu c i n g c a p i ta l exp en di tu r e a n d
a or ere are o e er t a ot of opport n t e to remo e
c o s ts f r o m th e bu s i n es s , a n d mi n er s n eed to ma i n ta i n a f o c u s o n
ng a ong term
ta na e co t a e
v alue
C os t red u ction meas u res
need to b e s u s tainab le and
cos t red u ction activ ities
s hou ld not contrib u te to
v alu e eros ion.
n er tan ng at co t re ct on nee to e ma e o
c t e can e
e e ope
at t e pa ac per o
an o ong t e can e
ta ne
e
ear t e e of ana t c can e p m ner to etter mea re an manage co t
By c o n du c ti n g bo th q u a l i ta ti v e a n d q u a n ti ta ti v e a n a l y s i s , mi n er s c a n q u i c k l y i den ti f y
o p p o r tu n i ti es f o r c o s t r edu c ti o n , p r i o r i ti z e th em a n d dev el o p q u a n ti ta ti v e es ti ma tes o f
t e a e of co t re ct on
ngne to c a enge t e mo e t at emerge
r ng t e oom t me e ent a
t o tt
tre e
ne e co
fin t em e e e en more
nera e to rap
mar et mo ement
ompan e nee to ma nta n foc to protect marg n an to re ce
e po re to c rrent an potent a f t re co t ncrea e
e a e a rea o er e
s o me mi n er s bei n g mo r e i n v en ti v e i n th ei r a p p r o a c h to c o s t r edu c ti o n , i n c l u di n g i n th e
fo o ng area
1
G eneral
ex pens es
2
L ow - cos t
cou ntry
s ou rcing
1 . G eneral ex pens es
t mportant t at e er act t n t e
ne
c a enge
a s th e “ l o n g ta i l ” o f s ma l l er c o s ts i s o f ten o v er l o o k ed i n
tra t ona co t c tt ng approac e
en ma co t
o
e p r e eca e com ne
t e are often gn ficant
n n m er or e amp e c a eng ng t e nee for tra e
a n d i n s tea d c o n s i der i n g i n c r ea s i n g th e u s e o f W ebEx a n d
te epre ence for meet ng can a e m on
e a e a o een
o n e c o mp a n y p l a c e i ts s a f ety eq u i p men t i n v en di n g ma c h i n es
acce
e
taff car a o ng for a etter t n efore
e approac
approac a acco nte for e era m on
do l l a r s i n a n n u a l s a v i n g s a n d h a s r es u l ted i n s a f ety eq u i p men t
3
age c t
a m c a
h a v e a l s o s et u p s u g g es ti o n
organ at on at orte c
rep ace po a e p a t c
a e a o t
e o er 1
P rocu rement
at ome te
an m ner
bo xes f o r emp l o y ee i dea s i n th ei r
e eta
ro p one mp e ea to
nac o e
t re a e one a
o far accor ng to
ef ec t e
2 . L ow - cos t cou ntry s ou rcing
ner
o
con er o co
i n di r ec t ma ter i a l s s u c h a s ma i n
pp e g en t at t
i s a n i n c r ea s i n g r a n g e o f g o o ds
a
3
4
Offs horing/
ou ts ou rcing
t co ntr o rc ng of rect an
ten a n c e r ep a i r a n d o p er a ti n g
ome emerg ng mar et t ere
a v a i l a bl e th a t a r e o f eq u a l
on t e oap m n ng firm p nc penn e a
pr
acce e
a
| Na v i g a ti n g v o l a ti l i ty : do y o u c h a n g e y o u r bu s i n es s o r th e w a y y o u r bu s i n es s w o r k s ?
o nt rn te
Reuters News,
a t
t at c eaper pr ce
ecent contract for one m n ng
c o mp a n y h a v e s een a 50% p r i c e r edu c ti o n o n tr a c k p a ds a n d
pr ce re ct on on tr c tra
en compare to t e
or g na on ore pp er n a t on
re c ng re ance on
o r i g i n a l eq u i p men t ma n u f a c tu r er s , mi n er s c a n a c h i ev e mo r e
compet t e pr c ng
a ng a roa er pp a e
ncrea e a tomat on n t e
ng proce
ena e
f rt er con o at on of operat ona proc rement act t e
an m ner t a e g to c on ore
ng
per onne
o p rc a e te pec fic goo an er ce
t tt e e erage acro geograp ca reg on
o e o
h a v e o f f s h o r ed o r c o n s o l i da ted th ei r s er v i c es h a v e s ti l l
a o e
a o f nct on to pop p on ore an at te
e e often taffe
t e pen e contractor
ff ore
f nct on are often t arge
ere an opport n t to
a opt a re e mo e
ere
a e act t t at a not
een a tomate
centra e off ore a o ng greater
v i s i bi l i ty a n d f u r th er c o n s o l i da ti o n o f c o mmo n g o o ds a n d
er ce
e e f nct on can t en e com ne
t ome
ean n co ntr
pport po
o t o rce a re re
3 . Offs horing/ ou ts ou rcing
an m ner a e off ore
pport f nct on
c a
finance
proc rement an
man re o rce to o co t
co ntr e
ere are t o roa e er mo e
e t er
e erag ng a capt e are er ce center t at o ne
a n d o p er a ted by th e p a r en t c o mp a n y o r o u ts o u r c i n g to a
t r part er ce pro er
trateg c proc rement
F r o m Au s tr a l i a o r No r th Amer i c a ev er y r o l e o f f s h o r ed
g en er a tes s a v i n g s i n th e r a n g e o f US$40,000– 50,000 p er
ro e n a t on to a or ar trage er ce pro er are
offer ng
to
pro ct t o er t e fe of a fi e ear
contract
t o rc ng a mo e e on t e t p ca pport
f nct on t man tec n ca area no e ng e ere from
off ore
e e ne er area nc e ma ntenance c e
ng
e m c geo og ca ata ana
eng neer ng an tec n ca
dr a f ti n g , s p a r e p a r ts c a ta l o g ma n a g emen t a n d s tr a teg i c
o rc ng
T he generou s cond itions of the pas t
no longer reflect market reality today. I n the b oom times , miners w ere the
price tak ers and now they need to b e
the price mak ers .
