mining division review - omniareports.omnia.co.za/2016/download/omnia-iar16-mining.pdf · mining...

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MINING

DIVISION REVIEW

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PERFORMANCE REVIEWMINING DIVISION REVIEW

OVERVIEW

The Mining division comprises two separate businesses – BME and Protea Mining Chemicals – which provide products and services that add value to customers in the mining industry. Mining is a key sector for the Group and the division covers products and services required in the mining process from breaking ground to recovering the final product.

OVERVIEW – BMEBME is a leading manufacturer and supplier of explosives, related accessories and blasting services to the mining, quarrying and construction industries in South Africa and Africa, with an ever expanding global footprint. BME’s main focus is on products consisting of bulk emulsion and blended bulk explosives, and related products and services that include on-site bulk emulsion plants, packaged explosives and electronic blast initiation systems. Through BME’s Blasting Science and Technical Service unit (Blasting Service), the division supports customers with a wide range of technical services, from routine blast monitoring to advanced consultancy and optimisation projects.

Having introduced the technology for cold emulsion explosives into South Africa over 30 years ago and being the first to introduce used oil in the manufacturing of bulk explosives, BME remains driven by innovation and technical ability. Alongside the continuous evolution of BME’s explosives and related products, BME has developed the AXXIS® electronic delay detonators – now an industry standard with an easy-to-use interface – and the BlastMapIII™

software for blast design and planning.

This innovative approach leverages cutting-edge knowledge within the business to create significant customer wealth through improved productivity. In response to the downturn, BME has been more focused than ever on helping customers boost the cost-efficiency and safety of their operations.

A highlight of the year was the release of a new generation of its proprietary AXXIS® electronic delay detonators, with AXXIS GII® designed to be even safer and to provide mining operations with best value and optimal performance. BME evolves all of its products by working closely with customers and understanding their requirements in detail.

Software such as BlastMap III™ and the new XploPlus™ remain vital blast optimisation tools that add value to BME’s offering through the continuous applied research of its Blasting Sciences business unit. These software tools allow data from blasting processes to be captured and transformed into a useful format for improving blasting practices. The division has developed a mobile application to further enhance ease of access by the client – another step towards a fully integrated blasting environment using a technologically advanced platform.

BME’s contribution to improved customers’ blasting efficiencies has also been shown to reduce energy consumption in the loading, crushing and milling stages of production – a growing expenditure item in mines as rising energy prices continue to erode profitability. Enhanced fragmentation is achieved by BME through factors such as the high stability of BME emulsions and the application of blast specific designs using BME’s electronic delay detonators. As a result of the improvement in the blasting and mining cycle, less energy is consumed in the crushing process.

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113Omnia Holdings Limited Integrated Annual Report 2016

“In response to the downturn, BME has been more focused than ever on helping customers boost the cost-efficiency and safety of their operations ”

Joseph KeenanManaging director: BME

Mike SmithManaging director: Protea Mining Chemicals

VALUE CREATIONDespite depressed conditions in the mining sector, FY2016 was a time of substantial progress for the business, as it shifted from building production capacity for its growing market to further enhancing technology and services to boost customer productivity.

BME concentrates on providing financial benefits to its clients by assisting them in their blasting plans, strategies and implementation. Through BME’s advanced technical products and services, it assists clients to achieve important productivity improvements including:

• Maximising digging rates

• Control in the production of fines in blasting

• Decreasing excavator energy consumption

• Increases in crusher throughput

• Increases in mill throughput

• Decreases in crusher energy consumption

• Decreases in mill grinding energy consumption

• Decreases in the consumption of crushing and grinding wear items

• Improvements in mineral liberation

In addition, BME’s class-leading BlastMapIII™ design software combined with the flexible AXXIS® electronic detonators allow for major gains by allowing unique timing of blasts to afford clients value that helps prevent ore losses through dilution, generates increased advance per blast, allows multiple seam blasting in single passes and affords the application of very large-sized blasts.

BME’s blasting techniques also improves pit-wall stability, resulting in better safety and reduced mining of waste rock. They also help to reduce vibration to allow blasting near structures such as buildings and roads.

