Friday, September 30, 2011

Is Mining about to go Micro - Post 2

In Part 2 of this series I think a bit about why things are as they are and what a micro-future might look like.

Why we are hooked on big trucks

For the moment, we use large equipment because the economies of scale have tended to support their development. The industry has been in this evolutionary paradigm for many years because bigger trucks means fewer drivers, less trucks needed per kilometre/tonne of ore moved, and the development of more efficient large engines means the fuel component is less cost per km/t. I'm sure there are also many other efficiencies that work well for large trucks over small ones. So why has the 'going small' option not been considered to date?
In most cases, new ways of doing business are strongly resisted on a few fronts. Firstly, people are pretty conservative and won't take the time to consider alternatives to the way things have “always been done”. Secondly, there is a cost associated with change that might mean that large amounts of invested capital will need to be abandoned, and despite the best efforts of economists worldwide to convince people that invested capital should not be considered for future investment decisions, it usually is. In this instance, there is a lot of existing infrastructure associated with supporting big haul trucks, and few will want to write it off. Perhaps the biggest issue is the risk involved in taking on a new idea - what if it doesn't work - can I bet the company on this?
But enough of this, because all of these issues will be as nothing if the ideas I introduce here are economically viable.
Small is the new Black.

Let us imagine for a moment, replacing your $6 Million Caterpillar truck with 400 Ford F150 pickup trucks - that's how many you'd need to match the carrying capacity. At $20k each, that would cost you $8 Million, but you'd be able to make up the Km/t figure by doing more trips because the F150 is much faster. The biggest issue though is that you'd need a lot more drivers (1200 as against 3 or 4 per truck) so the economics don't work. Unless, that is,you can remove the need for drivers completely.

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