an m ner a e a a trong foc on cance ng e t ng
contract an renegot at ng ne arrangement
en t
th i s f o c u s , i t i s ev i den t th a t l etti n g g o o f th e o l d mi n ds et a n d
proc rement trateg e t at ere
t aga n t a ac rop
o f s u p p l y s h o r ta g es h a s n o t been ea s y o r q u i c k en o u g h f o r
ome a ment term for e amp e are t too genero
i n s o me ma r k ets , a n d a l ter n a ti v e s u p p l i er s tr a teg i es a r e n o t
e ng aggre
e p r e
foc
o
cont n e
t m c greater pee an more c p ne aro n
o u tc o mes i n s et ti me f r a mes a n d a c c o u n ta bi l i ty f o r th e
n t t t on of ne arrangement
c of t act t co
e o t o rce
an m ner t
c a r r y l a r g e s tr a teg i c p r o c u r emen t o r g a n i z a ti o n s th a t c o u l d
be mo r e a g g r es s i v el y c h a l l en g ed i n a n er a o f g r ea ter s u p p l y
an ncrea e a tomat on
c
4 . P rocu rement
ner a e a a trong foc on proc rement n t e a t
t ree to fi e ear o e er t e pace of reform a not een
f a s t en o u g h , a n d th er e a r e s ti l l a n u mber o f a r ea s th ey c a n
con o ate an tran form to ac e e far greater a e t
a l s o ti me to c o n s i der n ext- g en er a ti o n p r o c u r emen t tec h n o l o g y ,
ere t e
ne ca e
trong e e e e t ere are c
opport n t e n t ree ma n area a fo o
a
tomat on an con o at on of operat ona proc rement
an m ner a e pent con era e t me an n e tment
on
tem tran format on o e er t e are et to f
n t t te an rea e enefit of t e mp e a tomate
o t on t at are rea
a a a e n t e r e t ng
tem
F o r exa mp l e “ h a n ds - o n ” p u r c h a s i n g s ti l l r ema i n s v er y
g
t man m ner tt ng on
free te t p rc a e
or er e ra ng of man a p rc a e or er
c
re re e era tep n t e p rc a ng proce
carr e a gn ficant pro ct t mpact t a o ea
to non comp ance t contracte tem an can a o
mpact
a o n entor
p a
er operate
o t e contracte cata og an
of mater a
ere
are a n m er of mp e o co t o t on to ft man a
p u r c h a s i n g to “ h a n ds - o f f ” c h a n n el s th a t c a n ea s i l y be
e ec te
t a a e
ne ca e
a gat ng o at t
e t tage nno at on an proc rement er ce
o
t e t me to aggre
e e p ore nno at on
th a t c a n f u r th er s tr ea ml i n e p r o c u r emen t a c ti v i ti es a n d
en a bl e g r ea ter v i s i bi l i ty a n d c o n tr o l o f s p en d to a c c es s
t e a oc ate enefit
c a ncrea e e erage an
ng po er re ct on n ma er c pen re ct on n
cope creep an more contro o er er ce an con t ng
e pen t re
Av a i l a bi l i ty o f s ma r t tec h n o l o g y a n d mo bi l i ty s o l u ti o n s c a n
f u r th er a c c el er a te th e a u to ma ti o n o f ma n y ba s i c o r der i n g ,
ng an proc rement act t e
g ta o t on aro n
a u to ma ti c r ep l en i s h men t a n d g u i ded bu y i n g a r e bec o mi n g
more rea
a a a e g t at on of nformat on a o
c r ea tes th e r i g h t en v i r o n men t to exp l o r e o th er a r ea s , s u c h
a mart ontract ng to re ce t e t me ta en to contract
a n d to a u to ma te th e c o n tr a c t a n d v en do r ma n a g emen t
proce e
ner a e een a are t at ome of t e r
arge contract operat ona an n area
c a
are
not perform ng accor ng to or g na term
t gn ficant
a e o t t t e moment c t at on are a re e
by f o r en s i c a u di t s er v i c es to i den ti f y i s s u es s u c h a s
o v er c h a r g i n g , du p l i c a te i n v o i c i n g , a n d p u r c h a s e o r der a n d
n o ce ergence
tomate o t on com ne
t t e
r i g h t ma n a g ed s er v i c e c a n del i v er th e a bi l i ty to r ef er en c e
contracte pr c ng at term at t e po nt of tran act on
o o c ange o r
ne
or t e a
o r
ne
or
4
2
W orking capital
U nlocking cas h in th e s ector
M ining companies focu s ed on w ork ing
capital hav e ty pically achiev ed
red u ctions of 3 0 % or more. F or larger
mining companies , this can mean
reclaiming hu nd red s of millions of d ollars
of capital b ack into the b u s ines s .
n o r recent report Making working capital work for you.
Unlocking ‘cash’ in the mining sector, e ana e t e or ng
c a p i ta l p er f o r ma n c e o f 80 o f th e l a r g es t mi n i n g c o mp a n i es
go a
ana
o e t at man m ner a t not
act e foc e on or ng cap ta a a e er to mpro e ca
o re ce co t an mpro e are o er ret rn
ar et e pectat on of or ng cap ta a e een fte
fo o ng t e cce of or ng cap ta program at
an
o nto
•
•
ton
o nto a rea e a o t
re ct on n or ng
cap ta nce
an re ce ca to ca
from
to
a
n o ar t at e t e p n or ng cap ta
nnece ar
a o ar t at e e t er p t to or n
gro t or g e ac to o r are o er
a
o nto
r
nc 2
ton on trac to rea e
re ct on of or ng
cap ta
t
a ng n
an a f rt er
3
e t mate for
Ba s ed o n th e h a l f y ea r r es u l ts , i t i s a l s o
e t mate t at t e compan a re ce
from
to
4
a n t e fir t
mont of
ere ne recogn t on t at manag ng ca
a ance eet cr t ca an
are o er
rene e foc n t area
o nto
ttp
e t
acce e
to mpro e t e
e e pect ng a
ear e t
tran cr pt
o nto e
r ot nto com oc ment
o
nto
na t
re entat on
e on p f
pr
te
e r ar
e pp c a n a r c e n for or ng cap ta mpro ement
e trateg e
ere n or ng cap ta a een cce f
r el ea s ed i n c l u de:
•
ng pp c a n a a o rce of finance t a n m er of
g l o ba l mi n er s exten di n g s u p p l i er p a y men t ter ms by u s i n g
ta i l o r ed s tr a teg i es by s u p p l i er c a teg o r y o r g eo g r a p h y , a n d by
i mp r o v i n g th e c o n tr o l s o v er ea r l y s u p p l i er p a y men ts a n d u s e
of non tan ar term
ner
o a e cce f
app e
th i s s tr a teg y h a v e h a d s tr o n g c o n tr o l s i n p l a c e to en s u r e
th a t p a y men ts to g o v er n men t, r eg u l a to r s a n d i n di g en o u s
g r o u p s a r e n o t i mp a c ted a n d th a t c h a n g es to tr a di n g ter ms
a r e c a r ef u l l y a n d c l ea r l y c o mmu n i c a ted to bo th i n ter n a l
ta e o er an
pp er
•
•
ng pp c a n financ ng n tr ment
a e to e a pa ment
e ena ng ear
to pp er n ome ca e ea ng
ne
a c c el er a ted p a y men t to n eg o ti a te f u r th er p r
a t on to acco nt pa a e enefit
econfig r ng og t c an
pp c a n to ma e t em
eaner an more ag e an a o ng ar ng of n entor
pare acro m n ng operat on
pp c a n management
p r o c es s es h a v e n o t c h a n g ed f a s t en o u g h — s o me a r e s ti l l
operat ng on a pro ct on at an co t a
or e amp e
t ere are man remote m ne te
t gn ficant e e
of n entor pare a o g t n t e pa t
mont
f
pro ct on o
t o e pare can e t c n remote
ocat on e ng ar to e an e pen e to mo e
r ng t e
oom t eman carc t an no e a
ante t ma e
s en s e to h a v e a p i l e o f s p a r e tr u c k ty r es , bu t th a t s c en a r i o
oe n t ma e en e n to a en ronment
P roces s es and s y s tems acros s the
s u pply chain, particu larly w ith regard to
s pare parts inv entories , are the s ingle
b igges t area for gains to b e mad e.
ear
o
t operat ng performance t e e
t of o r n e tment
program an a targete re ct on of or ng cap ta pporte free ca
of
on
ton e te ttp
p ton
o
com me a p oc ment n e tor ne
p ton nter mre t fort e a f earen e
ecem er
p f a en
e r ar
acce e
pr
5
e
te
ton re t for t e a f ear en e
e r ar
acce e
pr
ecem er
ere financ a
er pa ment
e can e
i c e r edu c ti o n s i n
ton
| Na v i g a ti n g v o l a ti l i ty : do y o u c h a n g e y o u r bu s i n es s o r th e w a y y o u r bu s i n es s w o r k s ?
