Mining Value Chain: Areas of Improvement

The starting point of every manufacturing industry known today comes from the resources that people get from the earth. The mining industry is the main player in the market responsible for extracting that resources or minerals from the ground which are then used for production of raw materials used in numerous industries. ?

The mining value chain, which includes everything from extracting raw materials to delivering products to customer, is the most important part of the industry.

For starters it is critical to differentiate between supply chains, which manage inbound and outbound logistics and warehousing, and value chains, which are made up of integrated end-to-end processes.

Traditionally, a comprehensive management of value chain has not been a priority for mining companies. This mistake resulted in isolated or silos and low performance of operations (logistics and commercial services) and organisational setups in which responsibilities are distributed to optimize individual steps (mining, processing, rail, or shipping), rather than looking it as a whole process.

Mining value chains also face pressure from recent variations in commodity markets such as strong price fluctuations, reducing values, changing market structures with new entrants, and more strict regulations. At the same time, environmental concerns continue to develop, and new regulatory policies continue to be approved. Companies face extraordinary pressure to increase resilience, flexibility, and productivity to remain competitive.

While preparing to address these rigorous regulations, mining companies must significantly reduce their environmental footprint to satisfy the increasing mandatory disclosure by governments, investors, and stakeholders. Taking a closer look at the value chain from mine to market is the first step in addressing these challenges. For instance, creating transparency to improve decision making and keeping the right tools at hand can help mining companies prepare for an increasingly volatile future.

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From complex to efficient mining value chains

Mining value chains are highly complicated and must consider all assets, including equipment (for example, trucks and shovels), processing plants, and railway and port operations. Further complicating matters, the wide range of related activities requires a series of interdependent steps before products reach customers, many of whom live in other countries or on other continents.

Nowadays, the mine-to-market value chain has often been handled within organizational silos, which have limited coordination and real-time data exchange. Understanding the mining value chain as a single integrated process, however, can allow companies to take a truly complete view of performance.

Mine-to-market performance improvements aim to unlock greater potential than optimizing operations, the value chain, or commercial services. Mine-to-market optimization can generate a 10 to 15 % increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) by optimizing throughput, product margins, and operating costs. Improving a mine-to-market performance relies on two factors: organizational facilitation and data and tech architecture.

Organizational facilitation covers the operating model with restructured business units and a dedicated cross-functional team to dissolve silos and provide employees with the skills, especially around advancing new technologies. It includes a mindset shift, looking at the mining value chain as one integrated process rather than a series of individual steps. Finally, it introduces lean and agile processes as well as continuous improvements in technology and advanced analytics.

For example, one of the biggest logistical challenges mines face is communicating with workers and coordinating operations, especially underground where radio does not work. By establishing underground networks such as WIFI or 5G wireless technology, with sensors throughout the mine transmitting information in real time, a mine’s supervisors can communicate with work teams in real time. This eliminates the need to provide a set of instructions that have to be carried out across an entire shift allowing an underground mine to function like a modern operation. This approach, often known as Short-Interval Control, relies on tech transformation that includes the technology plus new talent and mindsets. Once in place, this approach allows optimization of equipment shipping, maximizing equipment productivity and achieving mining objectives.

Data and tech architecture refers to the infrastructure and pipelines to capture, track, and clean operational data across the value chain. These include IT systems that facilitate integration and continuous evolution of the technology and advanced-analytics models that support decision making. Some mining companies have begun with adopting digitization processes, but there is still room for improvement. The challenge is to manage business decisions across the entire value chain and maximize the impact of the data.

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Preparing for a volatile future

A complete mine-to-market perspective can help companies detect and resolve bottlenecks and optimize all steps along the value chain.

In an increasingly complex and volatile world, mining executives are required to make decisions rapidly and even in times of uncertainty. A transparent perspective of the entire value chain can ensure the continuous organisation and use of all available data to efficiently manage the business. Although, the changing business environment requires a comprehensive end-to-end evaluation of real-time data to significantly minimize the risk of unintentional effects on certain parts of the business by solving issues on the other end of the value chain. For example, a mine-to-market view allows companies to simulate the impact of a set of commodity prices and optimize the value chain to maximize margins for the different price scenarios.

Transparency also allows mining companies to better comply the rigorous environmental regulations around the traceability of supply chains and integrated environmental reporting. This means the mine-to-market perspective can enable executives to better understand the sensitivity or vulnerability of their businesses to climate change by simulating the impact of extreme weather changing conditions, temporary regional value-chain breakdowns, and rising carbon prices. So, a mine-to-market view is critical to successfully address an increasingly volatile and uncertain business environment in the mining industry and has an impact beyond mere operational excellence.

