By Rentia Burger, Engagement Manager: FP&A at Decision Inc.
More than ever, it is critical to model the financial impact of strategic projects in mining organisations. Being able to understand, in real-time, how a decision can impact the mine at an operational level and then analyse the cost per activity provides the foresight required to make the right decisions.
Adding impetus to the need for this financial modelling are the complexities created by environmental, social, and governance (ESG) reporting criteria. For instance, mining companies around the world are focusing on reducing greenhouse emissions at their sites. As they look at cutting overall CO2 emissions and mitigating the health risks of diesel-powered vehicles, the market for battery electric vehicles (BEVs) within mining has prospered.
In commercial truck fleets, battery technology was shown to be economically viable. This was the case if the benefits of lower greenhouse gas and other emissions, and lower operating and maintenance costs matched or outweighed the costs – namely high procurement cost and limited range.
Another approach that prioritises ESG for mines is to switch to solar power. An example can be found at South Deep. By constructing a 50MW solar plant, the mine will increase power generation from 94GWh per annum to 103GWh per annum. This translates to almost a quarter of the annual electricity consumption of South Deep. Going solar will also reduce its carbon footprint by approximately 110 000 tonnes of CO2 per year. Overall, the solar plant will result in an annual savings of R123 million.
Understanding the data
Unfortunately, many mining companies still rely on traditional tools like spreadsheets or older planning technologies to manage these projections and conduct financial planning. In today’s data-driven world, this is no longer good enough. Decision-makers need to understand the costs and how proposed projects will impact on all aspects of operations. For example, will there be return on investment by going solar or EV beyond reducing greenhouse emissions?
The cost versus return impact is therefore something that must be well understood and reviewed before embarking on such massive capital outlay projects. Some of the questions that need answering include understanding the cost of ownership, the funding requirements, the impact on operating expenditure, power demand versus a consumptive shift in cost, and projects around return on investment.
To be able to forecast and have answers to these and other questions require a proper forecasting modelling tool. Using modern technology-based planning tools is always a better way to conceive, design, and engineer a mining project or investment to extract maximum value despite a challenging market and operating environment.
Simulating the requirements
An example of this is by looking at a capital investment model that simulates the running costs over a five to 10-year period. It examines how to bring the cost analysis and capital expenses together while saving cost with the right investments.
To be able to overcome any financial planning obstacles and stay competitive, mining companies need to be able to make informed decisions faster. In turn finance departments need to integrate dynamically into the drivers of core mining activities. They must automate access to production and variable cost data. Additionally, finance departments must provide real-time dynamic feedback to executives on the output of key variables.
Much of this comes down to creating a platform of data and information that is trustworthy, visual, and accessible to all stakeholders on demand. Finance must therefore be able to partner with executives and operations to catalyse meaningful decisions.
Making it real
Mining companies therefore need a financial planning solution that leverages technology to innovate, scale, and operationalise a mine planning framework. This framework must be based on global best practice that can empower the organisations to run more efficient planning processes while maximising the quality of the decisions they make.
The Decision Inc. Mine Planning Framework has a proven track record of providing decision-makers in the mining industry with a deeper level of detail while accelerating their time to insight. The solution will provide meaningful insights into the full working capital value drivers, including Production, Bill of Material, Labour, Costing and Capex in an integrated, single integrated wide application.
