Producing Smart Tonnes Manish Garg

Introducing HDR | Salva

HDR Inc. is a global, employee-owned architecture, engineering, consulting and

construction services firm. With more than 8,000 professionals in nearly 200

offices worldwide, committed to helping clients manage complex projects and

make sounds decisions.

HDR | Salva is a mining and resource industry consultancy providing

independent, strategic and tactical advice and personalised professional services

to exploration and mining companies, engineering firms, financial institutions and

investors.

HDR | Salva, delivers exploration, mining and commodities consultancy services

to some of the world’s largest mining and investment firms.

Markets to Exploration to Mining, HDR | Salva has the capabilities to assist in all

phases of the mining lifecycle.

Integral to our business approach is the quality of our consultants. Our

consultants have the experience and expertise to deliver critical business

improvements that drive sustained performance benefits for our clients. We

demand both intellectual and service excellence from every member of our team.

2

Mining Office Locations

Resources Head Office Salva Pty LtdLevel 11, 82 Eagle Street | Brisbane, 4000 | AUSTRALIA

P: +61 (0) 7 3211 9911 | E: info@salvaresources.com

List of Clients

Manish is a leading practitioner in the

design and implementation of business

strategy and organisational capability

systems. With a strong technical and

leadership background, Manish has a

proven record in the implementation of

systems that drive an improvement

culture of increased profitability and

teamwork. Before working for Xstarct

Mining Consulting, Manish has held

operational and strategic management

roles with Rio Tinto, BHP-Billiton, WMC

Resources and Oceana Gold.

Professional Qualifications

Master of Applied Finance (Securities Institute Australia)

B.Engg (Minerals Engineering), MAusIMM, MAICD

Skills Summary

• Manish has significant experience in Project and Programme Management

including technical feasibility studies, design and implementation of

business improvement systems and improvement projects.

• Design of implementation framework for business improvement projects,

evaluation of cost saving opportunities, design and implementation of

business improvement systems.

• Design and implementation of integrated cultural and systemic systems and

tools to affect change.

• Mentoring of senior managers in change and delivery of leadership training.

Career History

2011-Present HDR | Salva : Director Consulting Services

2009 – 2011 Xstract Mining Consultants: Principal Consultant

2006 - 2009 Rio Tinto, Brisbane, QLD: Group Manager – Business Improvement

2005 - 2006 BHP Billiton, Wollongong, NSW: Manager - Business Excellence

2004 - 2005 Oceanagold Ltd, NZ: Manager, Business Improvement & Planning

2002 - 2004 WMC Resources Kalgoorlie, WA: Manager, Business Planning

2000 - 2002 Pasminco Limited Melbourne, VIC: Manager, Business Analysis

1999 - 2000 Pasminco Limited, Melbourne, VIC: Senior Business Analyst

1992 - 1999 Pasminco Limited, Elura Mine, NSW: Superintendent, Metallurgy

5

Coal Mining in Indonesia

Current State of Play

Market leader in global thermal coal supply.

Estimated Coal Production in 2013 ~490Mt with Exports at ~400 Mt.

In 2013,coal production grew by 7.6% y-o-y while export registered a

growth of 5.4% y-o-y, despite of recent slump in coal price .

200 235

299 353

384 405

37 43 55 63 72 86

0

100

200

300

400

500

600

2008 2009 2010 2011 2012 2013

Exports (Mt) Domestic Demand (Mt) Production (Mt)

237 277

354

416

456 491

More Tonnes or Smart Tonnes!

On the profitability front, current results from Indonesian coal

producers are not encouraging!

× 47% YoY decrease in Net Income for Adaro;

× 40.8 % YoY decrease in profit for Kideco;

× A net loss of US $ 7.2M for Santan Batubara;

× 42% YoY, decrease in profit for PTBA; and

× A net loss of US $31M for Bayan Resources

Result - An Ailing Coal Industry with significant job losses (much more

than 100,000) being quoted.

Are Coal Producers chasing just tonnes or Smart Tonnes !

Maintaining High Volume at low Margins

A Short Term Strategy!

Coal Producers producing more tonnes in to maintain same revenue level and

profit.

– A short term strategy with a fundamental flaw— a very high market

penetration rate is required which is tough to achieve for commodity like

coal.

Companies generally push large tonnes in the market because of

– Decommissioning and recommissioning cost for mining equipment is high

– Not very flexible mining plan which allows flexible production ( may be

governed by geological issues)

– Labour related issues

– Contractual Obligation (Take or Pay arrangement for Australian Coal

Producers)

Long term losses always outweigh short term gains

– Excessive production always ends in oversupplying coal in the market

resulting in a long term low price environment

What needs to be done in difficult

price environment !