BME’s value creation is sustained through its interactions and relationships with stakeholders such as customers, suppliers and communities. Key aspects include customer satisfaction, suppliers’ terms of trade, reputation and social licence to operate.

Protea Mining Chemicals creates value for its investors and customers by selling and distributing chemicals supported by a range of logistical and specialised value-add services, to the mining industry. It provides unique product offerings through Protea Process®, supported by leading suppliers who seek to trade with an African company based in Africa. Key requirements of these relationships include customer satisfaction, suppliers’ terms of trade, safe handling of chemicals and a social licence to operate in the sub-region.

ADDING VALUE ADDING VALUE ADDING VALUE

PERFORMANCE REVIEWMINING DIVISION REVIEW CONTINUED

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In the field, BME’s performance enhancing solutions and quality emulsion products allowed the company to engineer the world’s longest vertical emulsion pipeline at a South African gold mine thus improving explosives delivery efficiency to the underground workings. In pioneering innovation to enhance safety and reduce costs, BME’s emulsion can now be pumped almost 320 metres from surface to underground workings. This efficient and streamlined method reduces congestion in the access shaft and makes the explosive easily accessible for both development and reef production; it is made possible by the highly stable characteristics of BME’s double-salt emulsions, allowing them to be pumped often and stored for extended periods under varying conditions, if necessary.

The ongoing investment in researching and fine-tuning of emulsions has led to new and innovative underground and surface mining technologies. To meet and exceed customer expectations, various emulsion classes have been customised to suit particular needs of quarries and mines – depending on factors like their geology, presence of water and specific blast requirements.

The integration of emulsion products with the electronic initiation and blast planning systems allows BME to constantly push the boundaries of scale, regularly breaking mine blasting records. In 2015, the AXXIS® system activated 5 665 detonators in a single blast in a coal mine in Australia’s north-eastern state of Queensland. Large blasts mean less downtime for mining equipment as stoppages related to blasting are less frequent; more uptime boosts productivity and ultimately, the profitability of the customers’ mining operations improves.

BME focuses on working with customers to improve their operational efficiency and equally so, continuously strives to improve internal efficiencies on an ongoing basis.

IMPROVE PRODUCTIVITY

SHARED CAPEX INVESTMENT

SHARING THE BENEFITS

TRAINING

CONTINUOUS IMPROVEMENT

SUPPLY CHAIN SOLUTIONS

SHERQ

PROCESS OPTIMISATION

PROTEA PROCESS®

PROTEA MINING CHEMICALS PROVIDE

UNIQUE PRODUCT OFFERINGS THROUGH PROTEA PROCESS®:

5 665 detonators in a single blast on a coal mine

SECTION 5


“BME shifted from building production capacity for its growing market to further enhancing technology and services to boost customer productivity ”

“BME evolves all of its products by working closely with customers and understanding their requirements in detail ”

BME underground equipment (PCU)

Among the technological developments during FY2016, was a R158 million upgrade of BME’s manual batch manufacturing plants, into continuous, automated operating plants with improved quality and operating efficiency. Additionally fully-automated production lines were also installed for the manufacture of its non-electric detonators – resulting in a noticeable improvement in product quality that further enhances the benefits for the customers. The introduction of automated production facilities will also increase the volume of units produced.

SAFETYSafety is a first priority for the Mining division. The division’s commitment to safety is uncompromising and applies at all levels of the production, operation, mining and mining related activities. This ethos includes how BME manages its staff and interacts with clients and the operating environment. Stringent methods are used to evaluate safety standards and procedures on a continuous basis, implementing corrective actions where necessary.

The prioritisation of safety in all BME operations is reflected by the decrease in the RCR from 0.74 in the previous year to 0.7 in FY2016. Protea Mining Chemicals’ RCR dropped from 1.5 to nil year-on-year resulting in an overall RCR for the Mining division at 0.70.


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This improvement can be attributed to greater efforts and safety interventions by the SHE team and the improved visibility of monthly safety results. At an operational level, across BME’s African operations there has been an increased focus on ‘tool box talks’ which highlight relevant daily hazards to improve the safety of employees and customers.

