The Mining Cost Cutting Cycle and Ways to Avoid the Traps

Author : pollymcelroy
Publish Date : 2021-05-22


The Mining Cost Cutting Cycle and Ways to Avoid the Traps

To enroll a boatload of high-paying clients, you don't necessary need a killer website with all the bells and whistles, and you don't have to be a social media butterfly. You need to hone in on these 4 fundamentals that will transform how you sell, and how WELL you sell.

Here is why you don't need anything fancy to get high-paying private clients - you enroll them through a 1: 1 sales/enrollment conversation, so as long as you get everything that leads up to, and within, that conversation dialed in, you are good to go. And it can be real low-tech.

Let's cut to the chase and see what these 4 fundamentals are.

1. Know Your Niche Inside & Out
Be specific. Very specific. Without knowing who you need to attract into an enrollment conversation and how to communicate with them, you are not going to get the right people who will jump up and down to pay you the money to solve their urgent, burning problems. No more hovering around "I want to help everyone."

2. Have an Awesome Offer
You need to know what you are offering, and how to clearly communicate why your potential clients need your services, in order to confidently enter into an enrollment conversation. My favorite way to create a program that sells is to reverse engineer your materials from your ideal clients' desired results and challenges. If you are not clear on what they want and what you have to offer, your hesitation and lack of confident will show through. How can you expect someone to pay you a load of money if you are not confident what benefits you can deliver?

3. Lead the Enrollment Conversation
You need to have an agenda for your enrollment conversation. You need to show why they have a problem, illuminate the pain this problem is causing them, show them the problem has a solution, highlight the cost of not taking action, and how they can take action (i.e. working with you). A well-orchestrated agenda not only helps you guide your potential clients into working with you, taking the awkwardness out of "sales conversation", it can also deliver a couple of AHA moments for your potential clients, and give you the opportunity to coach them into taking action (with you!)

To take this one step further, you also want to put the right energy behind your conversation. This change has made such as huge difference for me (5 new clients in 7 days) - really incredible.

4. Empower Your Money Mindset
This is a biggie. We are talking about HIGH-PAYING clients here. If you don't have an empowered mindset around money, your energy is going to dip and waver when you get to the "making the offer" part. It can show up as the inability to guide the client to make an empowered decision by enabling her excuses (and losing her as a client); it can show up as discounting your services (under-charging and over-delivery) so you end up working a ton without being fairly compensated; or it can show up as the inability to set pricing that is in alignment with your value.

Ling Wong, "Make It Big Accelerator" and founder of Slideberry ([http://slideberry.com/]), provides Marketing Activation for health and wellness practitioners. Slideberry supports health and wellness professionals with done-for-you materials, marketing consultation and business coaching services so that they can be INSPIRED, MOTIVATED and EQUIPPED to "Get Out There Make It Big" without having to reinvent the wheel, get lost in confusion and information overload, or missing opportunities because they don't know where to begin.

As the mining industry tightens its belt due to costs exceeding cooling prices for many operations, the cost cutting machine has kicked in yet again. Having been through this same Groundhog Day a few times and seen the transitions from the overspending to the cost cutting phase of the cycle, we have noticed several traps that mining operations can get caught by.

Working with clients whilst they were expanding during the boom time, we were able to demonstrate the non-linear relationship between throughput expansions and costs. Contrary to expectations of economies of scale, costs were actually going up exponentially with the increase in production, not linearly. There were a number of well-publicised reasons for this, such as:

A requirement to move into high stripping ratio areas that could be avoided at lower levels of production
Additional major capital purchases including processing plant upgrades and expansions during a period of elevated capital costs
Higher freight costs as long term contracts were reset and where further production increases required substantial below rail capital investment due to capacity constraints being approached
Increasing supplier costs with the higher demand
However, there were also some less than obvious causes for the exponential increase in costs. Mine plans that were being produced were becoming more and more aggressive as companies tried to take maximum advantage of the boom. Creating a plan on paper was seen as the value that could be achieved, disconnected from the real value in the pit. Operations were being stretched to a higher intensity than had been seen before. On paper these plans looked to be quite achievable compared to previous productivity levels, but when implemented, they tended to perform poorly.

When we were part of expansion projects, a difficult element was making sure the plans were actually achievable. The difficulty was not in getting the plans to work per se, but rather convincing the business that a lot of the methods used to increase production were merely increasing the risk of the plan, and such risks would have negative consequences well beyond the value being chased on paper.

