Its Safety and Production...

Hi Readers

There is a very lively discussion going on in LinkedIn about the guys who were sacked for doing the Harlem Shake underground (click here)

"Social media opinion across Australia is divided after 15 mine workers were sacked for doing the Harlem Shake dance craze while working underground.

The eight dancers, a worker who recorded the stunt as well as several onlookers were fired after the video they posted on YouTube went viral. " Australian Mining

So in the LinkedIn discussion there are three schools of thought. The first says that the guys broke all the rules and should have been fired, the second says they were letting off steam and should not have been given the sack, and the third (and the one I belong to) is that the guys were stupid, should not have been sacked and anyway this sort of thing is good for morale.

On the LinkedIn page I commented that if this had not been posted on YouTube they would never have been fired, a warning maybe, which is closer to what I think would be the appropriate management response.   One other writer commented that this action by management was a response to being embarrassed in public and that it was justified on spurious safety grounds.

More generally, I think that mining companies treat safety like a religion.   The dogma cannot be challenged, even when it is clearly stupid.   One example comes from a company where I was working wherein an employee in head office was hauled over the coals because they walked down the stairs without holding the handrail.   I get that the safety culture needs to be part of business everywhere, but walking down the stairs in an office building is not unsafe like working underground is unsafe.   There needs to be perspective.

Why is it important for us to take a realistic approach to safety?   Because if you have rules which are inappropriate to the particular workplace then the whole safety regime will fall into ridicule and people will do no more than play lip service to the rules.

I believe it is more important to have a regime that is appropriate to the circumstances, an even more importantly safety systems need to equally prioritise production or else when the production screws are on, safety will be compromised.   If a production supervisor needs to make safety shortcuts to meet a target, they will do so.   You either need to accept that production KPIs need to be adjusted down or find a way to be safer and produce more.

So lets think about safety systems that are appropriate, that improve safety, and also improve production.   And lets not make it difficult for people to behave safely, or punish them for letting off a bit of steam (as long as the are not being unsafe).

I've written about this before here.

Why IT Projects fail.

I'm a great fan of the TV show, Grand Designs.   The first time I saw the show, my partner and I had just started to build our new home.   Architect designed, bespoke everything.   Should have been a disaster, but it was a dream build.  So why are there so many near disasters on the show.   Well I guess they vet the people so that they have a show with plenty of tension, problems to solve, and interesting characters.   

The things that usually go wrong on Grand Designs are that people try to build homes that they can't afford, mainly because some problem occurs, or they are silly enough to start knowing they don’t have enough money!   Sometimes they have to rework mistakes.   Sometimes the design is overly complex, or poorly estimated, or hard to execute.   Sometimes the people and their ideas are just plain crazy.   So which were the standouts that just worked?   

One was the guy who with his own hands built a Cruck house in the middle of the woods, whose own deep technical skills and a modest expectations built a truly beautiful home for less than the price of a medium sized car.   Another was the ex-chairman of Wilkinson Sword whose home I didn't much care for, but whose project came in band on time and budget; he knew how to manage.

Which brings me to IT projects.   

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I make the building design analogy after being inspired to by a paper by Dr. Paul Dorsey (click here)  - on the "Top 10 Reasons Why Systems Projects Fail".   Its a bit dated - its from 1995 - but all the studies out there, up to and including 2012, indicate that a remarkably high proportion of IT projects fail - up to 80% some say.   Others say that at least 30% fail completely and another 50% fail to deliver expected benefits.   There are many reasons.   In 2011 Michael Krigsman reported on a study in his blog (click here)  that the top 5 reasons IT projects fail are;

1. Requirements: Unclear, lack of agreement, lack of priority, contradictory, ambiguous, imprecise.

2. Resources: Lack of resources, resource conflicts, turnover of key resources, poor planning.

3. Schedules: Too tight, unrealistic, overly optimistic.

4. Planning: Based on insufficient data, missing items, insufficient details, poor estimates.

5. Risks: Unidentified or assumed, not managed.

This is as good a list as any and is consistent with what most other studies report.   In my mind it all comes down to this; IT folk and the business executives overseeing them do not apply commonsense project management process to IT Projects.   Partly this is because the IT people don't really understand the things that are important to their business clients, and the business executives often don't think that IT is all that important to them, either because they don’t understand it or don’t want to understand it.   Paul Dorsey talks about this lack of engagement as a big reason IT projects are often set up to fail.

