AngloGold gets serious

Allan Seccombe | Thu, 11 Mar 2010 15:51

[miningmx.com] -- Mark Cutifani has brought more than just a wide range of mining experience to AngloGold Ashanti. He’s overseeing the implementation of a business model brainchild of his which is now being rolled out at the number three gold producer to boost profits and step up production.

If the incredibly detailed plan works – and early indications are that it will – there is potential for profits to be bolstered by $600m and output to rise to six million ounces as costs are tightly contained, an important factor particularly in South Africa where there is severe upward pressure.

The focus on costs in South Africa is critical, given a roughly 25% annual hike in electricity prices over the next three years, coupled with rising input costs, a strong currency and the price of labour. The South African mines are extremely deep and have steadily declining grades and complex geology. These mines need a new mindset and way of working to ensure they remain viable.

The scheme called Project One has been rolled out and tested at the processing plant at the flagship AngloGold mine Mponeng and at its worst performing mine, Geita in Tanzania, ahead of being implemented at all operations over the next year.

These 22 mining operations mines produced 4.6 million ounces in 2009 at a total cash cost of $514/oz. The target this year is between 4.5 million and 4.7 million ounces at a total cash cost of up to $615/oz.

The basic premise is that Project One identifies limitations and problems and fixes them so that mines, plants and services operate optimally, removing the sharp peaks and troughs in daily production graphs -- or control charts -- that clearly show how variable mines and plants are.

JACKPOT OR PISS POT DAYS

Mines generally have “jackpot or piss pot” days where everything is working optimally or spells where nothing goes right and production is adversely affected. The model now is to move the operations closer to the ‘jackpot’ potential by eliminating obstructions or problems, thereby lifting the average, which has flow through benefits on the cost of production for example.

At the Mponeng plant, Project One has taken throughput from an average of 4,700 tonnes a day when the control charts showed massive variations in daily performances in 2008 to a chart displaying much smaller peaks and troughs, with the average bumped up to around 5,800 tonnes a day.

Mponeng has gone from a point where the mine’s production outpaced the plant’s ability to handle the ore to where the mine is now chasing hard to fill the plant. The mine is now in the Project One scheme.

At Geita, recoveries have stabilised and averages are improving. Tonnes delivered to the plant and milled have been rising.

The scheme takes nine to 12 months to implement with a lot of training and close monitoring to ensure the new way of working is entrenched and that there is a high level of compliance, said Mike Birkhead, Vice President of the Business Improvement Department.

While the scheme is easier to roll out at a plant and relatively more difficult at a mine where there are so many moving parts that have to mesh, the benefits are greater at the mine.

At some mines, it is estimated about 80% of production comes from just 30% of the underground workers. The intention is to improve productivity by 30%. This is a simple calculation of the number of ounces produced divided by the number of employees. There is no intention to cut the workforce, but rather optimise output without incurring capital expenditure.

FIVE CLEAR TARGETS

Cutifani has set five targets over the next five years ending in 2013. He wants to see a 70% improvement in safety, a 30% rise in productivity, 20% more gold to give AngloGold annual production of six million ounces, a 25% reduction in real unit costs and an above 15% return on capital invested.

By moving the average daily performances at the mines and plants up from where they currently are to just 25% of their peak performances some $600m in annual profit could be unlocked for the gold group.

“If we can take 25% of waste out of the system we will add massively to profits,” Birkhead said.

A major factor in Project One is around scheduling services and procurement, with detailed planning on maintenance and stores and how it ties into daily workflows and ensuring everyone knows exactly what their job is and how it ties into the bigger scheme of things.

Cutifani has told his managers he wants gold to flow from underground ore bodies to dore like water, not hitting any encumbrances or obstacles.

In what could almost be called a war room at AngloGold headquarters in downtown Johannesburg, the entire flow of the plan is laid out in complex flow diagrams and far more simple pictorial charts along the length of one very long wall. At first, glance it looks massively complicated, but Birkhead, brimming with enthusiasm, talks carefully through it, making it sound entirely plausible and obvious way to conduct business.

The plan is the brainchild of Cutifani and Mick McAlear, who worked with Cutifani at WMC and CVRD Inco where this scheme was practised. Cutifani is a mining engineer who has been in the industry since the mid-1970s and who understands the gold mining business thoroughly.