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Posts Tagged ‘safety’

Mining Week 45/’11: Anglo takes control of De Beers

November 6, 2011 Comments off

Top Stories of the Week:

  • Anglo American adds 40% to its 45% stake of De Beers to gain control
    • Anglo American agreed to pay $5.1bln to the Oppenheimer family to gain control of diamond miner De Beers. The other 15% are owned by the government of Botswana. De Beers changed CEO in May of this year and tried to strengthen partnerships and simplify the ownership structure.
    • Sources: Anglo American press release; Wall Street Journal
  • China: 8 die, 45 rescued in coal mine disaster
    • A blast in a state-owned underground coal mine killed eight miners. 45 miners that were initially trapped underground were rescued within two days via a rapidly excavated tunnel.
    • Sources: AFP; Wall Street Journal

Trends & Implications:

  • Diamonds already accounted for 11% of Anglo American’s revenues, and will get close to 20% now. The simplified ownership structure will help De Beers to undertake the large investments in both new project development and modernization of current operations required to retain its leadership position in the global diamond business. Additionally, Anglo Americans global footprint will help De Beers to diversify its production footprint, which is still heavily skewed towards Botswana.
  • Safety in Chinese mines is still far below Western standards, but under pressure of federal regulation the situation is improving rapidly. Unsafe mines are often forced to close temporarily, and rescue teams are becoming better equipped to safe the lives of trapped miners. Official numbers show a 2/3 decrease of fatalities in the past 10 years. However,the surge of coal demand in the country is putting the safety improvements under pressure, as mine management is willing to go a long way to increase output.

©2011 | Wilfred Visser | thebusinessofmining.com

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Glencore reveals mine fatality figures

September 8, 2011 Comments off

“Glencore recorded more deaths at its industrial operations last year than any of the other “big five” London-listed miners. The world’s largest commodities trader listed the deaths of 18 employees and contractors in its first disclosure of safety and environmental information.

Among its closest peers in the mining sector, there were three deaths at Xstrata, three at Rio Tinto, five at BHP Billiton and 14 at Anglo American, according to data published by the companies. Among FTSE 100 mining companies, only Kazakhmys and Vedanta recorded more fatalities with 26 each. Glencore, which raised $10bn (£6bn) in May in one of the largest ever initial public offerings in Europe, has until recently published little information on its industrial and trading operations.”

Source: Financial Times, September 7 2011

Observations:

  • Together with an extensive half-year results report and presentation, Glencore published its first sustainability report this week.
  • Glencore’s fatality frequency rate (FFR: fatalities per million hours worked) was 0.1034 in 2010, down 25% compared to the previous year. The All Injury Frequency Rate for mining activities was 3.45, down 17% from a year earlier.

Implications:

  • The comparison with other large miners as made by the Financial Times is rather shortsighted. Risks at any type of operation are unique and cannot be compared easily. With the nature of Glencore’s assets (Kazzinc, Katanga, Mutanda, Mopani, Los Quenuales, etc.), which are often located in developing countries and/or operated by local companies, it is obviously harder to manage safety than in large centralized operations in Western countries. However, it is a good sign that Glencore reports the figures and indicates it wants to manage safety at a global level.

©2011 | Wilfred Visser | thebusinessofmining.com

Anglo American lifted by commodities boom

July 29, 2011 Comments off

“Anglo American has taken advantage of booming commodities prices to boost its interim pre-tax profits by more than two-thirds. A flight to safety among nervous investors has driven up prices for precious metals and diamonds, buoying first-half revenues by more than a fifth at the FTSE 100 miner and prompting Anglo to increase its dividend by 12 per cent.

Strong demand in China has also pushed up prices for iron ore and copper, helping Anglo shrug off the weak US dollar and harsh weather conditions in South Africa and Australia, which included the extensive flooding in Queensland earlier this year.