BME is continuously evolving and is focused on research and development for all its emulsion and bulk explosives product ranges. Emulsions have made blasting practices safer because they are not classified as explosives until sensitised in the drill-hole. Up to that point, the status of explosives material is classified as a 5.1 oxidiser, which makes it safe to transport and handle, and simplifies the logistics by not requiring the special licensing, permissions and facilities required by traditional explosives that are more dangerous.

BME’s emulsion has taken strides in environmental protection through the incorporation of used oil as a fuel agent in the formulation of the emulsions. Since the late 1980s, BME has pioneered this technology and with continued research, now routinely applies up to 80% used oil in the fuel phase of its emulsion explosives. Working in conjunction with customers on mine sites and other third parties in their local areas, BME collects most of the used oil for the emulsion manufacturing process. Taking waste oil from South African customers helps them comply with the regulations of the Waste Act No. 59 of 2008 in relation to the tracking, treatment and disposal of used oil; but BME goes further by adding value to the waste product, which finds its way back to the customer in a premium product. The benefit is particularly important in remote sites where the removal of used oil from mine plant and equipment is costly and difficult.

Safety is also integral to BME’s AXXIS GII® Digital Initiation System. The system and process combines entry-level explosives solutions with enhanced technology and safety features.

The use of technology plays an important role, particularly in the operation of blasting equipment and products, to ensure safe and proficient handling by operators. As part of the safety standards the relevant ISO and occupational safety and health administration (OSHAC) frameworks are applied.

Vertical pipeline

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“Safety is a first priority for the Mining division. The division’s commitment to safety is uncompromising and applies at all levels of the production ”

OVERVIEW – PROTEA MINING CHEMICALSProtea Mining Chemicals specialises in products and solutions used in processing and recovery plants in the mining industry. Each plant and mineral is unique, and the service offered formulates the correct mix of chemical products that will ensure the optimum recovery of valuable minerals from crushed and milled ore. As technology evolves, Protea Mining Chemicals also identifies new opportunities to use the latest chemicals to improve the recovery process and in turn, add value to its clients.

While Protea Mining Chemicals sources speciality products from around the world, its sales volumes and market opportunities are strongly influenced by the demand for commodities. Fluctuation in prices has an impact on mine plans and the volume of ore processed through the plant. The need to ensure a continuous supply of the correct chemicals is essential to maintain the consistency in the processing plants. This requires careful management of the supply chain and stockholding, from suppliers through the logistics hubs to the division’s end customers. Protea Mining Chemicals logistics infrastructure and network includes warehouses, port loading and discharge facilities, specialised packing facilities and transport vehicles.

A significant factor in the services provided by Protea Mining Chemicals is the safe and environmentally prudent transport of potentially hazardous chemicals, particularly those delivered in bulk to remote sites where the standards of road surfaces and conditions may not be ideal. Using ISO 9000, 14001 and 18000 standards to manage the handling, packaging and transport of hazardous chemicals underpins its philosophy on safety. Additionally, Protea Mining Chemicals only uses SQAS-accredited (Safety and Quality Assessment System) transporters to ensure the safe and reliable transport of goods to our customers, irrespective of the destination.

Protea Mining Chemicals’ market spans the African continent and services to these markets are provided from the headquarters in Wadeville, outside Johannesburg. Protea Mining Chemicals also operates into Africa, with offices in Namibia and port facilities in Walvis Bay and Dar-es-Salaam, which serve as key transport hubs into these markets. The development of new ports and facilities along the east coast of Africa has improved the accessibility to these markets and reduced the overall lead time to reach customers.


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“Protea Mining Chemicals only uses SQAS-accredited transporters to ensure the safe and reliable transport of goods to our customers, irrespective of the destination ”

APPROACHWith the global downturn, BME is positioning itself to perform more efficiently to respond quickly and take advantage of the next commodity cycle upturn. BME has launched the BME 2.0 programme to transform the business into a market-led, customer-focused, operationally excellent explosives supplier delivering real value to its customers by applying its technology. Addressing the operating model, structure and strategy of the company, BME 2.0 will retain the entrepreneurial spirit and delivery focus, while improving its commercial focus and diversifying the division’s markets.

