Value driver modelling with Archimedes FACX for optimising mining company operations Ilya Golubinskiy, Russia 9 February 2011
Value driver modelling can help a mining company s management to address a whole range of important issues Recently, mining companies costs have gone up significantly and many companies in the sector have had to face the challenge of how to cut their costs efficiently. Mining company executives most frequently must address the following issues: A value driver model (VDM) can help identify solutions to these and many other challenges Archimedes FACX is a tool for efficiently building and managing value driver models How to enhance the accuracy of planning? What is the most effective way of incorporating market price fluctuations into the planning and budgeting process? How to quickly and efficiently assess the economic effect of new initiatives? What underlying principles should govern supply chain optimisation initiatives, from production to transporting finished goods? Russia 2
What we are offering with Archimedes FACX Pit-to-Port full coverage of the entire value chain A value driver model aligns costs and work at all stages of the value chain, from the production site to the finished product dispatch point ( pit-to-port ), enabling a mining company to monitor its component costs per each tonne of finished product. Dynamically tuned tool The model s dynamic nature also allows the company to test the sensitivity of its overall financial results to specific factors as well as assess capital initiatives. A tool that been successfully used by market leaders Value driver models have been successfully implemented and are being actively used at such companies as BHP Nickel West, Newcrest Gold and Xstrata Coal. Among recent projects, a value driver model is now being developed for all of Xstrata s coal assets in Queensland, Australia. Russia 3
Archimedes FACX provides the flexibility you need to align operating data with financial results Key areas where an Archimedes FACX-based value driver model can be used: Developing an economic business model Aiding company management in identifying links between specific value drivers Achieving greater efficiency in the strategic planning process through the use of more accurate data reflecting the company s potential status Assessing the economic impact of new initiatives Obtaining a rapid response to the question: Where s the money? Enhancing the effectiveness of KPI systems 4
Our approach makes it possible to integrate all process stages within the overall mining process in one model
Depending on management requirements, separate divisions can access only those modules that describe specific operational sections Module with data on production and refining sections only Module with data necessary for the logistics group 6
We have developed value driver models for companies working with diverse types of raw materials and using various production approaches Resource Opencut mining Underground mining Refining and upgrading Rail logistics Port logistics Coal Copper Nickel Gold Iron Russia Slide 7
Our approach Russia Slide 8
Deliverables Goals Stages Our approach to implementing a VDM tool 1 2 3 4 5 Project preparation and data gathering Creating a value driver tree Developing the model in Archimedes FACX Testing the model Adapting the model at the client company Archimedes FACX Holding instructional meetings Setting goals and objectives Interviewing key employees Distributing requests for information on ongoing operations Collecting and consolidating data in the form of a value driver tree Designing required templates for final model data Coordinating a high-level value driver model Making any necessary changes in the model Creating the value driver model in accordance with data received at previous stages Aligning cost items with operating processes Aligning the principles for coordinating specific items with company employees Completing the model with actual model data Testing the logic and output data Testing the model with future key system users Joint workshop to coordinate logic and accuracy of final model data Making any necessary changes in the model Developing training materials and delivering workshops for key employees who will use the model on a regular basis Preparing and delivering a workshop with company management to present all of the new model s advantages and opportunities Requests for information distributed among heads of functional units Instructional meetings held; employees informed of project goals and objectives Complete list of the company s production assets Map of the company s operating processes Productivity levels and restrictions determined for production sections, reflecting geological and technological specifics Initial version of the mathematical model of operations built Model tests using actual data completed, and necessary changes made Value driver model in Archimedes FACX built Training materials prepared; employees trained to use the model Workshops with company management held; management fully informed about model capacity Russia Slide 9
Principles of VDM development: collecting and analysing data on current assets During an analysis of the company s operations, a list is generated of assets and processes that directly affect the company s financial results High level of automation when building the model - Archimedes FACX features libraries of mining assets and operating processes which can be used at a mining enterprise 10
