Eltirus

Steve Franklin, founder of Eltirus, has been active in the quarry planning space for some years now. He reveals the success factors relevant to this type of work, what works, what doesn’t, and why.

A natural deposit such as a sand and gravel or hard rock deposit is a diminishing resource and it is up to the senior management of any construction materials business to maximise the financial value of that deposit (and minimise the environmental impact of operations), whether it has a projected life of one year or one hundred.

In looking at how to maximise value, the four things you most need to understand are the market, the competition, what it costs you to produce and the nature of the deposit itself.

From a sound understanding of these four aspects, you can then think strategically and with a clear idea of your objectives, create the budgets and related plans needed to realise the maximum value. But how do you do this and what should you consider?

Planning horizons
If you were to talk to the technical services manager of a large mining operation, they would tell you that there are generally three planning horizons:

• Long-term: >5 years – Also called strategic planning and generally carried out at the head office.
• Medium term: 1-5 years – Normally conducted at regional office level
• Short term: < 1 year – Generally conducted at site level.

While the time horizons will vary from business to business, these sub-divisions of time generally don’t and are as relevant for us in quarrying as for mining and generally accord with most quarry companies’ budgeting time periods.

Tools such as GPS rovers, drill rig hole navigation systems and loading tool machine guidance are critical. Image: Steve Franklin

What is long-term (strategic) planning?
When we talk about long term planning, we are talking about a strategic view of the deposit and the market around it, with the view to maximising its financial value. The mining industry approach to this is to use optimisation tools (Whittle, Pseudoflow, GO) to determine the correct pit size and staging coincident with revenue, costs, environmental and capital inputs and constraints. This process is not a ‘once off’ activity, but one that is conducted whenever there is a major change in the inputs.

A good example of this would be the drastic change in nickel prices that would be forcing all the miners in this space to re-run their optimisations to determine what the correct approach is to the change in price (and perhaps if they even have a business worth keeping). Remember this is a strategic exercise and one that often involves the consideration of not just a single deposit, but multiple ones that all interact/impact a single market.

Too often we see quarry operators with a fast-diminishing reserve, in a sold-out market, ‘following’ the price lead of others (who also have a similarly fast diminishing set of reserves) rather than taking a strategic look and realising that they could be better off to dramatically increase the price (and slow sales) to reflect the diminishing lack of supply into the market and maximise the value of what they have left.

To do this, you need to have a very clear view of what your resource and reserves actually are (please note that resource and reserve are not interchangeable words). Once it’s gone its gone, you can’t sell it again and not considering the position of your competitors reserves and your own is failing to think strategically. Importantly, this process must be run and managed at a corporate level and must regularly review the medium-term planning to ensure alignment and identify possible value destruction before it occurs.

Other key factors to consider at a strategic level would be the need to ensure that the primary data that resource planning relies on is complete and accurate. This would include having an effective geological drillhole data base, geological model, long term schedule, pit plans. At this level we would expect to see highly experienced principal geologists and mining engineers leading this process.

Why is medium-term planning important?
Your medium-term plan is designed to ensure that as the business and market change, this is reflected in how you run your quarry. This would fit with the budget model that works on say two years of detailed planning and a further three years of less detailed information for a rolling five year look at the business. This certainly makes sense, but what fascinates me is that companies generally prepare budgets in the absence of a medium-term plan (or strategic plan for that matter) for the deposit.

By way of example, many years ago I stepped in to help a site who had lost their mine manager and in short order was presented with the ‘budget’ for the site. My question was “where is the plan that the budget is based on?”. To which I received a whole range of blank looks and “what are you talking about” type answers.

But here was a site that was waste bound (can we strip ourselves or do we need a contractor?), had high hour equipment in need of repair (do we refurbish or replace) and a budget that in reality was just a ‘fiddle’ of the previous year. There was not even so much as a two-page memo on “these are the key things to consider”.