Anglo has an investment pipeline of $66bn to develop its iron ore and copper mines in South America and coal projects in Australia in order to reap the rewards of booming commodity prices.”

Source: Fincial Times, July 29 2011

Observations:

  • Good financial performance was offset by very poor safety performance: the group recorder 10 fatalities in the last 6 months (8 in the platinum business).
  • $450mln of the revenues (11%) are achieved in De Beers’ diamond business. Iron ore & Manganese (26%) and Platinum (23%) account for the largest share of Anglo’s revenues. Iron ore & Manganese (29%) and Copper (28%) bring in the largest part of the earnings, driven by particularly high commodity prices.

Implications:

  • Focus of Anglo American’s presentation was on expanding production (capex of $2.3bln for 2011H1 with pipeline of $66bln) and on cost control. The company’s operating profit compared to the same period last year suffered from $500mln higher cash costs. Input cost pressures were explained in detail in the investor presentation (see below) For each product the management presented initiatives for cost reduction.
  • Iron ore volumes (-12%) and metallurgical coal volumes (-19%) were down compared to the same period in the previous year, caused by weather disruptions that put BHP Billiton and Rio Tinto in the same position. It will be interesting to see the method of reporting the volumes next year if production can go on without interruptions. Higher volumes will then most likely be presented as significant achievements, without any mention of the disruptions of this year.

©2011 | Wilfred Visser | thebusinessofmining.com

Lonmin to invest $2bln to boost production

May 10, 2011 Comments off

“Lonmin, one of three South African companies that mine most of the world’s platinum, plans to invest $2bn to restore its production to historic levels of about 1m ounces a year by 2015. In the six months to March, the London-listed miner raised earnings from a low base. Pre-tax profit doubled to $159m despite bigger pay packages for workers, rising electricity costs and the stronger rand which has been eating away at many South African miners’ profits.

Lonmin’s output has declined steadily over recent years, with the miner selling 706,000 ounces of platinum in its year to September compared to over 900,000 ounces in 2004 and 2005.”

Source: Financial Times, May 10 2011

Observations:

  • Lonmin currently depends on the Marikana mine for its entire production. The production increase to 2015 should come from this mine. The Limpopo mine currently is under care and maintenance, while the most company’s most promising growth opportunity is the Akanani deposit with just over 10 Moz platinum reserves. Global platinum production is concentrated in South Africa’s Bushveld complex and Russia’s Norilsk region, while demand mainly comes from car manufacturers in Asia and North America.
  • Lonmin is suffering from quickly increasing employment costs (8% increase over the year) and electricity costs (24% increase). Furthermore the appreciation of the South African rand makes costs increase while revenues (in dollars) are not equally increasing.

Implications:

  • Foreign exchange cost pressures are hurting miners with operations in both developing countries and developed countries in which currencies are not linked to the dollar when the dollar is weakening. With an increasing portion of production shifting to developing countries with high inflation rates exchange rates are becoming more and more important for business evaluation.
  • Several large diversified miners are hesitant to take a stronger position in platinum because of safety issues. Most existing projects have poor safety track records, making acquisition of producing assets a CSR-risk, while development of new projects would require significant capital expenditure and result in long lead times.

©2011 | Wilfred Visser | thebusinessofmining.com

Miners’ rescue turns into celebration

October 18, 2010 Comments off

“…The century-old mine, located off a dirt track in the bare hills of the Atacama Desert in northern Chile, was worked the old-fashioned way. Miners blasted chunks of gold-laden rock with explosives, collected the rubble in trucks and sent it up to the surface to be processed at a plant in nearby Copiapó. …

“The mine was in precarious conditions and they always told the bosses, but the only thing they cared about was production,” said Ms Ramírez. The mine owners have apologised for the accident, but said the decision to reopen the mine in May 2008 after a worker died in an accident in 2007 was taken after safety checks by the authorities.”

