Increase Profitability

Increase profitability through Production OEE

Why do so many miners only apply cost cutting measures when trying to increase profitability when they should be maximizing Production OEE as well?

Many mining operations are operating at a required budget level, but in reality this represents only 65%–75% of the mining operations true capability. Sure you say, “Our mine is much better than that”. By applying some very simple calculations we can easily identify the range in which you operate. We call this the Production OEE operating range. In our collective experience we have not come across a mining operation with a baseline of better than 85% but would love to be proven wrong. In fact, in most mining operations there is significant overcapacity and a massive opportunity for production improvement.

Now to the really interesting bit in all this – the money! Consider the simple example below.

US$150 million in additional revenue is really nice, but it gets even better!
A gold mine producing 560,000 Oz of gold per year is operating at a measured 70% Production OEE. The gap between 70% and 100% is approximately 240,000 ounces. Now let’s say we chase a 15% improvement to push the Production OEE metric from 70% up to 85%. This is roughly a 120,000 ounces/year increase in production. At today’s pricing of approximately US$1250/ounce, it would generate an extra US$150 million in additional revenue is really nice, but it gets even better!! This additional US$150 million in revenue typically attracts only the variable cost component, so the additional production is generated with a much higher Return on Capital Employed (ROCE) than the original budget profit.

Now, let’s keep it really simple for us non-accounting types

Let’s assume that before the extra US $150 million in revenue, the mine had a cost of production of US $800/ounce with a 50/50 split in fixed vs. variable cost. So now our extra 120,000 ounces of gold attracts a variable operating cost of only US $400/ounce. Therefore US $150 million – US $48 million gives us an extra operating cash flow of US $102 million. Not bad for a 15% Production OEE improvement requiring minimal capital investment.

Now you can change the fixed and variable cost components, include some capital or projects costs, or manipulate the figures in any other way you want to, but in reality it doesn’t really matter, the additional profit is there, it is significant and it is all up for grabs if you want it.

How do we do it? - Here at MPPIglobal we have developed a technique called Production OEE which involves some smart use of technology, a focus on Business Improvement and a consistent push to convert the production opportunity to true profitability.

Contact us today for a chat about how this simple technology and process can change the landscape of your operation today.