We once calculated the odds of a more bullish productivity assumption being used for a medium term plan: the change in assumption would allow a saving of approximately $10 million in order to curb the rising expansion costs through a reduction in contractor stripping requirements. The odds of a successful outcome were very low; less than 5% based on statistical analysis of previous stripping output. We demonstrated that the downside of the attempted saving if the contractor stripping was not able to be replaced by improved owner-operator performance would be a loss in revenue in the order of $50 million that year (and site policies made it nearly impossible to prevent). So there was a $50 million bet being made in order to achieve a $10 million windfall - in gambler's parlance it was a bet paying $1.20 the win, with less than 5% chance of paying off!

Another major cause of unmet planned targets was the implementation of new policies. Some of these policies were required to ensure the sustainability of the operation; however many were implemented for an isolated process without any analysis on the impact it was having on the overall production system. The cost to the operation from the policies was not measured or understood.

The price and the demand for resources still remains strong historically, leading to companies maintaining high levels of production, but needing to combat the unprecedented jump in costs. Capital investment for a lot of mining operations has already been spent, and there still remains a requirement to maximise the financial return on these.

5 Hidden Cost Cutting Traps

Some organisations are seeing the obvious benefits of cost cutting; it is hard to argue against cuts such as renegotiating contracts with contractors and suppliers that were agreed during a "hotter" market. Reducing overheads in areas that don't add any value to the actual production chain is also a clear winning move in the current environment. Improvements that clearly demonstrate increased production out of equipment that allows for reduced contractor input or the ability to shut excessive capacity is something that will pay off in any part of the cycle. However, there are always some things to watch out for when looking for other cost cutting targets.

1. Watch out for the perceived benefits on paper

A short term cut can lead to long term devastation. As in the example of chasing the $10 million saving earlier, there can be a large downside if it is not fully thought through and done properly. A lack of understanding in risk or consequence contained in the mine plan can cause a false sense of benefits being achieved. In our experience we have found the usual static, deterministic plans that we are all use to, to be incapable of giving any information on risk or consequences. Even the token effort of completing a tornado plot at the end of the planning process really adds nothing to the understanding because it is still based on a static plan, it doesn't account for the interactions that occur between production processes or show how the variability contained in the system effects throughput.

Pressure on performance does not have to come from the mine plan directly; aspirational targets can still be used as an operational incentive without the need to generate overly bullish numbers in the base mine plan. Keeping the plan as close to reality as possible will ensure that all processes are likely to be resourced "correctly" and sets a clear baseline.

If risk is to be increased in the plan, take risks that have high reward with minimal downside and make allowance for that risk within the plan through discounting.

2. Are site inventories being reduced, making the site more vulnerable?

Just about all processes at an operation will have some form of inventory. In the production area there can be:

Topsoil cleared
Drilled inventory
Blasted inventory (both waste and broken stocks)
Prestrip inventory
Coal/ore uncovered inventory
Pre-processing (raw coal/ore) inventory
Product/concentrate inventory at site and in the logistics chain
If there is an ability to reduce these inventories (and yes, a consistent increase in performance of a process which is stable both statistically and relative to plan, can allow for significant reduction in these), this can be a successful cost reduction method through savings in working capital. However, reducing inventories to reduce costs without addressing variation can lead to unwanted consequences.

Inventories protect the system throughput and are critical in handling normal variability in output as well as negative unplanned events (and all unplanned events are negative, when was the last unplanned event in your production system that was a boost to the for throughput?). Events tend to be unplanned as individually they are infrequent; however the likelihood of one or more of these events occurring is almost certain in a year. Inventories enable an operation to handle these events and sustain throughput. Any cost saving measure through reducing inventories should have a very good handle on the variability of different processes and the potential for negative events to impact the plan such as wet weather, major equipment failures, geotechnical incidents, or an error in design.

Any operation will incur negative unplanned events at least once a year. It is not economically viable to significantly lower the chance of these events occurring.

3. Some changes will happen gradually and may be missed

We've all heard the boiling frog analogy; if you put a frog in boiling water it will leap out right away to escape danger but if you gradually heat the water from a cool temperature, the frog will not notice until it is too late.

The open cut mining environment tends not to detect change well because the production cycle is much longer term compared to the manufacturing industry, resulting in gradual change that is not easily noticeable. If the main key performance indicator tracked is final throughput, and only minimal focus is put on leading indicators such as inventories (and not just final product inventory), then there may be no warning that a process is about to become a constraint for the system. Inventories will always go up and down as they smooth out the inevitable fluctuations in the



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