•
mpro ng p ann ng
ng an n entor management
proce e o t at or ng cap ta e e are et re at e to
ne act t an per o ca re e e
•
ang ng a et ma ntenance trateg e to mo e a a from fe
c y c l e to c o n di ti o n - o r r i s k - ba s ed mo del s r es u l ts i n better q u a l i ty
nformat on a o t part cr t ca t an rea o n e oo
ena ng a more targete n e tment n n entor
•
•
a ng a c o er oo at c tomer tra e term or er proce ng
a n d del i v er y s c h edu l i n g s o th a t l o n g er - ter m o r der s a r e
proce e at t e eg nn ng of t e mont an etter of re t
or er are c e e for t e en of t e mont
e c ng or n progre
toc p e t at a e
een et a e e to gra e or a t
tor ca
T he nex t w av e of improv ements w ill
req u ire cu ltu ral change and d ata analy s is .
W e s ti l l s ee a n u mber o f c r i ti c a l i mp r o v emen ts th a t ma n y o f
t e m ner
nee to carr o t n or er to re ea e ca from
or ng cap ta nc
ng
•
t ra c ange
c t at a emp o ee
o can n ence
or ng cap ta n er tan
at t e can o to etter manage
c a s h a c r o s s i n v en to r y , r ec ei v a bl es a n d p a y a bl es
•
econfig rat on of pp c a n to etter contro an manage
th e p u r c h a s e a n d dep l o y men t o f i n v en to r y s p a r es
•
rom o r e per ence or ng
ca a fo o
t t ego a
Better i n s i g h ts f r o m s y s tems a n d da ta o n th e o p er a ti o n a l
r er of or ng cap ta not t t e financ a o tcome
er fie m ner t ere are a n m er of e ement to get r g t to
c
re ea e
H ow to q uickly releas e cas h
1
2
3
4
E s tab lis h a glob al s
committee w i th r ep
a c r o s s f u n c ti o n s a n
u n i ts — r ep o r ti n g to
5
teering
r es en ta ti o n
d bu s i n es s
l ea der s h i p
Ob tain a clear mand ate w i th
c l ea r s p o n s o r s h i p a n d
c o mmu n i c a ted to th e w h o l e
bu s i n es s
Ap p l y d ed icated res ou rcing
( internal and ex ternal) f o r th e
program management office
Ro bu s t
g o v er n a n c e
6
Set
ta r g ets
Is s u e a
ma n da te
Global
Dedi c a ted working capital
P M O
reduction
An a l y z e
th e l ev er s
C r ea te a
c a s h
c u l tu r e
Da ta
a n a l y ti c s
C en tr a l
c o n tr o l
8
Q u i c k l y analy ze all of the
w ork ing capital lev ers a n d
i den ti f y i f a n o p p o r tu n i ty exi s ts
r ana
an e per ence n t e ector confirm t at m ner
o a e ta en an enterpr e e approac com ne
t a
bo tto m- u p c h a n g e ma n a g emen t p r o g r a m f o c u s ed o n th e f r o n t
ne a e re ea e ca
o tota ng ten of
on of
7
S et w ork ing capital red u ction
targets th a t a r e s i g n ed o f f a n d
mo n i to r ed by l ea der s h i p
Es ta bl i s h w ork ing capital
d as hb oard s th a t u s e
trans actional d ata to mo n i to r
a n d ma k e dec i s i o n s
In c r ea s e v i s i bi l i ty o f th e p r o g r a m
a n d control from the center to
g a i n mo men tu m, e.g ., th r o u g h a
c a s h w a r ro o m
Ap p l y a s tr o n g f o c u s o n
s u s tainab le change management
a t th e f r o n t l i n e, a s th ey c o n tr o l
th e l ev er s
o ar
en t at t e aggregate e e of or ng cap ta n t e
s ec to r a mo u n t to mo r e th a n US$200b, th er e r ema i n p l en ty o f
opport n t e to f rt er re ea e ca
a gat ng o at t
o o c ange o r
ne
or t e a
o r
ne
or
6
3
P roductiv ity
A
trans f orm ational end- to- end approach will h av e
significant impact
P r o du c ti v i ty r ema i n s th e n u mber o n e o p er a ti o n a l c h a l l en g e
n t e m n ng ector t man t tr gg ng to ma e an
mpact a n to ate a e een rea e a tact ca ort term
s o l u ti o n s , bu t to r ea l l y a c h i ev e s u s ta i n a bl e g a i n s , th e f o c u s n eeds
to e on t e ong term n o r e per ence mo t of t e o o
o p p o r tu n i ti es a c r o s s o p er a ti o n s h a v e a l r ea dy been a ddr es s ed —
t fin ng t e ne t
of pro ct t a ng t at can e
ffic t an comp e
W e bel i ev e a r el en tl es s f o c u s o n th e el i mi n a ti o n o f l o s s a t a l l l ev el s i s n eeded f o r th e
ne t a e of
ta na e pro ct t mpro ement
en e efine o
e efine t
a an gap et een t e ac e e o tp t an t e potent a pro ct t of an a et or a
tem of a et t nc e e ement of re a t a a a t t at on rate an
a t
et er t e o ect e a rap
p ft n pro ct t or a ong term
ta na e c ange
t e pr nc p e rema n t e ame e e e e t at compan e nee to em e
ta na e
l o s s el i mi n a ti o n p r a c ti c es th r o u g h emp l o y ee en g a g emen t a n d a n i n teg r a ted en d- to - en d
approac for ong term
ta na e mpro ement n pro ct t
T h e key to ach iev ing long- term
1
s us tainable productiv ity im prov em ent
F o c u s o n th e
a s s ets — a n
en d- to - en d v i ew
2
Rel en tl es s p u r s u i t
o f lo s s
1 . F ocu s on the as s ets : an end - to- end v iew
W e bel i ev e th a t to a c h i ev e th e n ext l ev el o f p r o du c ti v i ty
i mp r o v emen t, mi n i n g c o mp a n i es n eed to mo v e bey o n d p o i n t
s o l u ti o n s , a n d a do p t a n en d- to - en d s o l u ti o n to tr a n s f o r m th e
ne
ac e ement of t e
ne from t e re o rce
i n th e g r o u n d to th e p r o du c t bei n g del i v er ed to th e c l i en t,
nee to e opt m e not on t o n t a part of a
ne
tem e a e t t e t e ac of t opt m at on a an
ntegrat on gap n o r recent report Productivity in mining:
now comes the hard part a n m er of t e e ec t e e
r e e g g te t gap an t e r e re to c o e t
e
c o mp o n en t o f th i s c h a n g e i s to en s u r e c o mp a n i es u n der s ta n d
th e p o ten ti a l o f th ei r eq u i p men t, o r i ts o v er a l l eq u i p men t
effect ene
rat er t an e t e more tra t ona
approac of mea r ng aga n t p an
7
A s y s tematic and
integrated end - to- end
approach to prod u ctiv ity
will drive significant improv ements v ia
as s et rationalization,
lab or prod u ctiv ity ,
material cons u mption and
cas h d eferrals .