Focus on Quality - monitoring can be done a mine site to demand

centres

Demand Driven Planning - similar to metal mines can be done in

Indonesia by selective mining

Better Overall Equipment Efficiency (OEE)

Improved mine planning techniques

Productivity improvement

Better labour and contract management

Reduce waste in Mining Processes

Need for Change!

The mining industry needs to simultaneously improve productivity

and reduce costs

Achieving More with Less Resources is perhaps the industries

greatest challenge

This is really the management dilemma

– “ How can I achieve more with less?”

– Developing organisational capability to perform in a cost-driven

environment is perhaps the most difficult leadership challenge facing

today’s managers in the mining industry

What Really Works?

Major Techniques

Strategy into Action/Plan

Six Sigma

Theory of Constraints

Top Down - Deep Dive Approach / Break-through

Lean Manufacturing

Means Owner Measures Targets Milestones

Objective:

Owner:

Measure: Target:Ref. no.

Q1 Q2 Q3 Q4

Dept.

Business

Plans

Business

Strategy to 2018

Business Plan

for FY14

KEY BUSINESSPROCESSES

LEAN OPERATIONSPEOPLE DEVELOPMENT

GoalsGoalsGoals Targets

SHAREHOLDER VALUE

GoalsMeasures TargetsMeasures TargetsMeasures TargetsMeasures

KeyObjectives

KeyObjectives

KeyObjectives

KeyOutcomes

Mission: CUSTOMER VALUE

YEAR:

KEY BUSINESSPROCESSES

LEAN OPERATIONSPEOPLE DEVELOPMENT

GoalsGoalsGoals Targets

SHAREHOLDER VALUE

GoalsMeasures TargetsMeasures TargetsMeasures TargetsMeasures

KeyObjectives

KeyObjectives

KeyObjectives

KeyOutcomes

Mission: CUSTOMER VALUE

YEAR:

P r o e c

D e s c p t o n

K e y m e a s u e m e n s a n d a r g e t s :

S c h e d u e s s u e d a t e P e p a r e d b y :

K e y a c i v i y c o m p e o n d a e :

Project Charter

s

Business Plan

for FY14

KEY BUSINESSPROCESSES

LEAN OPERATIONSPEOPLE DEVELOPMENT

GoalsGoalsGoals Targets

SHAREHOLDER VALUE

GoalsMeasures TargetsMeasures TargetsMeasures TargetsMeasures

KeyObjectives

KeyObjectives

KeyObjectives

KeyOutcomes

Mission: CUSTOMER VALUE

YEAR:P r o e c

D e s c p t o n

K e y m e a s u e m e n s a n d a r g e t s :

S c h e d u e s s u e d a t e P e p a r e d b y :

K e y a c i v i y c o m p e o n d a e :

Project Charter

s

Means Owner Measures Targets Milestones

Objective:

Owner:

Measure: Target:Ref. no.

Q1 Q2 Q3 Q4

Individual

Score Card

Business Planning

Strategy into Action

Drives Clear message & Accountability !

Business Planning:

Balance Scorecard

Balance Scorecard – Outcome

Australian Coal Mine

Employee Perception

Six Sigma

Six Sigma is a means of measuring and managing processes to consistently

deliver outcomes that meet customer and other stakeholders’ expectations.

It is a structured data driven methodology for reducing waste from process,

products and other business activity while having a positive impact on Cash

Flow.

Six Sigma 6σ

Stable & Capable

Six Sigma Method

Define

• Define the problem and process improvement opportunity

• Define customer Requirement

• Define current process

Measure

• What do we need to improve ? Can we measure this ?

• Understand the variation in the process (not average)

• Fix the base line

Analyse

• Analyse the process

• Develop hypothesis around root causes

• Validate root cause by data Analysis

Improve

• Generate improvement ideas based on root causes

• Evaluate & select optimal solution

• Implement improvement on pilot basis

Control

• Review Results

• Modify solutions if required

• Roll out solution

• Assure that improvement will sustain

Theory of Constraint

An overall philosophy developed by Dr. Eliyahu M Goldratt

TOC is applied logically and systematically to answer three questions

– What needs to be change ?

– To what to change to ?

– How to cause the change?