So while this article primarily considers the need to have a plan for your resource, I would suggest that a strong, activity based costing model that helps predict future maintenance costs and actions would also be a part of that planning process – certainly to help you understand the cashflow requirements.

More than anything else though, I would urge you to ensure that there is some write-up that reflects how the budget was arrived at – e.g. “these were the key things we were thinking about that need to be addressed and we have put aside this much money for them”.

This type of work would generally be conducted at a regional / state level and would primarily be focused on ensuring alignment of the business plan with the market and resource plan and be focussed on an effective extraction schedule that would ensure that there was a clear understanding of what could be extracted from each deposit, how fast, in what quality and with a clear understanding of how much development was needed to achieve the plan.

It also needs to be conducted by experienced, competent, and qualified professionals who have the tools to really make this type of planning a reality. This is not the place for a graduate geologist or mining engineer and hope for the best. If this sounds harsh, I note a CEO who once did just this and then was quite critical of the young engineer and their lack of ability. “I sent them on a two-week training course, didn’t I?” was his justification. Frankly, you don’t do junior staff any favours by putting them into roles like this unless they are within a well-defined system with good mentorship and support.

A strong, activity-based costing model that helps predict future maintenance costs and actions should be a part of the planning process. Image: Steve Franklin

Short term planning
This type of planning is generally the preserve of the quarry manager and a good, experienced manager will have this in hand. The only real issue here is that when they leave the knowledge of the business leaves with them. This is where things tend to go awry and why it is so important to have a documented plan and one that aligns with the medium-term plan.

Interestingly we regularly see sites who will have gotten themselves in a pickle, needed help to get out of it and then stopped the thing that was successful – a good short-term plan, only to get themselves right back into trouble within a few short years. Things going well is generally indicative a good planning process – don’t stop.

What works and what doesn’t
Having a good strategy based on the market, the competition, what it costs you to operate and the deposit itself is vital. To make the most of the deposit, you must have accurate information about it – survey, geology, geotechnical, and environmental information and this information must be available to the people who need it for decision making.

Management must insist on the level below them having a plan that is in alignment with the planning level above and it must be broken down into ‘bite sized’ chunks that are relevant to that part of the business. Managers must also review the lower-level plans for alignment.

A key problem we see is that for lack of a strategic plan, failures and errors in medium term planning are missed by senior management, often with significant consequences. There must be a review and feedback loop at this level.

Medium term planners creating schedules must be able to produce clear plans showing material movement, suggested blast blocks and designs that can realistically used in the field. People on the ground must have the tools to get the plan into the field and to monitor it. It is of absolutely no use to have a detailed pit plan and then not have the survey equipment to mark the plan out on the ground. Tools such as GPS rovers, drill rig hole navigation systems and loading tool machine guidance are not luxuries, but critical to ensuring that not only is the plan implemented, but that it is well implemented so that all the downstream savings that accrue from that can be realised.

Lastly, there must be a continual feedback loop between operations to ensure that as additional knowledge is identified in the field, it is fed back to the geologists and engineers to update and refine their models to ensure a more and more accurate planning process.

The short story is if you don’t really know the geological and geotechnical factors, don’t have an extraction schedule nor the survey tools to accurately place things, you are winging it. That’s possibly ok with a simple deposit but where the deposit is challenging and in with increasing regulation, operating this way is really exposing yourself to risk.

Summary
Have a strategic resource plan. If you don’t, work out what needs to be done to create one, knowing that in many cases (for a large company) it can take years of work to collect up all the data, validate and collate it and bring it together into a cohesive system. This might sound expensive and time-consuming, but it is what is needed and the want of it is real expense.

To quote Oscar Wilde, “Nowadays people know the price of everything and the value of nothing.”

There really is good value in effective strategic resource planning – if for nothing else than providing you with a clearer view of the future to budget against and can help prevent some awfully costly mistakes.

This article was originally published in Quarry Magazine – click here to view original article.

To find out more, contact Steve Franklin on +61 474 183 939 or steve.franklin@eltirus.com