Case Study 1
Mining Fleet Capital
Summary
Truck and shovel fleet sizing should be reviewed periodically, and ideally annually for operations with a mine life of five years or more, as changes in geology, costs, productivities, and market conditions can materially affect the appropriate scale of equipment required.
Mining Fleet Capital
The largest capital items in the mining side of the operation are normally the truck and shovel fleets. Additional trucks and shovels are often required to expand the fleet capability or replace old equipment. The planned size of the mining equipment fleets is often determined in the feasibility study for the project based on the geology, mining, processing, environmental and market costs, productivities and prices. As many of these factors can change over time, the appropriate size of fleets needs to be reviewed periodically, given the size of the costs best practice is to review them annually for projects with a life of five years or more.
In this example we will firstly consider the size of the truck fleet. The number of trucks is normally matched to the number of shovels; the cycle times to the various waste dumps and crushers.
Consider the implications on the truck fleet of a simplistic goal of reducing annual costs by ten per cent while maintaining the budgeted metal production (so as not to lose revenue). To reduce the annual cost of the operation, projects can reduce the number of trucks operated, perhaps park ten per cent of the trucks and/or not buy additional trucks. In order to not sacrifice the metal production while using fewer trucks, plans can be adjusted so that the areas containing ore continue to receive high priority, but the waste handling receives a lower priority.
In this way, metal production targets are still achieved and the operating costs of the business are reduced. The truck fleet requirements could be substantially reduced in this scenario. The waste that is no longer mined may not impact on the business for several years until eventually the reduced availability of high-value ore is impacted.
In this scenario, the impact on shareholder value can be substantially worse than the costs saved, while the high-capital processing assets and business infrastructure are not utilised with high-revenue-generating ore. We clearly need a much more sophisticated measure of shareholder value than simply the cash flow for a few years.
The implications on the value of the project for large capital decisions last many years or even decades. The best framework will use the full value implications on the entire business (NPV, the single overarching objective), not just during the budgeting period. Analysis of the project for scenarios with and without the extra trucks (finding the most valuable case for a good decision) requires multiple cases to determine the size and timing of the truck fleet investments.
The impact on revenue and costs also needs to be evaluated according to the year in which the value is realised. Although costs saved this year are more valuable than the same revenue lost next year, substantial revenue forfeited in the future can outweigh short-term cost savings.
This systematic analysis leads to many measures of potential project value that will then reveal if cost reduction goals should be applied to the truck fleet and how large the cost reduction should be. If the delayed or reduced revenue is less than the value saved through cost reduction, should this decision be implemented? There may be times when significantly more than ten per cent of costs should be saved, and other times when costs should actually be increased so that maximum project value is achieved for the shareholders.
Prestripping is a clear example of when we need to incur upfront costs to gain revenue in future years. Large multiphase projects require many stripping initiatives, and each needs to be implemented to maximise shareholder value. These large projects use the cash flows from every period to be optimised simultaneously so as to maximise the value of the project and associated shareholder value.
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