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Mining Logistics: Managing shipments from remote locations

The logistics challenges of mining companies are unique and complex. Despite this, investments in logistics, people, processes and systems often take a secondary position to core investments around finding, extracting and processing minerals.

Mining sites are located where the minerals are, often in remote locations. In contrast, carriers are located where the people and businesses are. It’s not unusual for the nearest carrier to a remote mine site to be 200 or more km away, unless a carrier is formed to serve the mine exclusively. This lack of nearby carrier capacity creates problems such as:

- Insufficient capacity: If you can’t find carriers to move freight on your schedule, it may result in delays that increase cycle time and increase inventory costs. Some locations are best serviced by rail, but there is increasing risk if service is interrupted.

- Higher freight costs: A limited carrier base creates a greater dependence on freight brokers. Carrier’s distance can also make your freight more expensive. Let’s say a trucker drives 150 km to make a delivery to your remote site. You’ll pay not only for the inbound transit, but for the trucker’s cost to drive empty on his return trip.

- Inconsistent service: Broker trust also impacts service levels. Since brokers focus on spot market capacity for individual moves, not on creating a long-term solution for reliable freight service, this lack of reliability makes it difficult to plan loading, unloading, next shipment, which creates inefficiency across the supply chain.

Outsourcing freight management can address many of these issues, particularly if you partner with a 3PL that specializes in industrial freight. While a mining company may struggle to identify carriers to serve remote sites, the right 3PL has working relationships with thousands of trucking companies and all major railroads. This will solve both capacity challenge and cost challenge. The larger the base of pre-qualified carriers that will manage your shipments, the more competetitive you will be, which reduces costs overall. Service levels, and customer confidence, also will improve as dependence on brokers will decrease and replace them with an experienced 3PL. The right partner can apply systems and operational precision, daily measurement, continuous improvement, to increase the reliability of your supply chain. This can be an important competitive element when moving goods to and from remote sites.

From extraction to delivery, mining companies use many different transportation modes, with requirements for specialized equipment and expertise. Inbound moves can include a mix of LTL, full truckloads, flatbed trucks and multi-axle trailers. Outbound moves to processing plants and ports can use rail, barge and trucks and could require hazmat certification (dangerous goods or hazardous materials) or other special requirements. Coordinating and synchronizing these shipments is difficult and requires expertise across all modes.

The right 3PL can address this knowledge gap to improve service levels and drive dramatic reductions in time, inventory and freight costs. Some examples of strategies for this kind of improvements are:

- Applying just-in-time (JIT) service: When stock markets cause commodity prices to rise, inventory management becomes more critical. Brokers aggravate this challenge since they are spot market specialists and cannot get the core carrier truck flow necessary for JIT service. Slower and unpredictable transit times convert to higher inventory. 3PLs, instead, can manage large carrier networks and JIT delivery experience to make faster, more reliable shipments to minimize the whole cycle.

- Taking control of the inbound supply chain: To save time, mining companies often purchase parts and equipment with “freight pre-paid” conditions, so shipment remain on supplier’s behalf. Optimizing inbound shipments is perhaps the biggest single freight savings opportunity for many mining companies. A 3PL can work directly with you and your suppliers to gain control of this inbound freight, with savings of 15%.

- Optimizing shipping modes: Larger, non-asset based 3PLs understand the advantages and disadvantages of various modes and can recommend the best strategy to achieve cost and service objectives. Asset-based carriers can do the same, but the pressure to fill their own assets or trucks is strong and can impact objectivity.

Time savings can be as important as direct cost savings. A 3PL that can manage transportation across modes provides you with one contact for load tendering, tracking and tracing, and invoicing.

Conclusion

Today’s complex mining value chains are almost inevitably subject to disruption. In recent years, however, the stakes seem to have risen as geopolitical uncertainty escalated and high-cost natural disasters occur more frequently. A homogeneous mine-to-market perspective can help create further flexibility and maximize shipped throughput against disruption. Determining which weaknesses a mining company must address first, however, depends on the specific needs of its value chain.

?Nevertheless, a few key areas are critical for mining operations and represent a promising initial approach for a mine-to-market analysis. Developing a growth agenda should be the first one. This involves reviewing the company’s operating philosophy to become more agile and modular or connected in planning. The world will inevitably need more commodities. The mining companies therefore should consider developing an integral plan for rapid exploration of select commodities

As digital technologies help remove the barriers to entry and tip the scales of competitive advantage, mining mangers will need to ensure their organizations rely on a sustainable business model by proactively visualizing and forming that model’s role in an integrated end-to-end ecosystem. The journey toward an integrated end-to-end mining value chain is complex, but it is also an essential transformation to unlocking an untapped source of value.?

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