Dorsey also talks about the importance of having independent advice.   It is ALWAYS in the interest of the project team, internal or contracted, to present a positive view of the project - right up until when it fails (my view).

So what does building a house have to do with this.   If you are going to build a bespoke home you need to get expert help.   An expert designer (architect) even though they cost a mint, will be cheaper in the long run.   An expert Project Manager to co-ordinate all the activities and trades, and an expert builder who is technically knowledgeable are critical.   Then get in a room with all of them and make sure they are all talking before you shell out for anything!   We did this on our place, that's why it went without a hitch.

The same is true for an IT Project, be it big or small.   Invest in design, proper process and great people.   It doesn’t guarantee success, but not having it guarantees failure.   Oh, and get independent advice and audit.   You can give me a call for that.

Dennis.Franklin@IndagoPartners.com

Commodities Prices will only increase

At the moment there is a lot of hoo-ha about the difficulty the mining industry faces in terms of margin squeeze. This goes along with complaints that government is overtaxing mining companies. What we need to remember is it is the job of mining company executives to advocate for their company, but the long term sustainability of mining is nowhere near as dire as they say.   At least not in the way they think.

There is much more chance that the industry will be unable to meet demand than they will go broke trying.

I don't want to talk about the taxation side of this equation in this post, I'll do that separately. Here I want to talk about the probable trajectory of commodity prices over the medium to long term.

Supply is Constrained

Commodity prices are essentially driven by those old favorites, supply and demand. On the supply side we see that the industry is constrained by a number of things. Access to good quality ore is an issue because the easy to access, high grade ore gets mined first, so there is a trend now that orebodies are getting deeper and/or lower grade. They are also being found in areas distant from population centres and in difficult terrain as the close material has been mined out. This situation cries out for new ways of mining and that requires R&D and step changes. There are a lot of other factors: human, technological, political, but the availability and nature of the resource is the most important.

Demand is exponential

Demand for resources is driven by two things only. Population increase and societal development. The population of the earth is growing exponentially, and people everywhere are trying to improve their living standards. So even now, with commodity prices on the decline, we see a long term trend which is in exponential growth mode. Investment in China and India now, and probably in Africa in the next 20 years will continue to increase demand and put inflationary pressure on commodity prices.

Commodity Price Index

The commodity Price Index put out by the Reserve Bank of Australia (Link) (Graphic) shows clearly that industrial activity in China and India is driving unpecendted demand for resources. The increasing trend over the last 10 years includes a shorter cycle 'mini-boom and bust' but the overall trend is clear.

So What!

So what, you ask. Well, I've talked about myths in the mining industry that prevent investment in innovation, and here is another view. During times of increasing commodity prices, many mining companies will cease investment on anything that gets in the way of production, including innovation, vehicle maintenance and new equipment. Often they also take their eye of their operating costs. And in the bust cycle, they are too busy screwing down on costs to invest in anything. So it's a double whammy.

Over the next 30 years, resources demand will increase exponentially. Incremetnal change will not produce the productivty increases necessary, it by nature provides a diminishing return, so step change is critical. The mining companies that embrace it will be the success stories of the future, the question is - will your company be one of them?

4 Myths that prevent Innovation in the Mining Industry

Recently I've noticed a lot of people in the news talking about the importance of innovation and commercialisation as potential drivers of enhanced productivity in Australian industry.   With a number of recent studies talking about how Australian industry productivity levels have fallen behind our peers, many argue that this has to do with a lack of investment in innovation.   In a powerful talk, Mark Cutifani (CEO AngloGold Ashanti and now CEO Designate of Anglo American) discusses, among other things, the importance of mining to the world economy and its innovation challenge.  Click Here to watch Mark speak.

A lot of industries around the world are investing in innovation that is being driven by advances in information and communications technologies.   These advances include: New wireless communications technologies, smaller and more powerful mobile computing platforms, access to big data and big computers over the internet (think Cloud computing) and whole new ways for people to collaborate (think Twitter and Facebook).  The combination of all these technology trends forms the eye of a perfect storm that will allow many companies and industries to re-invent the way they operate.   