TOC postulates any company can improve its profitability and profits by

– Increasing throughput

– Reducing Inventory

– Reducing Operating cost

Five Focusing Steps to achieve desired profitability and profits

Five Steps

1. Identify the

constraint

2.Decide how to

exploit the constraint

3.Subordinate everything else to the Constraint

4.Elevate the System

Constraint

5. If the constraint has been

broken, go back to Step

1

Clear Strip Top

Soil Drill Inventory Inventory Inventory

Blast Strip Blast/Rip Inventory Inventory Inventory

Mine Crush Process Inventory Inventory Inventory

Load

Trains Rail

Unload

Trains Inventory Load

Ships

TOC in Mining

Identify the complete system

Capacity Balance

0%

20%

40%

60%

80%

100%

120%

140%

160%

Drilling Blasting DRE SHE Trucks Coal loaders Coal Hauling Crushing CPP Loadout

Potential Current !00%

TOC Analysis

..Focus on Capacity & Utilisation

All these processes are constraining total system output due to either:

• Insufficient installed (potential) capacity or..

• Under utilisation of installed capacity (underperformance)

Different management responses are required…

Capacity Balance

0%

20%

40%

60%

80%

100%

120%

140%

160%

Drilling Blasting DRE SHE Trucks Coal loaders Coal Hauling Crushing CPP Loadout

Potential Current !00%

TOC Analysis

..Focus on reducing cost

• Excess Potential Capacity

• Excess Actual Capacity

• Implies = not a constraint

• Focus = minimise cost

Top Down – Deep Dive

Top Down – Deep Dive

Analyse Find Root Cause Prioritise

Lean Manufacturing

..the elimination of waste

Lean Manufacturing

..some tools in mining industry

Start with Safety Cross

‘Tell a story’, work from left to right

Metrics should be reviewed

Daily/Weekly/ /Monthly

KPI templates have very clear targets and control limits

Data is updated by hand, prior to the meeting start time

Report by exception, agree

action for non conformance

Strategic Pillars help to identify measureables and align the team to the organisational goals

Visual Factory The KPI Board…

Is a complete status of the process and people

Metrics must be measurable and controllable by the team

• If we cannot measure it, how can we control it?

• “What gets measured, gets done!”

Benchmarking

..against Peers

TOC v Lean v Six Sigma?

Suggest it’s not either or…but all of

the above!

6σ is a tool-kit that primarily

analyses individual process

variation/quality

Lean focuses on the elimination of

waste

TOC focuses on maximising

process flow/throughput

6σ TOC

LEAN

NB : - Most mining organisation uses “6σ”as a holistic term for

Business Improvement

What works?

Executive must set the standard.

Targets must be stretch.

Create and articulate the vision – expectation that this is the “way we

do business at RTCA”

Drive accountability for KPI’s – “can’t manage what you can’t

measure”

Measure performance of KPI’s – timely, feedback, urgency

Review progress to targets – through Operating & Executive

committees

Human Resource to support

Audit sustainability of improvements – agree base case, counter KPI’s

Communicate – recognise successes

Value Driver Tree: Linking business activities to the bottom line

30

Value Driver Trees (VDTs) are a useful mechanism to determine the affect of business activities on the overall value (eg. “if I improve X, will it affect our value?”). This visual-based helps people understand the complexity of and the relationships between different key business activities. It also can prioritise the many things we have to do and drive accountability for achieving desired outcomes. Selected key points from our approach are outlined below: Defining Valued Outcomes • Identify the main overarching value of the organisation (eg. “we provide... or our goal is to be...), or highest level economic outcome (ROI). • Next, determine the key business functional areas (economic drivers) that deliver that overall value. • Finally, determine the business activity drivers and their measures that make up the key business functions. • Consider different perspectives of Value - cost vs profit, customer vs business unit, etc. This process is illustrated in the diagram on next slide..

HDR | Salva has found that our clients often have trouble ensuring that the key measures (KPI's) they have set for their people will actually drive business success. This is usually because those accountable for KPI's don't have a tool to allow them to see this link. Our experience highlights the importance of the overall approach, not just to defining the valued outcomes but also to ensure these are realised.