3
F o c u s o n l ea der s h i p
a n d c u l tu r e
W e h ea r d ma n y a n ec do tes f r o m s u r v ey p a r ti c i p a n ts
a o t t e ac of comm n cat on et een t e f nct ona
epartment an o a o menta t a crept nto t e
management of m n ng compan e
na
an mapp ng of
comm n cat on net or
re earc er at t e n er t of
een an
o o e ere t e e pro em a e ecome
at ome m ne n one t
at a arge m ne operat on an
ma ntenance emp o ee ere a e to nom nate peop e
o t e reg ar n o e n pro em o ng
en t e e
connect on ere t rne nto net or map t o e t at
er tt e comm n cat on e te et een t e e f nct on
n ome o e of m ne tec n ca pro em
c a ater
management no rect connect on et een t e f nct on
a fo n
c re ea e a
en operat ona r for t e
ne
| Na v i g a ti n g v o l a ti l i ty : do y o u c h a n g e y o u r bu s i n es s o r th e w a y y o u r bu s i n es s w o r k s ?
En s u r i n g i n teg r a ti o n i s a k ey c h a l l en g e f o r i mp r o v i n g
pro ct t an re re an approac t at rea
o nt e e
o an a opt an en to en per pect e pt m ng an
operat on no re re a more comp e a ance of fo r core
men on afet co t pro ct t an cen e to operate
ma en p t operat on n e t ng more n ena ng
c a p a bi l i ti es to dr i v e s y s tem r el i a bi l i ty to dr i v e p r o du c ti v i ty to
e er are o er a e
“ H ow w ond erfu l w ou ld it b e if the d rilling
operator k new that b y d rilling the right
hole s ize and the b las ter k new that b y
b las ting it right s o it’ s not ov ers ized ,
that there w ill b e no d ow ns tream
impacts . T hat b y not d oing it right it
can impact the s hov el operator and
the tru ck d riv er. T he challenge is
try ing to get them to u nd ers tand how
they all fit in.”
S urv ey participant
T o achiev e end - to- end focu s , mining companies need to
cons id er:
•
A n integrated gov ernance s tru ctu re acros s prod u ctiv ity
initiativ es
•
Optimal as s et u tilization v ia los s elimination analy s is and
practices
•
•
D ata analy tics to prov id e q u ality information to s u pport
effectiv e d ecis ion- mak ing and prod u ctiv ity gains — th e
ncrea e n a a a t of comp tat ona po er an ag t
com ne
t t e o er ng of t e n t co t of tec no og
mean t at m ner can no
e pre ct e ana t c to ent f
ere e pment fa re or p ant ott enec ng
e to
occ r an react efore pro ct on mpacte
foc on
a et performance toget er t ot er targete area
c a
f u el a n a l y ti c s h a s en a bl ed s o me mi n er s to a c h i ev e a n o v er a l l
re ct on of p to
n ope pen
E ngaging the w hole w ork force — ens u ring targets d riv e the
right b ehav iors
o t m n ng compan e a e a rea a opte an en to
en approac for ac office f nct on
c a finance or
p r o c u r emen t, bu t n o t f o r s er v i c e f u n c ti o n s l i k e a s s et ma n a g emen t
or core f nct on
e m nera proce ng et e e e e t at
u s i n g a p r o c es s mo del to a c h i ev e a n d s u s ta i n a n en d- to - en d
approac
ere t e tr e ena er of pro ct t ga n can e
ac e e
o
acce e
pp
a
a n ran format on a e
on
tne
2 . R elentles s pu rs u it of los s
o nee to e tran parent n er too an acte pon
n o r e per ence rea on for o fa n er fo r ma or
categor e a fo o
•
•
•
R eliab ility
eg e
U tilization
eg
•
T hrou ghpu t
Q u ality
pment an mater a
a or
pp
o e
pp an ntegrat on o e
e g pa oa an rate o e
e g ore
a t an ore to a te o e
ere e ence of gn ficant pro ct t mpro ement an
v a l u e c r ea ti o n th r o u g h th e a do p ti o n o f a ma n u f a c tu r i n g mi n det
c ange t e foc from tra t ona pro ct t effort
to es ta bl i s h i n g th e c a p a bi l i ty a n d en v i r o n men t to en h a n c e
mater a o an e pment effect ene
pporte
by p r o du c ti v i ty metr i c s , i n p a r ti c u l a r th e u s e o f O EE to dr i v e
t ro g p t ro ct on pt me can
c
e ncrea e
p
to 5% , a n d r ev en u e en h a n c emen ts c a n ty p i c a l l y be del i v er ed i n
t e range of
t o t gn ficant n e tment
ro g ta e an pre cta e operat on pro ct t
p a r ti c u l a r l y a r o u n d o p er a ti o n s a n d ma i n ten a n c e a c ti v i ti es , i s
a o ncrea e
perat on o
pen e t me firefig t ng
c r ea ti n g o p p o r tu n i ti es to s u p p o r t c o n ti n u o u s i mp r o v emen t
effort
a re t t approac a o tran ate to mpro e
s a f ety , better f o r ec a s ti n g a n d a dv a n c ed i n teg r a ted a c ti v i ty
p ann ng
an ector o t e of t e m n ng ector a e een e treme
s u c c es s f u l i n el i mi n a ti n g l o s s by embeddi n g ma n u f a c tu r i n g
e ce ence acro t e organ at on rocter
am e
for e amp e
ea ng t
pace t ro g t e r ntegrate
or
tem
from
c t a ma e man fact r ng
operat on a compet t e a antage
e a et of
o p er a ti o n a l r el i a bi l i ty - c en ter ed meth o ds , to o l s a n d a dv a n c ed
a n a l y ti c s to i den ti f y a n d el i mi n a te l o s s es i n o p er a ti o n s a n d
create a pre cta e an ta e operat ng en ronment
a p p r o a c h h a s p r o v en h i g h l y s u c c es s f u l i n el i mi n a ti n g l o s s , a n d
a ena e t em to ac e e o a ng of
o er
t e pa t t ree ear 5
P rod u ctiv ity improv ement is the role
of ev ery one in the organization —
emb od ied b y ‘ relentles s pu rs u it of los s ’
and it can have a significant impact on trans forming the performance and
capab ility of the b u s ines s .