In a mining context these trends present opportunities to work and be effective in remote areas, or across geographically dispersed footprints, or in difficult operating conditions.   New approaches that these ideas will allow are machine and process automation, operational control and monitoring from a distance, mobile equipment automation, and comprehensive sensor networks that allow unprecedented vision of an operation.   So why aren't mining companies investing hell-for-leather in these new ideas, to try to find competitive advantage in their marketplaces?    

Over the last 15 years working around mining companies trying to bring new technological approaches to the table, I have been rebuffed more times than I can count.   This is not to say that all mining companies are luddites.  Some companies are rising to the innovation challenge with major step change initiatives.  However, they are the exception, not the rule.   Here are some of the myths that are used by miners to avoid innovation.

Myth Number 1.   We are different to other industries.   Many of the ideas that I talk about to miners are ideas that have already been proven to work in other industries.   But the first response I often get is that mining is different to other activities.   It is true that there is inherent operational complexity in mining and processing an ore body that is not homogenous and invariably different to every other ore body in some significant way.  This means that miners need lots of flexibility.   Fair enough, but once the ore is out of the ground and loaded into the transport medium, the process becomes as predictable as any industrial chemical or manufacturing plant, all of which are leaps and bounds ahead of mining in terms of automating their operations.    And even parts of the upstream mining process have outside analogies.  For instance, there is a direct analogy between operating and automating a truck and shovel fleet in an open cut mine to operating and automating a tank warfare operation.   Lots of large machines hooning around the countryside with a need to know where all of the others are, avoid crashing into each other, and deliver an efficient outcome for the operation.   Yes mining is different, but it’s not that different, and parts of it are very similar to other industries.

Myth Number 2.   Ours is a simple business.   I often hear the refrain that mining is a simple business - that “we just dig stuff up and send it to our customers”.  Interestingly, I often hear this argument from the same people as argue for complexity being a big issue.   The level of complexity that we observe depends on the scale at which we look.   At the highest level mining is a fairly simple matter, but this masks levels of great complexity within the industry.   It is true that no two ore bodies are the same; geographical issues introduce variability and even the nature of the metallurgy will dictate the complexity of the extraction and concentration processes.   Miners do much more than dig stuff up and sell it.   All of which leads me to conclude that smart new information technologies must surely be able to lighten the load.   For instance, with all of the computing power available today, and with clever new analytical programs, the simulation of multiple potential outcomes becomes relatively straight forward.   If complexity of the ore body means we can't make decisions in advance, then simulation holds the key to building multiple mine plans from which we can choose as we go along and improve our knowledge of an ore body.   As the ore body knowledge is improved, previous simulations would help operators quickly home in on the right course of action.

Myth Number 3.   Innovation is risky.   Yes innovation is risky.   But it is not as risky or expensive as flawed investment decision processes involving billions of dollars.   It is not as risky or expensive as exploring for minerals, and it is not as risky or expensive as not innovating at all.   Innovation through R&D is a process.   It should be undertaken strategically, and it should be managed like all other business processes with one small exception.   Early in the innovation process, ideas need to be given seed funding to help them deliver a business case and they need to be protected from those whose interests are vested in the status quo.   That seed funding needs to ensure that the biggest risks, the biggest assumptions in an innovation idea, are tested early, and failed early.    After developing a sensible business case and identifying a path to commercialisation, the idea must be managed as rigorously as any other project.

Myth Number 4.   We can't afford Innovation.   I am often amazed that highly profitable mining companies feel they can't invest in their future.   Of course they do - mineral exploration is the most visible example that they do.   And most mining companies over a certain size will have some significant investment in R&D, either in-house or as investments via university research.   But almost without fail, mining companies invest in incremental innovation that is focussed on the existing portfolio of problems.   Very few take bold steps.   What I find interesting is that mining companies, especially big ones, are more than happy to make flawed (in hindsight) investment decisions that can destroy billions of dollars of shareholder value, but baulk at spending a few million dollars on doing some fundamental research into step change innovation.  

Not all miners are adverse to innovation.   I was recently involved, with many others, in an innovation activity at AngloGold Ashanti (www.aga-tic.com).   Faced with the problem that their South African gold mines were becoming too deep to mine profitably, and the knowledge that there remained enormous reserves of gold below 4000m, AGA initiated an open innovation forum with all of their major suppliers to attempt to re-invent underground mining at depth.   The outcomes are impressive, and are now being tested on a block of ground to see if the new technologies are up to the task.   It's a great example for the industry.