innovation challenges in mining industry new global context · 2018-05-02 · april 24, 2018...
TRANSCRIPT
April 24, 2018
Innovation challenges in mining industry new global context
3er Seminario de Abastecimiento en Minería, Expomin 2018
Roberto Quijada R.Administration & IT Manager
Agenda
• Mining industry past trends and lessons
• Future perspectives
• Innovating to maintain competitiveness: Collahuasi’smodel
Agenda
• Mining industry past trends and lessons
• Future perspectives
• Innovating to maintain competitiveness: Collahuasi’scase
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China’s growth and increase in costs have been the main
determinants of recent copper price trends
Source: Cochilco. Deflator: US Producer Price Index for All Commodities
LME Copper Price(c/lb, 2017 currency)
China's growth, supply expansion and higher
costs
Post-World War II andEuropean reconstruction, Golden years
USA, Japanese Miracle
Post - greatdepression
Oil crisis, Replacement of copper, Increase in low cost
supply (leaching & Chile)
?
-
5.000
10.000
15.000
20.000
25.000
China Rest of World World
5,3%
3,8%3,3% 3,2%
3,9%3,5%3,6%
6,2%
9,3%
10,4% 10,5%
7,5%
0%
2%
4%
6%
8%
10%
12%
On the demand side, China’s growth has been decisive
Cagr: Compounded annual growth rate. Source: IMF; Cochilco. Analysis: 1st Quartile Mining.
World average(included China)
China
Cagr: 3,6%
Cagr: 8,9%
GDP Compounded Annual Growth Rate(%)
Refined Copper Consumption(kt refined copper, % share)
cagr 6,3%
cagr 14,6%
cagr 10,9%
China’s share in world refined copper demand
cagr 12,7%
12% 38% 48%6%
…mining industry reacted with an increase in investments and
mine production capacity without precedents
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10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
90.000
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Investments of Leading Global Mining Companies*Millions of US $, nominal
*: Includes Anglo American, BHP Billiton, Rio Tinto, Vale, Xstrata, Glencore Antofagasta, First Quantum, Freeport McMoran,KGHM, Lundin Mining, Southern Copper y Teck Resources.Source: Business reports, Cochilco. Analysis: 1st Quartile Mining.
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12.000
13.000
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Mine copper production Copper price
World Mine Copper Productionand Copper Price
Cagr:
0,8%
Cagr:
2,1%
Cagr:
4,7%
kton of copper c/lb
…impacting negatively on Capex and Opex escalation
Capital intensity in Chile(Capex / Annual copper production eq.*)
[US$/ton Cu Eq.]
0
5.000
10.000
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20.000
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30.000
35.000
40.000
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Spence
Escondida
SBL
Gaby
Exp. Andina
(72-94kt/d)
Esperanza
Exp. Los
Pelambres
(140-175kt/d)
Exp. Los
Bronces
(61-148kt/d)
Ministro
Hales
Caserones
Escondida
OGP I
Antucoya
Sierra
Gorda
Source: WM. *: Projects with investment in pre-production over US$ 1,000 million. Points represents the moment of execution.
Cash Cost C1(c/lb)
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Chile
Peru
World
…and causing an important deterioration in financial results,
balance sheets and share prices
Ebitda (MUS$) ROCE (%)
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40.000
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140.000
160.000
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Net Debt
(MUS$)
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20.000
40.000
60.000
80.000
100.000
120.000
140.000
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Net Debt / Ebitda
(#)
0,0
0,5
1,0
1,5
2,0
2,5
3,0
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Deterioration
of profits and
profitability of
the mining
industry
High debt
could slow
future growth
Wacc: 8%
Financial Results of the Global Mining Industry*
Source: Yahoo Finance and reports of mining companies. *: Incluye a BHP Billiton, Rio Tinto, Xstrata, Glencore, Vale, Anglo American, Freeport, Antofagasta, Teck, Southern Copper, First Quantum, Lundin Mining. Análisis: 1st Quartile Mining.
Index of Share Prices [June 2011 = 100]
131%
208
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6-1
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2-1
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2-1
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10-1
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6-1
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FTSE 350 Mining S&P 500
To survive enormous changes in strategy were necessary to
face this new mining industry context
Previous focuses Recent focuses
I II
Changes in competitive
environment and business conditions
Growth:
• Maximization of production to meet exceptional demandgrowth
• Mergers & acquisitions(regardless of value)
• Brownfield & greenfield projects(impact in costs of labor, energy, inputs, services, etc.)
• Efficiency in costs and productivity were not relevant
Generation of profitability, cash flows and discipline in the use of capital:
• Maintain profitable portfolios (sale of unprofitable assets)
• Ensure the generation of positive cash flows (increase in operational efficiency and productivity)
• Achieve a solid financial balance (reduction of debt)
• Discipline in the use of capital (reduction of investments, minimization / elimination of dividends to shareholders)
• Sharp drop in commodity prices
• Fall of industryincome and profitability
• High levels of debt
…of course, this strategy also impacted mining suppliers of
equipments and services
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2013 2014 2015 2016
Sandvik AB
Caterpillar Inc.(CAT)
ThyssenKruppAG (TKA.DE)
Komatsu Ltd.(KMTUY)
Murray &Roberts HoldingsLimited (MURZY)
MetsoCorporation(MXCYY)
Total Revenues[MUS$; year 2013 = index 100]
• Sales revenue tended to fall between15% and 30% in the last 3 years
• This was the consequence of thedrastic adjustment in mining industry
• The impact forced the diversificationof many suppliers to other businesssegments to reduce negative results
Source: Financial reports and presentation from suppliers.