com
a gat ng o at t
o o c ange o r
ne
or t e a
o r
ne
or
8
3 . F ocu s on lead ers hip and cu ltu re
ro ct t
an
e on t e
agen a an nee a
o t on to e re o e
e pro ct t o rne re re a
c ange of m n et ena ng an empo er ng operat on to
p r e o e ea er p p a an mportant ro e n ma ng
t
appen
e cr t ca ro e peop e
p a n t e pro ct t
tr a n s f o r ma ti o n c a n n o t be o v er s ta ted — p r o du c ti v i ty
mpro ement t e ro e of e er one n t e organ at on
e ent e p r t of o
e en r ng ero arm can
tran form t e
ne ent re
ere are t ree e area m ner can foc on to a
i n teg r a ti o n a n d i n tu r n i mp r o v e p r o du c ti v i ty :
re
1 . E ngagement
fe t ea er p an gn ficant
i n v es tmen t i n c u l tu r e a n d c a p a bi l i ty a r e c r i ti c a l to r ea c h
t e ne t e e of pro ct t
ro ct t mpro ement
i s th e r o l e o f ev er y o n e i n th e o r g a n i z a ti o n — embo di ed by
re ent e p r t of o
an t can a e a gn ficant
i mp a c t o n tr a n s f o r mi n g th e p er f o r ma n c e a n d c a p a bi l i ty
of t e
ne
e ng peop e at mportant
empo er ng peop e nee to n er tan t e mportance
o f i mp r o v ed p r o du c ti v i ty a n d th e r o l e th ey c a n p l a y i n
ac e ng t
e ntegrat on c a enge can e met ea on
by i n c r ea s i n g c o n n ec ti v i ty , emp h a s i z i n g th e i mp o r ta n c e o f
comm n cat on an fo ter ng an en to en e acro t e
organ at on
9
2 . M eas u rement and rew ard : W hat gets meas u red gets
d one — mi n i n g c o mp a n i es h a v e th e o p p o r tu n i ty to mea s u r e
an re ar t e act on of t e r taff to mpro e pro ct t
an t e a peop e go a o t e er ng t
ro ct t
i mp r o v emen t th r o u g h l o s s el i mi n a ti o n i s f u r th er dr i v en
re e ant an t me team metr c
n ng compan e
s h o
p ro
an
an
bu s
an
u l d th er ef o r e g a u g e th ei r tea ms o n tr u e mea s u r es o f
du c ti v i ty s u c h a s h ei g h ten ed o u tp u t, i mp r o v ed s a f ety
o e m nat on t e a mportant to recogn e
re ar team an ea er
o co a orate e acro
i n es s u n i ts , k eep o th er g r o u p s i n f o r med a n d i n v o l v ed
rea o n t e o
3 . Ongoing talent management — ma n a g i n g ta l en t p o s t th e
per c c e a ma or con erat on for m n ng compan e
e ar for ta ent a not en e
t eca e a or
mar et con t on a e ea e
ere a greater nee
t an e er efore for
tem t n er
o can manage
comp e t an ee mpro ement acro t e o e a e
c a n n a t on to emerg ng ta ent r ng ng ne
a
of t n ng reta n ng t e
e en or an e per ence
ta ent
e a e compet t e a antage
e a e
th e r i g h t s k i l l s to r ea l i z e p r o du c ti v i ty g a i n s c o n s i der i n g
t e ere n t e ector pre oom an t erefore a e t e
e per ence of a eaner more effic ent operat ng mo e
c t re an m n et
are n t e n e po t on of e ng a e to r e an
ea en to en o t on an tran form a
ne
na a
t at f nct ona genera manager cannot a re
t to tr
ntegrate t e ent re ea er p team nee to e engage
et e
ne
o ect e ma not a e c ange a refre
or re e of t e operat ona trateg can e an e ce ent too n
n o t o n l y c h a n g i n g th e f o c u s o f th e bu s i n es s , bu t a l s o i n i n i ti a ti n g
a c ange n c t re ne operat ona trateg
a great a to
r e a common en e of p rpo e an n t
t n a ea er p
tea m a n d f o c u s i t o n r es o l v i n g th e c r i ti c a l i s s u e o f i n teg r a ti o n to
tran form ng a
ne
| Na v i g a ti n g v o l a ti l i ty : do y o u c h a n g e y o u r bu s i n es s o r th e w a y y o u r bu s i n es s w o r k s ?
4
C apital ef f ectiv enes s
M aking y our ex is ting as s ets work h arder
A p r o g r a m bu i l t o n th e ba c k o f g o o d a s s et ma n a g emen t
f n amenta
or a a p atform to r e pro ct t
an manage r
Extr a c ti n g mo r e v a l u e f r o m exi s ti n g a s s ets p r es en ts a n o p p o r tu n i ty to i mp r o v e
a et management capa t
can e p to r e pro ct t an manage r
a co t con tra ne en ronment
n
K ey areas m iners can cons ider f or ens uring capital ef f ectiv enes s
1
A d v anced as s et
management —
p r o du c ti v i ty a t th e
r ig h tc o s t
2
S u s taining capital —
ma n y a r e c u tti n g ,
bu t s h o u l d th ey ?
1 . A d v anced as s et management
3
C apital prod u ctiv ity —
n o t a o n e- o f f
exer c i s e
2 . S u s taining capital
et management e ce ence re re a fine a ance et een
pro ct t co t an r
e tra t ona foc of mpro ng
eq u i p men t a v a i l a bi l i ty h a s n o t tr a n s l a ted i n to i n c r ea s ed
t ro g p t or pro ct t
a en ar a e ma ntenance
t e pre om nant c e
ng met o
t often a tef
an co t pro
t e n t e c rrent en ronment
mo ng
from ca en ar to con t on a e ma ntenance e a e een
s o me c o mp a n i es a c h i ev e a 15% – 25% r edu c ti o n i n ma i n ten a n c e
co t
etr c nee to e a e on
to a o
a te to
e ent fie mea re an a re e
e a e o er e
compan e ac e ng a
ncrea e n re en e t no
a t ona cap ta
en ng
metr c
ng ntegrate
da ta l i k e a dv a n c ed s c h edu l i n g (to i mp r o v e ma i n ten a n c e a n d
pro ct on c e e an pre ct e ana t c to pro e
a ance arn ng of e pment fa re a et a e can e
mpro e to t e f en to en fe c c e
n man compan e
ta n ng cap ta a ffer rat er t an
a proce t at effect e manage a et r en cr t ca r
Ac c o u n ta bi l i ty f o r s u s ta i n i n g c a p i ta l c a n o f ten f a l l th r o u g h th e
crac