Productivity Improvement Tools

Value Driver Trees

Cost Optimisation Process

Strategic Thinking

Process Mapping

As Is – To Be

Ranging Analysis

Process Optimisation

Benchmarking

Prioritisation Matrix

Risk Analysis with Monte Carlo

Simulation

Throughput Rate

648 99.1%

ROM Tonnes

416,971 95.2% Availability

Coking 91.3% 101.4%

351,885 97.2%

Coal Produced Utilisation

361,866 98.8% 95.2% 95.2%

tonnes 0 C C Yield

84% 102%

Energy

9,981 219% Energy Yield

2% 230%

Driver Tree using graphics

Plant Availability

50%

60%

70%

80%

90%

100%

Jul-04 Oct-04 Jan-05 Apr-05

Actual Target

Plant Intensity

(tph)

400

500

600

700

800

900

Jul-04 Oct-04 Jan-05 Apr-05

Actual Target

Monthly Feed Tonnes

200000

300000

400000

500000

600000

Jul-04 Oct-04 Jan-05 Apr-05

Actual Target

Case Study: VDT Application

Load & Haul Performance Analysis

33

Cost Data Analysis:

Visual Tools

LOGIC TREE EXAMPLE:

HOW DID ROBERT MAXWELL DIE?

How did Robert

Maxwell die?

He was murdered

He may not be dead

He died of natural causes

He committed suicide

Poison

He’s living under his old identity,

but undetected

Other health problems

Other means

Gunshot wound

He has taken a new identity,

having lost a lot of weight

Pulmonary edema

Self-inflicted gunshot wound

Heart attack

Knife wound

Threw himself overboard

Considers

all options

Typical Assignment

Key Tasks

Identification of key drivers for load and haul

Gathering base line /current performance measures

Benchmark measures against ‘leading practices’

Adjust measures for future plans

Develop potential cost of operations

Develop KPI’s for contract management (from operations perspective)

Potential Time / Cost

• Information Gathering - 5 days (3 days at site)

• Development of Driver tree framework – 5 days

• Syndication and user engagement – 4 days (2 days at site)

• Benchmark data and bottom up cost based on activities – 5 days

• Final handover – 4 days (2 days at site)

36

How HDR | Salva bring benefits

HDR | Salva works closely with our

clients in assisting in optimising the

value through efficient mining process.

Our team of analysts specialises in

identifying process across the entire

mine to port value chain.

We bring a systematic approach to the

review and optimisation of the mining

operation and the ability to build robust,

ongoing management processes that

maximise the return on equity to our

clients.

Services • Strategic management

• Mine to Port Optimisation

• KPIs and KPDs

• Implementation Plan

• Internal Peer Review

Linking business activities to the

bottom line

HDR | Salva has found that our

clients often have trouble ensuring

that the key measures (KPI's) they

have set for their people will actually

drive business success. This is

usually because those accountable

for KPI's don't have a tool to allow

them to see this link.

Our experience highlights the

importance of the overall approach,

not just to defining the valued

outcomes but also to ensure these

are realised.

We have found Value Driver Trees (VDTs) are a useful mechanism to determine the affect of business activities on the overall value (eg. “if I improve X, will it affect our value?”). This visual-based helps people understand the complexity of and the relationships between different key business activities. It also can prioritise the many things we have to do and drive accountability for achieving desired outcomes. Selected key points from our approach are outlined below:

Defining Valued Outcomes

Identify the main overarching value of the organisation (eg. “we provide... or our goal is to be...), or highest level economic outcome (ROI).

Next, determine the key business functional areas (economic drivers) that deliver that overall value.

Finally, determine the business activity drivers and their measures that make up the key business functions.

Consider different perspectives of Value - cost vs profit, customer vs business unit, etc.

This process is illustrated in the diagram on next slide..

38

HDR | Salva Advantage

A well constructed and managed VDT

will give your business managers a

simple but powerful tool to keep their

staff focussed on the key economic

drivers to deliver business value.

The VDT makes clear role accountability,

provides a trigger for business variance

identification and directs people to where

improvement projects should be

focussed. Key benefit measures can be

communicated quickly and clearly up to

Board and out to all employees.

Automation of data collection keeps

focus on managing improvements – not

on “checking the numbers”.

Examples of recent engagements:

Rio Tinto

Development of fact book for accessing improvement value

and dependence on one unified model across Rio Coal

operations

Change management of major cross business transformation

project including use of VDT's to link front line process

changes with overall improvement KPI's

BHP Billiton

Development of logistics contractor contract based on VDT’s

Design and implementation of VDT's for process plants

OceanaGold (NZ)

Design and implementation of VDT's across mine and

processing operations

Nickel West

Design and implementation of VDT's for smelting operations

39

Case Studies

Just Broad Overview is shared in this forum to respect client’s

privacy and IP!

