Mining the value of assets

Operations in the Hunter Valley

During the last couple of years mining services companies have had to rapidly adjust their strategies, shifting from a focus on growth to one of cost-control and cost-efficiency.  

The challenges facing the mining industry are well known.  

Declining commodity demand and falling prices have had a big impact on miners and on the engineering, contracting and construction firms that service them.  

After years of investing in new assets to meet sector demand, many are grappling with the discovery that they now have expensive equipment lying idle. 

In this environment, management of fleet portfolio risk is as crucial as the life cycle costs of ageing and under-utilised assets and can become a substantial drain on an organisation's profitability. 

To cope with the changes, business strategies geared around continuous growth have been replaced by strategies aimed at maximising operational performance and cost efficiency.    
And in this asset-intensive industry, one of the best ways of achieving both of these goals is through tight control and smart management of assets. 

The nature of assets 

Typically, the assets owned by mining services organisations are costly. Whether it's precision drilling equipment or large earthmoving trucks, the assets are expensive to purchase and to maintain.   

The other fact about them is they are absolutely essential for revenue.   

In large part, a mining services organisation lives or dies based on its ability to deliver the correct services and functioning equipment to the right location, at the right time.   

Apart from cost and capability, one of the big considerations when dealing with any mining asset is its life cycle.  

Given the conditions under which they operate and their heavy usage, these assets can have a very limited economic life.  

Understanding the life cycle of assets and maximising their productive use is fundamental to business performance. 

The question of ROI 

The return on an asset investment is derived by balancing investment cost, the asset's lifespan and optimal usage of the asset.  

Companies will want to drive their assets as hard as possible, employing them as frequently as possible to extract maximum productivity.   

They must also ensure the assets are available for use when needed.  This requires maintaining assets so they comply with applicable regulatory requirements, are reliable and deliver productive output for a minimal TCO [total cost of ownership]. 

Take the example of a fleet of mining trucks.   

We know that once they are in use, even the best of them won't last much longer than 60,000 run hours.  For the first few years, it's reasonable to expect the trucks will operate fairly reliably with essential servicing but as time goes on, maintenance time and cost will increase, and reliability will decline.   

Once this phase is reached, the need to overhaul major components and deterioration on other components means the assets will be out of action for longer and longer periods, thus reducing productivity. 

Lifespan and maintenance cycles 

When the recent boom was in full swing, maintenance cycles weren't much of an issue.  

The industry's hunger to explore new sites and expand existing ones ensured demand for mining services and equipment was strong.   

So strong there was a good business case for purchasing new equipment to match new contracts.   

In this way companies could avoid the problems of an ageing fleet and asset downtime. 

But as the market has slowed, contracts are harder to come by and these same companies are discovering they have a very extensive investment in underutilised assets.   

There is little incentive to buy new equipment, but the crippling danger of an ageing asset portfolio is the slow slide towards an uncompetitive fleet.  

So, what's the best course of action for a company in these circumstances? 

Striking a balance 

The first step is to fully understand the impact of assets on your cost structure when you bid for work. A software system can help you to derive an accurate total cost of ownership.   

It provides a means of planning asset life cycles, monitoring and tracking usage, identifying underutilisation, and analysing usage trends on costs – both now and into the future.  

Through more efficient allocation of resources, effective inventory and purchasing management, the system can help reduce maintenance costs.  

And it will help optimise efficiency by minimising downtime, scheduling maintenance using a risk based approach. 

With this information, you can make more informed bids.   

You may discover it makes sense to sacrifice gross margin because the project supports your turnover cycle of assets.  

You may also find that ongoing costs are making your old equipment unprofitable and that the best option is to salvage it for whatever you can get. 

It's all about balance 

When trying to contain costs and maximise efficiency, there's another particularly important best practice.  Analyse your assets in two distinct ways –  in isolation and as a portfolio. It's important to know the costs, utilisation and productivity of a particular drill, for example, but it's equally essential to know the status of the organisation's fleet of drills.   

The condition, capability and TCO of the fleet can indicate risks.   

Right now, one of the more noticeable problems for companies that bought up big in the boom is the imbalance in the age of their asset fleet.   

Much of their equipment is of a similar age, which means maintenance demands will increase in sync and much of it will need to be replaced at a similar time. This points to a significant cost burden in the near future.   

Good life cycle planning is essential in these circumstances.  

In many ways, the best examples of asset management involve balance.   

The balance between new and old equipment required to avoid risk.   

Balance between productive utilisation and maintenance, so that output is maximised and downtime minimised.   

And balance between cost-cutting and investment, so that financial imperatives are met while keeping the fleet, and ultimately the company, competitive.   

Ultimately, today, asset management can make a considerable contribution towards business and profitability by reducing costs and increasing the productivity of assets.  

The emergence of frameworks including PAS55 and ISO55000 have helped an will continue to  shift the thinking of how to manage assets from that of determining what cost to meet a level of service, to one of understanding the implications of the performance, cost and risk trade-offs at various investment levels.   

 

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