Abstract:

Five key levers to improve margins and beat the cost-price squeeze

The high metal prices that have prevailed for most of the last decade have triggered a chase for production. This has compounded the fundamental scarcity in some key inputs, such as experienced and skilled labour, and has been pushing costs up over time. But recently, this has been accelerating, due, in part, to supply chain issues stemming from the COVID-19 pandemic; geopolitical factors, such as war; and, most recently, sky-high inflation. We are now seeing the prices for many minerals, while still relatively high, come off their recent peaks. The combined effect of increased costs and lower prices is squeezing margins.

Five key levers

This certainly isn’t the first time the mining industry has faced similar challenges. What is evident time and again is that the use of blunt instruments, such as cost-cutting and intensive productivity improvement programs, barely scratch the surface. They may deliver some short-term gains, but these are rarely sustained. The big opportunities are typically found by digging a little bit deeper into the key levers of performance to uncover the hidden value by mining smarter.

These opportunities typically don’t require big investment but do require a more sophisticated approach. Five key levers that can drive sustainable performance improvement address both sides of the cash flow equation—that is, costs and revenues. Miners can improve cash margins and reduce business risk by:

Employing good cost management and control, rather than cost cutting. This will typically result in significant savings that can be sustained. The difference being that a deeper understanding of cost drivers can quickly identify and eliminate wastage and inefficiency without compromising quality or sustainability.
Getting the most out of the available data. This provides a substantial opportunity to improve productivity and performance. But to do this, it’s essential to set the right KPIs to get data working for you.
Developing a robust geometallurgical model. This results in more predictable ore and enables higher metallurgical recoveries and reduced cost.
Reviewing the cut-off grade policy and moving away from break-even grades typically delivers higher cash margins in the short-term and maximizes value over the long-term, thereby de-risking the mine.
Good mine planning. This ensures that you have a sound and reliable strategy, and are achieving your business goals.

These five key levers are relatively low-cost to implement but will typically drive a significant uplift to the bottom line. And while this is particularly important when margins are under pressure, any time is a good time to initiate them.

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Eric Frazier

Biography