FOR COOs, VPs AND GENERAL MANAGERS

More capital, or a lower target?

When a mine keeps missing its plan, the conversation with head office usually ends with a request for more capital or a request to drop the target. Before making either, check where the capital you already have is pointed.

Talk through one capital plan

Run the Best-Day Diagnostic

A QUESTION WE OFTEN ASK

Should we ask for more capital, or ask for the target to be dropped?

Both requests are reasonable on the day they are made. In our experience both tend to bring the same gap back.

REQUEST A

Drop the target

A lower target feels like realism. In our experience it is missed again within months. Resourcing follows the new number down, each area is trimmed to the lower average, and the same tightly balanced chain is rebuilt one floor lower. The experienced people who recover the bad days start looking elsewhere, and the gap returns with the next budget.

Read: Cut the target. Cut the resources.

REQUEST B

Ask for more capital

More capital feels like ambition. If it lands on a part of the chain that does not limit output, the mine gets more installed capacity and the same tonnes at the gate. If it does lift the bottleneck, the bottleneck tends to move to the next weakest area and the next request follows. As we see it, several approvals later the chain is balanced again, at a higher cost.

Read: Can your mine do what your plan says?

Our usual answer is neither. In our experience most sites already have enough capital allocated, and it is often spread across the areas that asked for it when it needs to be pointed at the area that sets output. Realigned to the bottleneck, the plan may not need more capital at all.

HOW THE CAPITAL LIST GETS BUILT

A mile wide and an inch deep

In our experience the annual budget hands each area a utilisation target or an hours target. Each superintendent is asked how they will meet it, and puts forward the projects that will move their number. Improvement programmes often require every department to contribute ideas, and each idea is valued on its own area's figures.

A project with a large local value then gets attention and funding, even when it will never put another tonne through the gate. We would argue the programme ends up a mile wide and an inch deep. The same money would do far more an inch wide and a mile deep, at the one area that sets the pace for the whole mine.

Nobody in that chain is doing anything wrong. Each person is answering the question they were asked. The question was put to the parts, and the mine is paid for the whole.

WHAT FOCUS CHANGES

Once the bottleneck is visible, every request gets a number

Eli Goldratt is often quoted as summing up the Theory of Constraints in one word, focus. Applied to capital, focus means putting one test to every request: what does this do to the flow through the bottleneck?

When the bottleneck is known and stable, and you can show that an extra hour there becomes saleable tonnes, the value of any spend on that part of the chain is plain arithmetic. Multiply the extra bottleneck hours by the bottleneck rate and by the contribution per tonne. In a high fixed cost mine the fleet and plant are already bought and most other costs are committed, so that contribution is close to the sale price less the truly variable costs. In our experience, small amounts of capital at a stable bottleneck can pay back in months rather than years.

The same test sorts the rest of the capital list into four groups, in the order they should be funded.

1 Adds output at the bottleneck

Typical items. Faster changeovers, an extra feed point, cover for the bottleneck through crib and shift change.

How to value it. Extra bottleneck hours × bottleneck rate × contribution per tonne.

Decision. Fund first.

2 Protects the bottleneck

Typical items. Critical spares close to the work, a stockpile in front of the bottleneck, spare capacity in the equipment that feeds it.

How to value it. Bottleneck hours no longer lost to starving or blocking.

Decision. Fund next. In our experience these are often the first items a cost review removes.

3 Pays once the bottleneck moves

Typical items. Lifting the next weakest area.

How to value it. Nil until the bottleneck actually moves there.

Decision. Sequence it. Approve when the evidence shows the move.

4 Local efficiency elsewhere

Typical items. Cost and utilisation projects in areas that already have spare capacity.

How to value it. Its cost saving alone. It adds no tonnes.

Decision. Judge it as a cost project, and say so in the business case.

Safety-critical and statutory work keeps its own priority and is never screened on production value.

PUT A NUMBER ON IT

The same project in two places

Enter your own figures. The starting values are illustrative and describe no particular mine.

WHAT A SAVING CAN COST

The winch that saved R60,000

In 2014 my colleague the late Arrie van Niekerk, at that stage already known as the world's foremost practitioner of TOC in mining, wrote about a meeting on a large underground mine. At the end of it the senior manager ruled that no new winches would go down the mine until the old ones came out.

The logic was cost. A new winch cost about R100,000 and a refurbishment up to R40,000, so every recycled winch saved up to R60,000. Without a spare on the level, a failed winch took four to eight days to bring out, exchange and rig up again, while the gullies choked and blasting stopped. In Arrie's account a single blast carried R150,000 to R250,000 of revenue, and each slow exchange cost at least two blasts and possibly four.

The saving showed up on the cost report. The lost blasts showed up somewhere else, if at all. The approval rule priced the winch and never saw the blasts it protected.

Saving per recycled winch

up to R60,000

Revenue lost per slow exchange

R300,000 to R1 million

Figures from Arrie van Niekerk's 2014 account of a South African underground mine.

SEQUENCE

Hold the bottleneck still, then spend

Capital at the bottleneck pays only while the bottleneck stays put. In our experience it often wanders from week to week, between the fleet and the plant. A capital case built on last quarter's bottleneck is then a bet on where it will sit next quarter.

So the order matters. The first gain comes from running the operation around one chosen bottleneck, protecting its feed and letting the areas around it carry spare capacity. In our experience that step needs little or no capital, and when it works the output moves as a step. With the bottleneck stable, we find continuous improvement and targeted capital start to pay, because everyone knows where the next dollar should go.

FOR THE NEXT CAPITAL REVIEW

Questions to put on the table

Where is the bottleneck this month, and was it in the same place last quarter?
Which items on this list add hours or tonnes at the bottleneck, and how many?
Which items protect it from being starved or blocked?
For everything else, does the case stand on its cost saving or risk reduction alone?
What did the last approved project do to tonnes at the gate?
Is any small spend at the bottleneck waiting on an approval threshold that ignores the output at risk?

WORKING WITH STRATFLOW

A contained first look at one capital plan

Our part is deliberately small, typically 30 consulting days or fewer. The site team does the work and keeps the result.

Check the gap

Run the Best-Day Diagnostic on six months of daily production. It compares everyday output with what the mine has already demonstrated on its best days.

Name the bottleneck

Agree with the site team where it is, and how stable it has been over recent months.

Sort the list

Place the current capital and improvement list into the four groups above, with the arithmetic for each item.

Agree a short list

Fund the items that add or protect bottleneck output, with a payback case for each and a stop rule for the test.

NEXT STEP

Check where your capital is pointed before the next request goes up

If your capital plan is already built around a stable bottleneck, this page will not add much. If you are not sure, we can talk through one capital plan in half an hour.