In the area of technology, BME installed its first automated production units at the Losberg plant to manufacture and assemble the Megadet non-electric detonator. The new units is now fully commissioned and manufacturing assembled finished products. These new units will help to ensure better quality and consistency of the detonators.

BME is looking to build on this success and has ordered additional automated manufacturing units for its AXXIS® electronic detonator system to replace the manual assembly process at Rustenburg. It is anticipated that these units will be operational by the end of calendar 2016.

OPPORTUNITIES AND CHALLENGESDepressed economic conditions in global markets continued during the past financial year, with the lower demand for metals and minerals leading to mine closures, the suspension of expansion projects and the project production slow-down in west and central African countries; this has in turn reduced the volumes of BME’s business in certain areas. Challenges on taxes and royalties, utility availability, infrastructure deteriorations and political instability remain in some African territories, and to the detriment of a growing mining environment.

In recent years, together with Omnia Group, BME has ensured supply capacity growth by developing the newest plants in the industry; these include two nitric acid facilities in Sasolburg, a porous granular ammonium nitrate (PGAN) plant, an emulsifier plant, and recently upgraded emulsion plants in Mpumalanga and North West Province. This in turn has given the customers unsurpassed supply security – as the division even operates its own transport infrastructure for direct deliveries within South Africa and this continues to be a key factor supporting opportunities for southern and central African operations.

By delivering on its new operating model, BME will make its business more efficient and scalable to market growth and market contraction. BME will also improve customer engagement and commercial management capabilities to garner more market opportunities with improved commercial agreements and processes. Customer and market diversification remain important to BME now and into the future to reduce the impact of market shifts across geographies, customers and mining methods.

As an outcome of the new operating model, BME will be better positioned to drive functional excellence and improve employee engagement. The division will also have an improved focus on safety and employee wellness to ensure a happy and healthy workforce.

The Mining division continues to focus on growing market share more broadly across Africa, where the introduction and expansion of the BME, Protea Mining Chemicals and Protea Process® brands have delivered a meaningful contribution to the division’s customer base. To support the division’s broad range of reagents, the safe and cost-effective logistics offering controls the regular supply of chemicals to each end user’s site. Appropriate skills have been developed in the division to manage these activities.

Rand volatility poses a challenge as it complicates the management of Protea Mining Chemical’s operating margin. Raw materials and international transport costs which are priced in US dollars, can be hedged to mitigate the financial impact.

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“As an outcome of the new operating model, BME will be better positioned to drive functional excellence and improve employee engagement ”

“The Losberg plant is now fully commissioned and manufacturing assembled finished products. These new plants will help to ensure better quality and consistency of the detonators ”

GEOGRAPHIC SCOPEBME’s markets span the African continent, including Angola, Botswana, Burkina Faso, DRC, Eritrea, Mali, Mauritania, Mauritius, Lesotho Mozambique, Namibia, Senegal, Sierra Leone, South Africa, Tanzania, Zambia and Zimbabwe.

During the past financial year, BME was successful in a number of countries beyond the borders of Africa. These included Australia, where an increase in AXXIS® detonator volumes were sold through AIS. In Singapore, BME acquired a significant contract for the supply of electronic detonators for the construction of a new section of the Mass Rapid Transport (MRT) rail system, as well as expanding its footprint into Indonesia with packaged explosives and electronic detonators used in the mining industry.

While Africa has been the home market, the company’s growth aspirations require the further internationalisation of the organisation beyond the continent. It is therefore working actively in this direction, improving its footprint in preparation for the market recovery during the next five years.

Protea Mining Chemicals operates in the DRC, Kenya, Mauritius, Namibia, South Africa and Zambia.