et een operat on ma ntenance an pro ect
ncent e an
are often m a gne an o not n
a et management performance t financ a an
ne
o tcome
t t e r e to o er co t man compan e a e
c t ac an e pr or t e
ta n ng cap ta e pen t re
a a t e ort term effect of re c ng t e eman for ca
e t e o era mpact
e o er me m to ong term
pro ct t
As dec i s i o n s a bo u t a s s et a n d eq u i p men t r ep l a c emen t bec o me
mo r e ti me- c r i ti c a l , tr a di ti o n a l a p p r o a c h es o f s i te- ba s ed l i s ts ,
t t t on an pet pro ect
re t n poor cap ta
a ocat on an neffect e management of r
a gat ng o at t
o o c ange o r
ne
or t e a
o r
ne
or
1 0
e o
con er etter pract ce to e t e a opt on of a top
o n approac to create cr ter a to e app e to t e e t ng
a s s et ba s e th a t c o v er s :
•
Identification a et con t on an econom c rep acement
a portfo o of opport n t e an re ce rpr e
en
eq u i p men t f a i l s i n s er v i c e
•
P rioritization — a c o n s i s ten t r i s k - ba s ed p r i o r i ti z a ti o n meth o d
n e to financ a co t ncrea e t e effect ene of
ta n ng cap ta pro ect
•
E x ecu tion ntegrat ng t pro
mpro e cap ta effect ene of
ct on an ma ntenance
ta n ng cap ta pro ect
3 . C apital prod u ctiv ity
ro ct t of n e te cap ta a e
e for
acro
t e g o a m n ng ector n a recent
report Opportunities
to enhance capital productivity e ana e
mega
pro ect
n t e ector an fo n t at co t o err n
an e a
ere t e norm t an a erage
get o err n
of a tagger ng
e per pect e are e ent a to t rn
a r o u n d th i s tr en d a n d del i v er to bo a r ds a n d i n v es to r s th e
pre cta t an confi ence t e re re
ner can re ea e ca t ro g greater n er tan ng of
cap ta portfo o an management of n
a pro ect
ffect e
•
e r en
F ocu s ing on the right projects
re e ng pro ect
th ey meet th e c u r r en t i n v es tmen t c r i ter i a
•
o t at
F ocu s ing on d oing the right projects w ell
e e e e t at
a forma e cap ta pro ct t approac at pre fea
t
fea
t an con tr ct on tage
ena e m ner to
e er t n cope an at t e o e t co t
•
•
1 1
e of cap ta
Ensuring information flows et een t e e t o
p r o c es s es to c r ea te a n i ter a ti v e l o o p
C omparing competing project d es igns on the b as is of
capital ris k ex pos u re. Dev el o p men t s tr a teg i es s u c h a s
tag ng a o
ncrementa cap ta to e n e te
en
t e
ne con t on are pport e an
t e
en
con t on are ffic t
e a t to efer a port on of
c a p i ta l i n v es tmen t i n to th e f u tu r e c a n c r ea te v a l u e f o r
n e tor an re ce t e r cap ta r e po re
| Na v i g a ti n g v o l a ti l i ty : do y o u c h a n g e y o u r bu s i n es s o r th e w a y y o u r bu s i n es s w o r k s ?
5
P ortf olio s trategy
C apital allocation and portf olio s trategy are critically linked
Emp i r i c a l r es ea r c h s u g g es ts th a t c o mp a n i es th a t
a c ti v el y a n d dy n a mi c a l l y ma n a g e th ei r p o r tf o l i o
o f a s s ets a c h i ev e better l o n g er - ter m r etu r n s
t an compan e
t a
an o trateg
e e ence o t at an effic ent portfo o
o f a s s ets c a n be a c h i ev ed by h o l di n g a s s ets
t n t e portfo o t
fferent r
ret rn an
c o r r el a ti o n to a c h i ev e better r etu r n f o r th e s a me
e e of r or o er e e of r for t e ame
rate of ret rn 6
or t e m n ng ector t cap ta ec on p a e o er c
a ong per o of t me an profita t o ntr n ca
n e to
br o a der ma c r o ec o n o mi c f a c to r s , ef f ec ti v el y ma n a g i n g p o r tf o l i o s
an ncre
ffic t ta
ma e e en ar er t
t e e g tene e e of o at t c rrent
e ng e per ence
on o at on an
er ficat on r ng t e per c c e a eft
man corporate
t n e
portfo o an management more
a are t an e er of t e nee to manage portfo o or ome e
a e een t
eg n to p a o t c a
ton
e tment
of o t
an ot ng o mer can an reeport c o an
anno nc ng gn ficant portfo o rea gnment
•
ortfo o management
rema n a e pr or t n con tr ct ng
an opt m m portfo o ome of t e factor t at m ner nee to
con er are a fo o
Making a decision to be diversified or a single commodity operation: e e e e more compan e
tart oo ng
o u ts i de th ei r exi s ti n g c o mmo di ty f o c u s o r l ev er a g i n g exi s ti n g
a e on t e arr
ar o t
operat on to e p ore ot er opport n t e
ere t e
c a n l ev er a g e p r o p r i eta r y o p er a ti o n a l s k i l l s , tec h n o l o g y o r
nfra tr ct re e ng a e to create nerg e t at are n
e a cr t ca factor n ta ng a ea of t e pac an
en r ng ret rn are ma nta ne
•
e
E ns u ring cou ntry ris k is properly factored into as s et
v alu ations : eograp ca
er ficat on e er
ta
mportant a commo t
er ficat on an nee to e
n er too acro t e portfo o eta e mo e ng ma
o
t at co ntr r affect t e t pe of target pro ect e g arge
cap ta n e tment
ma er e ent a pro ect n e tment
for a portfo o an t e preferre o ner p tr ct re
•
E s tab lis hing a s ingle b as is of ris k and retu rn comparis on for
capital inv es tments regar e of et er t an e pan on
pro ect an
opport n t or n ee a cap ta ra e t ro g
e o n of nfra tr ct re or m n ng propert e
an ncre
ffic t an t me con m ng e erc e
t
es s en ti a l i n u n der s ta n di n g th e r el a ti v e i mp a c t o n r i s k a n d
ret rn of t e portfo o of compet ng cap ta ec on
•
R ecognize impact of long- range forecas t u ncertainty on
s trategic b u s ines s d ecis ions .