Ore & Waste Fragmentation

Gain share with Orica Mining Services – tapping into best explosive

expertise

Improved fragmentation of waste blocks results in improved digging

efficiency, increased excavator loading productivity and reduced

wear on excavator components

Improved fragmentation of ore blocks bolster improvements to mill

throughput and ROM loader efficiency

Both ideas have a combined annualised value of $3 Million.

Mine Design

Redesign of Pit 2, Pit 3 North and FRIM pits to bring ore mining

forward to present time and replace Medium Grade stockpiles

which would otherwise be mined presently or shortly in the

future

Pit 2: Brought 2,140 oz forward

Pits 3 North: Displacing Medium Grade stockpiles to the tune of 5,414

oz,

FRIM: Displaced Medium Grade stockpiles, 598 oz

All redesign projects completed.

Total value from Aggressive Re-design: $6.47 Million

Berm Robbing

Aim is to mine extra ore from Pit3 which was left behind for wall support purposes

As the pit is filled up with waste, there exists opportunity to mine berms that were inaccessible to mining before

Project has been completed. $2.1M of benefits in the bank.

Pit

Mining Cycle Efficiency

Load Haul Dump Optimisation

On board system (Minestar) used to capture an accurate/ detailed

picture of the Load and Haul cycle

– Drilling & Blasting cycle

– Load and Haul fleet availability

– Delays

– Pit Dewatering

– Haul Path variability

Improve Haul Path Variability

Co-operative with Caterpillar and Local Service Agent

Main Goal is to improve trucking (haulage) productivity and reduce

wear and tear on haulage fleet components (cost savings in

maintenance and ancillary gear usage)

Scope is to reduce haul path variability to within ± 200 mm and better pit

floor condition control

CAT CAES system being procured and installed in D10R dozers on site

Potential annualised value of idea: $3,200k

Truck Utilization & Pay Load

Training

Right Tools & Info

Tracking & Reporting

Tyres

Main Goal is to reduce wear and tear on haulage fleet components

(cost savings in maintenance and ancillary gear usage)

Scope is to reduce haul path variability to within ± 200 mm and better pit

floor condition control

Tyre Bay at Mine Crib:

– Obvious benefit is the reduction of truck travel time to get tyre changes – trucks

currently have to travel to the Main workshop

– This ‘lost’ time can be better utilised for extra production or machine variable

operating cost reduction

– Safety implications are also improved because there will be fewer people &

machines sharing a small amount of space at the Main workshop

Annualised value of idea: $3,200k

Reduction of Mining Fleet

Consumables Usage

Includes fuel, GET, lubrication, tyres etc.

Tracking and monitoring systems being improved

Currently accounts for 20% of total mining operating costs

Combine efforts of alliance partners

Improving Mining Utilisation

Hot Seat Changeover

– Combination of Hot Seating and Shift Change Optimisation activities

– Crews to start their shifts from Mine Crib Room rather than from the Main

Office

– Reduction of production time lost due to shift changes and lunch breaks

– Gain of extra 40 minutes production a day

Refuelling Bay

Some Routine Preventive Maintenance at Mine Crib

Tyre Bay at Crib Hut

Ore Mining at Night

Training Simulator for Load & Haul Operators

Pit Dewatering

Operator Awareness for targets!

Mill Throughput Increase

Goal was to increase Mill throughput to a consistent 640 tph

The design flaw in the discharge end of the mill was responsible for

reduced throughput as the slurry was not effectively exiting the mill due

to the grates being too stiff and continually pegging

Modifications were made to increase the flexibility and aperture of the

grates.

The idea has a value of $11,000,000 per annum.

Some Engagements

A well constructed and managed Business Optimisation Program will give your business managers a simple but powerful tool to keep their staff focussed on the key economic drivers to deliver business value. This makes clear role accountability, provides a trigger for business variance identification and directs people to where improvement projects should be focussed. Key benefit measures can be communicated quickly and clearly up to Board and out to all employees. Automation of data collection keeps focus on managing improvements – not on “checking the numbers”.

Consultant’s Experience: Rio Tinto • Development of fact book for accessing improvement value and dependence on one unified model across Rio Coal operations •Change management of major cross business transformation project including use of VDT's to link front line process changes with overall improvement KPI's BHP Billiton • Development of logistics contractor contract based on VDT’s • Design and implementation of VDT's for process plants OceanaGold (NZ) •Design and implementation of VDT's across mine and processing operations BHP Billiton Nickel West * Design and implementation of VDT's for smelting operations

Manish Garg manish.garg@hdrinc.com

+61 407 771 528