FINANCIAL PERFORMANCEat 31 March 2016 2015 2014 2013 2012

Revenue (external) R million 4 551 5 351 5 458 4 379 3 051

Operating profit R million 526 720 829 735 476

Operating margin % 11.6 13.5 15.2 16.8 15.6

Segment assets R million 2 842 2 677 2 604 2 003 1 440

Net working capital R million 842 1 090 1 052 795 540

Net working capital ratio % 18.5 20.4 19.3 18.2 17.7

FINANCIAL KPIs

KPI DescriptionTarget2016

Actual2016

Actual2015

Operating margin

Profit before interest and taxes as a percentage of revenue 13% – 15% 11.6% 13.5%

Net working capital ratio

Inventory plus receivables, less payables as a percentage of revenue 17% – 19% 18.5% 20.4%

DIVISIONAL REVENUE AND OPERATING PROFIT OVER FIVE YEARS

2012

Reve

nue

(Rbn

)

20142013 2015 2016

Revenue Operating profit

Ope

ratin

g pr

ofit

(Rm

)

0

1

2

3

4

5

6

476

735829

720

526

3 051 4 379 5 458 5 351 4 551

0100200300400500600700800900


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“During the past financial year, BME was successful in a number of countries beyond the borders of Africa ”

PERFORMANCE IN 2016

MARKET CONDITIONSThe market during the 2016 financial year proved challenging, with continued low commodity market prices and price pressures leading most mines to reduce output volume and expenditure on explosives and services across all markets. Market oversupply and customer focus on pricing has led to increased price competition which in turn has impacted and resulted in lower margins.

The weakening rand, while positive for BME’s South African-sourced and manufactured products sold into Africa, had negative impacts on product categories where the inputs are purchased in US dollars.

Overall, market conditions remain challenging and are likely to remain so for the foreseeable future. More specifically, some of the key factors affecting market conditions can be described as follows:

• Softer demand in mining commodity and mineral markets throughout Africa, especially in gold, platinum, copper and iron ore

• Reduced mining activity in metals and minerals such as coal, uranium, vanadium, gold and platinum

• Reduced greenfield mining project activity in sub-Sahara Africa, as well as brownfield expansion opportunities on existing mines

• Competitor and customer price pressure across markets

• Weaker rand supported sales prices, export business and foreign earnings

• Flat commodity chemicals pricing with decline seen in oil-based chemical derivatives

• Insufficient skilled resources throughout Africa causing delays in new mining projects

• Pressure on commodity chemical pricing as customers look to significantly reduce their operational costs

• Increased competitor activity across all market sectors

COMMODITY PRICES

Coal $/tonne Uranium $/lb Copper $/tonne

Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 15

200

160

120

80

40

0

12 000

10 000

8 000

6 000

4 000

2 000

0

Coal

and

Ura

nium

Copp

er

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“BME is working actively in this direction, improving its footprint in preparation for the market recovery during the next five years ”

STRATEGYExpansion into Africa remains a core driver both for BME and for Protea Mining Chemicals. While markets appear to be contracting in South Africa with the closure of some mining operations, commodity producers that remain in business are being pressurised to reduce costs and produce more from existing operations.

BME’s vision is to remain customer focused and grow the business internationally by concentrating on operational excellence and delivering real quantifiable value through the application of best in class technology products and services. BME will continue to provide products and services that focus on the end user experience and create value for customers and Omnia.

Although BME’s expansion goals remain African focused, the company has identified additional primary markets for its bulk service offering, as well as secondary markets to enter using sales of AXXIS® detonators to expand its footprint globally. A continued increase of AXXIS® sales in Australia and opportunities in North and South America is the main short-term emphasis for BME’s off-shore sales growth.

BME also aims to continue supplying AXXIS® detonators and technical support into high-tech engineering projects such as the expansion of the Singapore MRT rail system. Here, BME’s expertise in controlled blasting – through its specialised electronic detonation services and products – has been vital to ensure the least possible vibration impact, protecting nearby tunnels, skyscrapers and other sensitive structures on the land constrained city-state.