e po
t for c ange to
ong range
rate an meta energ pr ce foreca t o er t me
o
e re ecte n t e ec on ma ng proce
ro ect
e gn financ ng an o ner p c o ce an portfo o ec on
c a n a l l be s tr u c tu r ed to ma i n ta i n o p ti o n a l i ty a n d ma n a g e
an m t gate r for t e n e tor en ea ng t foreca t
ncerta nt n e tment ec on n g t an t e a t of
i n f o r ma ti o n s u p p o r ti n g a bu s i n es s dec i s i o n c a n be i mp r o v ed by
e p c t recogn ng o pro ect an portfo o ec on ma
ar acro a range of
ne en ronment
o e
a gat ng o at t
o o c ange o r
ne
or t e a
o r
ne
or
1 2
•
Optimizing the portfolio
r e
cr t ca
•
Optimizing each project
t at cap ta a ocat on an portfo o trateg are
n e
a re t m n ng compan e nee to
omp ete reg ar an r goro portfo o re e to eterm ne
t e g e t perform ng n e tment pro ect an
ent f
ere
to f o c u s c a p i ta l
•
Un der s ta n d th e embedded o p ti o n a l i ty a n d c a p i ta l i n ten s i ty o f
n
a pro ect
a e eterm nant n ec ng at a et
form t e opt ma portfo o to ac e e gro t a p rat on
•
am ne n er ng a t e a oc ate
t a et to
p r o tec t a g a i n s t u n f o r es een r i s k s th a t ma y h a v e been
p r ev i o u s l y u n der es ti ma ted o r r ema i n bey o n d th ei r c o n tr o l
t o t an financ a m t n e amp e o
e non operate
o nt ent re
•
1 3
ee t at pro ect pre o
con ere core ma ecome e t
te for e tment f gro t opport n t e are m te an
o not fit t t e ne trateg c rect on of t e compan
a gat ng o at t
o o c ange o r
ne
or t e a
o r
F o c u s o n o p ti mi z i n g th e p er f o r ma n c e o f th e a s s ets th a t a r e
k ep t th r o u g h p o r tf o l i o i mp r o v emen t a n d c o s t c o n tr o l mea s u r es
e a e een a gn ficant e e of e tment among
er fie pro cer
t cap ta procee t p ca
e ng e
to pa o n e t or ret rne to are o er a ca or n pec e
an of t e e e tment a e foc e on g er co t m ne
or m ne
t m te ong term gro t a corporate oo to
po t on t em e e a far o n t e co t c r e a po
e
e
eep f t re e pan on opt ona t
t n e t ng a et rat er
t an a ng to oo at ne
or
opt on
e are a o ee ng a n m er of corporate ta ng a e on
at commo t e t e portfo o o
foc on an per ap
more mportant
at commo t e t e
to e t
ne ta
nterp a
t reg ona
er ficat on a t e
e tment trateg
certa n a ter t e co ntr r of t e
p o r tf o l i o a n d th a t i n tu r n i s c r ea ti n g a n i n v es tmen t r eq u i r emen t
to re e g t t e portfo o from e t er a co ntr r per pect e
or nto ne commo t e
n t t t ona are o er re pect goo management team
t at e er goo re t
e on t care f t at n a
er fie portfo o or a ng e commo t
e a e e er
an cre
t
ong a o comm n cate t e o rne o
are on an o r act on ma e en e t e
cont n e to
fo o o
tan ng t n t e c rrent en ronment not an
opt on for man
ne
or
6
F inancing
Balance sheet flexibility is key during this period
of v olatility
e t ere a gn ficant e e of e t acro t e ector an
e erage
g on t e ac of o er earn ng a arge proport on
o f debt i s c o v en a n t l i te a n d ma n y c o r p o r a tes h a v e ta k en a c ti o n to
p
o t mat r t e an re ce er c ng co t
e a oc ate
tre t erefore per ap o er t an m g t ot er e e
e pecte n c
ffic t mar et con t on
g financ a e erage c ear
nt
ta na e n t e ong term an f o at e mar et
per t t
t mate cr ta e forma n o enc t at on a e t t
ome a off
n t e ma or t of t at on
ere are o e er ome mar et t at a e een t ar
t t e coa ector e ng t e mo t prom nent a t grapp e
t t e mpact of re at e
g
o ar enom nate co t a e n a er epre e
coa pr c ng en ronment
a ance eet e
t rema n cr t ca
r ng t per o of o at t an o oe t e
a oc ate r g t
ng of e t e e to t e n er ng profita t of operat on
L ev erage is at an all- time
high, b u t this d oes n’ t
neces s arily ind icate
widespread financial d is tres s acros s the s ector.
Changes in industry net debt, EBITDA and implied multiple
400,000
3.0
350,000
2.5
2.0
US$m
250,000
200,000
1.5
150,000
1.0
100,000
0.5
50,000
EBITDA (LHS)
ote
e e fig re are a e on a amp e of
ap ta
2015
2014
2013
2012
Net debt/EBITDA (RHS)
te m n ng compan e from a a a e nformat on pro
e
t n t t a ca e of pa ng o n e t
t can ta e
a e een p t n p ace acro t e ector n recent ear
P u s hing ou t the matu rity of d eb t, and remov ing cov enants to mak e the ins tru ment
more flexible. p ca t
a een one a refinanc ng
t t ere an ncrea ng
ngne from en er to c
renegot at on of e t term n or er to pro e t e
n er ng operat on
t ncrea e e
t
•
2011
2010
2009
2008
2007
Net debt (LHS)
ap ta
ana
f co r e a ance eet e
ar o form man of
c
•
2006
2005
2004
2003
2002
2001
0.0
2000
0
o rce
Net debt/EBITDA (x)
300,000
B u s ines s comb inations , s u ch as mergers or joint v entu res , ex ecu ted v ia s hare
is s u ance rather than cas h.
m ng c a trateg
e e ec te t ma e
po
e to mpro e t e e erage of t e re t ng
ne com nat on
c can n
t rn ea to a more e e a ance eet or n ee t e financ a e erage to negot ate
e t term
t en er
a gat ng o at t
C orporates w ill continu e
to look at d ifferent w ay s to
releas e capital in ord er to
pay d ow n d eb t.
o o c ange o r
ne
or t e a
o r
ne
or
1 4
•
Taking debt off balance sheet via trade finance and other as s et- b ack ed trans actions .
•
Mothballing, closing or divesting negative cash flow operations . Su c h o p er a ti o n s ma y be p r o du c i n g a s s ets th a t a r e
no onger profita e an are negat e mpact ng earn ng or
e e opment a et t at are p ac ng a r en on ca
o
W h i l e th es e s tr a teg i es h a v e been dev el o p ed by a n u mber o f
corporate to mpro e a ance eet e
t t e ma n pr or t
acro t e ector a een to pa o n e t a cap ta re ea e n
a n u mber o f f o r ms s u c h a s :
•
C u ts in d iv id end s acros s the s ector hav e b een w id es pread ,
nc
ng t e ma or er fie
r en t e nee to ft
f r o m a p r o g r es s i v e di v i den d p o l i c y to o n e th a t i s l i n k ed to
earn ng
•
V ia s treaming d eals ,
c a e ecome ncrea ng
common for pro c ng t er a et e g
encore
cce f
tream ng ea for copper o t of t e r o t mer can m ne
th a t c o mma n d h i g h er embedded v a l u a ti o n s th a n h a v e ty p i c a l l y
een een n t e tream ng ector for e e opment a et
•
D iv es tments of s tand - alone b u s ines s es ,
c a per ap
een t e mo t gn ficant trateg emp o e acro t e ector
n or er to ra e cap ta for e t ret rement or e amp e ng o
Amer i c a n h a s a n n o u n c ed a v er y s i z a bl e di v es tmen t s tr a teg y a s
t oo to refoc on a ma er n m er of core commo t e
e e pect f rt er e tment nform t e m t er an ma or
er fie m ner t ro g
•
E ntering into joint- v entu re agreements or s elling minority
s tak es a a mean of re c ng cap ta o t a
t o t
comprom ng f t re gro t an commo t e po re
gn ficant ea t at meet t e e cr ter a nc e arr c
o
a e of a ar to ntofaga ta an
encore
e tment of t agr c t re
ne to ana an pen on
7
f n
•
Acquiring traded debt at significant discounts to par,
c
r ep r es en t a n o p p o r tu n i ty to r edu c e ba l a n c e s h eet l i a bi l i ti es ,
an cr c a re ape e t mat r t profi e to mpro e near
term
t
a
e ent a o mpro e cre t
metr c an re ce e t er c ng e pen e
amp e
i n c l u de bu y ba c k s u n der ta k en by An g l o Amer i c a n , F o r tes c u e
eta
ro p an e anta e o rce 8
ompan e are ncrea ng oo ng at re c ng t e cap ta t e
p n nfra tr ct re
c t p ca generate a o er ret rn on
c a p i ta l th a n mi n i n g a s s ets , a l bei t i n c u r r en t ma r k et c o n di ti o n s
t at not nece ar p a ng o t
e fea
t of re ea ng
c a p i ta l f r o m i n f r a s tr u c tu r e a s s ets dep en ds o n th e u n der l y i n g
commerc a re at on p et een t e nfra tr ct re an t e m ne
p ca re n
ng an e ement of contro o er e re re
n or er for t e a et to come off a ance eet
c ma
mea n ma k i n g th e c o mmer c i a l r el a ti o n s h i p mu l ti - u s er r a th er th a n
e c
e r g ng t e e fference ma et a gment a ance
eet trengt
t re ea ng cap ta to e ep o e n core
m n ng act t e
W i th p r i c i n g v o l a ti l i ty l i k el y to r ema i n el ev a ted i n th e s h o r t ter m a t
l ea s t, c o mp a n i es th a t a r e a bl e to ma xi mi z e bo th tr a di n g l i q u i di ty
an a ance eet trengt
e opt ma p ace to cap ta e
on an e ent a c c ca mpro ement
e
a o e a e to
c a p tu r e o p p o r tu n i ti es th a t p r es en t th ems el v es th r o u g h o th er s ’
tre
c ot er e o
not e financea e
M ike H enry — P res id ent Operations , M inerals A u s tralia,
B H P B illiton
“ T he mos t s u rpris ing part of the new job has b een how
much opportunity is left out there” to keep bringing d ow n cos ts and b oos ting prod u ctiv ity , inclu d ing in iron
ore, where he’s confident that BHP can go below its target for U S $ 1 5 a tonne cas h cos ts . 9
arr c nno nce a e of
ercent of a ar
e artner p t ntofaga ta c
e
ne
encore e agr c t re ta e for
acce e
ne
ner
ne
pr
1 5
ac o n on
ne
| Na v i g a ti n g v o l a ti l i ty : do y o u c h a n g e y o u r bu s i n es s o r th e w a y y o u r bu s i n es s w o r k s ?