Some lessons we can´t forget…
• Capital allocation discipline: Given high uncertainty in mining business, comapniesmust focus must be on profitability (IRR) and cash flow generation rather than value(NPV). That means smaller size or modular growth projects, with reduced capex,more rapid payback and generation of cash flows.
• Production can not be an objective in itself: Understand that “simultaneous” growthdecisions impact negatively copper price and costs. Keeping "cautious" and notgrowing can be an excellent business for the whole industry.
• Focus on effciency and productivity: Mining companies must continue the focus ondecreasing costs and increasing productivity. Maintaining a competitive position inthe cost curve is the only thing that ensures survival during all stages of the cycle.
• Mining companies and suppliers alignment: Extreme adjustments are not goodeither for mining companies or for suppliers. That is why we must work togetheraligning our KPIs in order to aim for a more competitive mining industry.
Agenda
• Mining industry past trends and lessons
• Future perspectives
• Innovating to maintain competitiveness: Collahuasi’smodel
5,3%
3,8%3,3% 3,2%
3,9%3,5%
3,9% 3,9%3,6%
6,2%
9,3%
10,4% 10,5%
7,5%
6,6% 6,4%
0%
2%
4%
6%
8%
10%
12%
World China
On the demand side, projected world economic outlook is
positive when compared to previous periods
GDP Compound Annual Growth Rate(%)
Source: IMF, WEO update, January 2018.
These forecast are not free of uncertainty:
• China’s transition of its economic model
• Inflation, interest rates increase, and dollar strength (impact in commodity prices)
• US, Europe and Japan high debt levels are not solved
On the supply side, despite an improvement in 2017 cash flows,
mining companies for now remain cautious with the use of capital
Mining Industry Current Priorities
Operating productivity
Capitalproductivity
Operating cash flow
Sustaining Capex
balance sheet strengthening
Dividends policy
Excess cash flow
Debt reduction
Additionaldividends
Shares Buy-backs
Organic growth
Mergers & Acquisitions
Copper Industry Free Cash Flows & Copper Price*
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420
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Co
pp
er P
rice
c/l
b
Free
Cas
h f
low
US$
bn
Free Cash flow PRIORITY
*: WM, 2017
NOT A
PRIORITY
After 2020 new mine capacity will be needed to meet demand
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2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Mt
Probable projects
Base Capacity - 5% Disruptions
Primary demand 1,4%
Primary demand 2%
Primary demand 2,5%
Projection of Mine Production Capacity Gap
2,3
4,2
Source: 1st Quartile Mining.
Agenda
• Mining industry past trends and lessons
• Future perspectives
• Innovating to maintain competitiveness: Collahuasi’smodel
Results are only generated at the heart of the processes
Chain Support / Staff
Develpment& Sustainab.
MineOperations
PlantProcesses Marketing
Q = f(Y,T,K,$)
The most effective way to implement an attribute is to
install it as a line responsibility in the processes,
making it a permanent activity for everyone,
never as a separate project
If we reduce incidents, we will generate much more valueO
utp
ut
ga
p
Q = f(Y,T,K,$)
PerformanceExtractioncapacity
Perf. Caex930
Mine cost
PlantProc.
PlantUtilization
Plantcost
IFProduc-
tivityIncidents
(Environment/Community)
ROCE
750 500 1,6 160 95% 6 0 100 0 18,5%
680 470 1,83 135 87% 6,9 0,7 84 12,6%Real
Expected
2
Incidents
(ktpd) (tph) (US$/ton) (ktpd) (%) (US$/ton) (u) (t/pers.) (u) (%)
Gap % -9 -6 -14 -16 -8 -15 -999 -16 -999 -32
• Ore deposit• Labor• Capital• Opex• Inputs• Services
Our main innovation has been the adaptation and simplifying of the
Deming’s circle of continuous improvement (1945) to Collahuasi
MAP OF PROCESS
RISKS MATRIX
PLANS OF MITIGATION &
CONTROL
WORK PROCEDURES
VERIFICATION & AUTORIZATION
INCIDENTS INVESTIGATION
PLANNING EXECUTION VERIFICATION
KNOWLEDGE /
LEARNING /
COMMUNICATION
EPF
the Risk Management Cycle objective isto eliminate or reduce incidents
C+: Innovating from processes
We have installed a friendly mechanism that channels the abilityto innovate and stimulate the formation of work teams capable oftransforming creativity of workers in concrete projects
Modification of processes. C+ in phase II will be oriented to challenges and proposals that imply modifying the processes from their maps.
Local Challenges. C+ in phase II will operate inside the process. The owner of the local C+ is the owner of the process.
Source of ideas: Natural generation + contributions to RITUS management + learning from incidents + Planning
Safety(Accidents Frequency Rate)
Copper Production (kton Cu)
Operation costs, C1 (c/lb)
Productivity(Ton Cu/person)
Our management model has supported an important
improvement in results
1,000,88
0,60
0,450,38
2013 2014 2015 2016 2017
445
470455
507524
2013 2014 2015 2016 2017
6972 74
9398
2013 2014 2015 2016 2017
1,481,42 1,41
1,14 1,14
2013 2014 2015 2016 2017
-62%Incidents
+18%Copper
Production
+42%Productivity
-23%Cash Cost
April 24, 2018
Innovation challenges in mining industry new global context
3er Seminario de Abastecimiento en Minería, Expomin 2018
Roberto Quijada R.Administration & IT Manager