Other focus areas include:

BME• Empowering and up-skilling its workforce in the face of the skills shortage

• Identifying synergies, efficiencies and opportunities to save costs with strategic partners and clients, especially as high costs place pressure on mines’ sustainability

• Driving partnerships from the point of view of supply chain management, innovation and service excellence

• Continuing focus on safety through enhanced management and ever-improving operational processes

• Leveraging the power of digital technology to drive the operational and service excellence perspective, as well as marketing efforts

• Continuing to improve the business model to ensure that customers always find it easy to do business with the Mining division

PROTEA MINING CHEMICALS• The Protea Process® continues to support leading global chemical manufacturers

in effectively growing its own businesses into Africa: global networking, forms a significant cornerstone of the business with the support of the Group’s procurement offices in China and Mauritius. These offices manage the procurement of key reagents from China, Asia and the Middle East which allows for the supply of reliable, cost effective and high quality products to customers

• A broadening of the customer portfolio among global mining groups has accelerated the need to expand the range of products, in-house and international networking and, in turn, a seamless, transparent and holistic approach to the business


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“BME’s vision is to remain customer focused and grow the business internationally by concentrating on operational excellence and delivering real quantifiable value ”

OPERATIONAL PERFORMANCEFY2016 proved to be a challenging year for the mining industry and that had negative impact on BME. Subdued commodity prices and cost pressures since 2014 have continued to squeeze the industry significantly. The negative impact has resulted in most miners consolidating their position, reducing or restructuring debt and delaying or deferring capital expenditure and projects. BME’s performance has also been similar.

Year on year, volumes were 17% down overall for the Mining division, with the most affected region being southern Africa where sales volumes are down compared to the prior year. This decrease of 17% is largely attributable to two major contracts that were lost during the last quarter of FY2015 with the full effect realised in FY2016. If the contracts were excluded in FY2015 the volume decrease would have been 5% year-on-year.

As a consequence of the market conditions discussed, gross margins were lower compared to the prior year. To counteract this, internal initiatives and projects were strongly driven to reduce overall cost elements in the final products sold to customers.

The division has continued to contribute a positive cash inflow for the year while improving the working capital significantly.

BME continues to make inroads into new markets in mining and construction in South America and the Far East. The traditional South Africa and African markets remain strongly in focus and critical to the future growth of the company.

OUTLOOKWhile BME’s outlook is somewhat constrained by issues in the mining sector, particularly in South Africa. Protea Mining Chemicals anticipates volume growth in the year ahead.

BME AND PROTEA MINING CHEMICALS FUTUREBased on the increasing role of technology and expertise required in the field of blast optimisation and mining efficiency, BME will continue to apply a high level of technical skills to conduct unique test programmes at mine sites and ongoing operations. This initiative recognises the knowledge-based business and strategic focus required to remain competitive in the coming years.

Protea Mining Chemicals’ detailed and effective level of supply chain management has opened up opportunities to manage customers’ inbound chemical supply chain risks and inventory levels.

The increasing demands on mining operations to optimise processing costs opens up opportunities for new technology-based chemicals and process innovations, providing further growth prospects. Working closely with its customers and by conducting extensive laboratory and on-site tests, Protea Mining Chemicals continues to identify new opportunities in this area. Similarly, BME continues to improve the quality of its explosives, detonators and software, as well as the quality of its service operations. The improvement in technology continues to drive innovation in the use of electronic delay detonators and software in the blasting process.

“The division has continued to contribute a positive cash inflow for the year while improving the working capital significantly ”

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“BME is leveraging the power of digital technology to drive the operational and service excellence perspective, as well as marketing efforts ”

CHALLENGES TO ACHIEVING THIS• Significant new product and process developments, supported by strong in-field

technical and operational resources, have catalysed new industry thinking. Further provision of skills and on-site reagent dosing technology will have to be developed in line with the trend towards smaller reagent plant footprints, in-line dosing systems and reduced water consumption. Protea Mining Chemicals is leveraging these opportunities by offering its customers more personnel training and on-site skills development for the effective and safe use of chemicals

• Leveraging of international technical competencies to improve competitiveness through increased mining process output, better procurement and application technology

• Continuous research and development to ensure a competitive edge with products and technical services

• A focus on retaining and attracting experts in our business and technologies

• Training and development of technically skilled staff to deliver on the strategy

KEY MACRO AND PERFORMANCE DRIVERS AFFECTING THE OUTLOOK• Slow growth demand for mining minerals

• Recovery in the uranium price

• Penetration of markets in new countries

• Successful endorsement of alternative products and agents by mining companies to improve plant performance

• Rand chemical prices and exchange rates


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mining division review - omniareports.omnia.co.za/2016/download/omnia-iar16-mining.pdf · mining...

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