to oot e e t fear
ne ormat on of
arr c com acce e
n ft com
ft.com, a c c es s ed
ron ore man a rea t The Australian Financial Review,
W here to go from here
•
O u r a dv i c e to c o mp a n i es o p er a ti n g i n a n u n c er ta i n en v i r o n men t:
on er a
e er e a e c e n t
t one a t e are a mportant an
o
c o n c u r r en tl y
paper not
e ea t t
•
• Br ea k f r ee o f p r o - c y c l i c a l , s h o r t- ter m beh a v i o r a n d i n s tea d
c o n s i der th e i mp a c t o f y o u r a c ti o n s o n l o n g - ter m p r o du c ti v i ty
an f t re gro t
oo to ot er ector for ea of
ne
opt m at on
a
•
•
• Do n ’ t f o r g et th e i mp o r ta n c e o f p eo p l e a s s u c c es s r eq u i r es
l ea der s h i p a n d to n e f r o m th e to p — l ea d by exa mp l e a n d o th er s
fo o
con
er t e react on of
on t m t o r t n ng to
are o er an
at po
ta e o er
e
A uth ors of th e report
P aul M itch ell
o a n ng
eta
or ea er
e
pa m tc e a e com
Lee Downham
o a n ng
eta
ran act on ea er
e
o n am
e com
a gat ng o at t
o o c ange o r
ne
or t e a
o r
ne
or
1 6
How EY’s Global Mining & Metals Network can
help your business
W i th a v o l a ti l e o u tl o o k f o r th e s ec to r , th e g l o ba l mi n i n g a n d meta l s
n tr
foc e on o to ma nta n a trong an e e a ance
eet
e prepar ng for f t re gro t
e ector a o face
t t e ncrea e c a enge of mpro ng pro ct t acce to
cap ta ea ng t ncrea e tran parenc ma nta n ng cen e to
operate an c er ec r t
o a n ng
eta et or
ere peop e an ea
c o me to g eth er to h el p mi n i n g a n d meta l s c o mp a n i es meet th e
e of to a an ant c pate t o e of tomorro
e e op ng
o t on to meet t e e c a enge t r ng toget er a or
e
team of profe ona to e p o
ccee a team t eep
tec h n i c a l exp er i en c e i n p r o v i di n g a s s u r a n c e, ta x, tr a n s a c ti o n s
an a
or er ce to t e m n ng an meta ector t mate
i t en a bl es u s to h el p y o u meet y o u r g o a l s a n d c o mp ete mo r e
effect e
e
mg e
eg
r e com
Oceania
cott r m e
e
cott gr m e
C hina and M ongolia
eter ar e
e
peter mar e
J apan
n re
e
co e n r
cn e com
o e
nn on or p
A frica
W i c k u s Bo th a
e
c
ot a
a e com
C ommonw ealth of
I nd epend ent S tates
Bo r i s Y a ts en k o
e
or
at en o r e com
F rance, L u x emb u rg,
M aghreb , M E N A
r t an on
e
c r t an m on fr e com
I nd ia
n an
n e com
U nited K ingd om & I reland
ee o n am
e
o n am
C anad a
Br u c e Sp r a g u e
e com
ran act on
or
A b ou t E Y
EY i s a g l o ba l l ea der i n a s s u r a n c e, ta x, tr a n s a c ti o n a n d a dv i s o r y
er ce
e n g t an
a t er ce e e er e p
tr t
an conf ence n t e cap ta mar et an n econom e t e or o er
e e e op o t tan ng ea er
o team to e er on o r prom e
to a of o r ta e o er n o o ng e p a a cr t ca ro e n
ng
a etter or ng or for o r peop e for o r c ent an for o r
comm n t e
EY r ef er s to th e g l o ba l o r g a n i z a ti o n , a n d ma y r ef er to o n e o r mo r e, o f
t e mem er f rm of rn t
o ng o a m te eac of
c
a eparate ega ent t rn t
o ng o a m te a
compan
m te
g arantee oe not pro e er ce to c ent or more
nformat on a o t o r organ at on p ea e
t e com
g t
m te
e er e
ED No n e
e
r ce f prag e ca e com
B razil
Af o n s o Sa r to r i o
r e com
C hile
ar a a era ontrera
e
mar a a era contrera
c e com
Service line contacts
E Y G lob al A d v is ory L ead er
a
tc e
e
pa
m tc e
a e com
E Y G lob al A s s u rance L ead er
e e ano
e
ae e
ano
r e com
E Y G lob al I F R S L ead er
race
ar ng
e
trace
ar ng a e com
E Y G lob al T ax L ead er
n re an nter
e
an re
an
e
o n am
mater a a een prepare for genera nformat ona p rpo e on an
not nten e to
e re e pon a acco nt ng ta or ot er profe ona a ce ea e refer to o r a
or for
pec f c a ce
e e of t r part e et o t n t p
cat on are not nece ar t e e of t e g o a
organ at on or t mem er f rm
oreo er t e
o
e een n t e conte t of t e t me t e
ere ma e
nter a e com
E Y G lob al T rans actions L ead er
ee o n am
gra a
e
an an agra a
a
genc
e
afon o artor o
a e com
rance
no
Area contacts
E Y G lob al M ining & M etals
L ead er
g e
eg
E Y
e com
ey . com/ miningmetals