Principles of VDM development: factoring in opportunities and restrictions To ensure the accuracy of the model, it is important to determine the capacities of all production assets which impact the key production cycle and are a source of significant costs Any interdependencies or restrictions should be taken into account to correctly reflect the company s capabilities Truck fleet Operating 19,414 hours Maintenance 5,557 hours Dragline Speed 400 bcm / hour Operating 6,711 hours Maintenance 1,579 hours Speed 3,750 bcm / hour 11
Principles of VDM development: aligning transactions with financial results Aligning the trial balance with cost sources Analysing cost types and aligning cost allocation by groups of fixed and variable costs Aligning variable costs with cost factors by type of activity 12
Principles of VDM development: data consolidation in Archimedes FACX The company s value driver model is based on detailed information obtained at previous stages A specialised tool accelerating the process is used to create this model A mandatory project element will be training in Archimedes FACX operations for employees who will use the tool in the future Apart from using the current version of the model, company employees will be trained how to update the model for its permanent upgrade in the future (change in performance of each section, introduction of new equipment or a whole area) 13
Benefits of Archimedes FACX Creating a value driver model from scratch can be a time-consuming process and, thus, expensive At the same time, however, except for significant differences between opencut and underground mining, processes using in mining operations are relatively standardised has developed its own Archimedes FACX tool, based on Microsoft Excel and featuring an extensive database with potential processes and mining enterprise assets As a result, model implementation takes less time and, thus, costs less. Also, the tool s user-friendly interface helps company employees make any necessary changes 14
Applying a VDM in practice Russia Slide 15
An Archimedes FACX-based VDM can help identify key cost drivers and monitor their impact on the entire value chain The model will help you to consolidate and align operating and financial data Negative impact is marked red, while positive impact is marked green Difference between current data and modelled scenario are shown in absolute and percentage terms Double click to unfold the next level of detail in each area Russia Slide 16
Determining cost reduction opportunities Understanding key operating cost factors and their impact on final results Ranking operating factors with the highest cost reduction potential Determining the most material indicators for quantitative assessments of costcutting initiatives 17
Example of setting priority areas for cost-cutting Impact of a 10% change in the value of each factor on production volume and cost Impact on production volume and cost of a 10% change in each driver Improvement Opportunity Increasing production Decreasing $ / ROM t
Building a VDM at the EBIT level if required Efficiency factors Change (%) in EBIT -1.00% -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% 0.75% 1.00% Longwall idle Время простоя длинных забоев time Longwall operating Операционные задержки длинных забоев delays Conveyor maintenance Задержки в техобслуживании конвейеров delays Время замены Longwall длинного change-out забоя time Development Development unit cut rate unit cut rate Незапланированное время углеобогатительной CPP unsheduled установки time Время Development простоя разработки idle time EBIT Impact impact on EBIT of +5% of -5% change change to driver in value driver EBIT Impact impact on EBIT of -5% of +5% change change to driver in value driver 19
Scenario analysis Conducting a multi-scenario cause-and-effect analysis (using the what if method) and monitoring the impact on various factors Detailed analysis of deviations to identify the actual reasons for changes that had an impact on production cost and volume 20
$ / Development metre Benchmarking Archimedes FACX can help you benchmark your operations against both intra-company assets and industry leaders has assembled and extensive library of performance indicators in the mining sector, which can be utilised by software users for benchmarking purposes 140 120 100 80 60 40 20 0 Benchmark Mine Company 0 2 Million 4tonnes per 6 annum 8 10 21
Archimedes FACX is a tool for optimising the operational performance of mining enterprises using a value driver model Ilya Golubinskiy Manager Advisory Consulting ilya.golubinskiy@ru.pwc.com Tel.: +7 (495) 967 6094 This presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. No action should be taken based on information in this document without prior discussions with professional consultants. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Australia, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2011 Australia. All rights reserved. In this document, "" refers to Australia being a member firm of PricewaterhouseCoopers International Limited. Each member firm is a separate legal entity.