Source: Financial Times, October 11 2010

Observations:

  • The San José mine, which has been the center point of the mining world’s attention for the last 2 months, faced several significant accidents over the past decade.
  • Chilean mining regulators have been fined after the latest accident because of lack of control. The cost of the mining operation will likely cause the mine to cease operations.

Implications:

  • Many mines in the region are improving safety precautions to ensure regulatory compliance. Still very few mines around the world use advanced cost-benefit analysis that includes the potential cost of accidents. Typically the safety design uses rock mechanical software that calculates a safety margin without taking the cost of reinforcements and potential cost of accidents in account.
  • Some probabilistic techniques attach a value to the risk of fatal accidents, based on the age and salary of the workers and the likelihood of miners hit by falling rock or being trapped. Although this technique is certainly not advisable for deciding whether or not to rescue trapped miners, it would help to include the type of use of drifts in performing cost-benefit analysis for mine design.

©2010 | Wilfred Visser | thebusinessofmining.com

The BP Oil Spill: Could this happen in mining?

June 7, 2010 1 comment

The blowout on deepwater horizon was caused by a series of errors, classified as questionable decisions [D], mistakes [M] and violations [V]. In the report of events below the bad decisions, mistakes and violations have been identified.


“Internal BP documents show that BP engineers had concerns as early as 2009 that the metal casing BP wanted to use might collapse under high pressure. In March, 2010, the rig was experiencing problems that included drilling mud falling into the undersea oil formation, sudden gas releases, a pipe falling into the well, and at least three occasions of the blowout preventer leaking fluid. According to a report by 60 Minutes, the blowout preventer was damaged in a previously unreported accident in late March, and BP overruled the drilling operator on key operations [V]. BP declined to comment on the report. The American Bureau of Shipping last inspected the rig’s failed blowout preventer in 2005.

On March 10, 2010, a BP executive e-mailed the Minerals Management Service that there was a stuck pipe and “well control situation” at the drilling site, and that BP would have to “plugback the well.” A draft of a BP memo in April warned that the cementing of the casing was unlikely to be successful. Halliburton, a week after the explosion, said that it had finished cementing 20 hours before the fire, and that it cemented the Macondo well but had not set the final cement plug to cap the bore as “operations had not reached a stage where a final plug was needed” [D]. A special nitrogen-foamed cement was used which is more difficult to handle than standard cement.

In late April, 2010, Adrian Rose, a vice president of Trans-ocean, Ltd., said that workers had been performing their standard routines and had no indication of any problems prior to the explosion. However, preliminary findings from BP’s internal investigation released by the House Committee on Energy and Commerce on May 25 indicated several serious warning signs in the hours just prior to the explosion. Equipment readings indicated gas bubbling into the well, which could signal an impending blowout [V].

The fire aboard the Deepwater Horizon reportedly started at 9:45 p.m. CDT on April 20, 2010. According to Transocean executive Adrian Rose, abnormal pressure accumulated inside the marine riser and as it came up it “expanded rapidly and ignited”. According to interviews with platform workers conducted during BP’s internal investigation, a bubble of methane gas escaped from the well and shot up the drill column, expanding quickly as it burst through several seals and barriers before exploding. Rose said the event was basically a blowout. Survivors described the incident as a sudden explosion which gave them less than five minutes to escape as the alarm went off.

At an April 30 press conference, BP said that it did not know the cause of the explosion. Transocean chief executive Steven Newman described the cause as “a sudden, catastrophic failure of the cement, the casing or both.” The heavy drilling mud in the pipes initially held down the gas of the leaking well. When managers believed they were almost done with the well, they decided to displace the mud with seawater [M]; the gas was then able to overcome the weight of the fluid column and rose to the top.“

Source: Wikipedia report on BP Oil Spill, June 4 2010

Firstly, could the same decision making situation develop in mining as well? Yes, it could. Just as in the cases of Chernobyl and the Challenger, psychological effects have played an important role in the framing of the organizational behaviour which allowed the accident to happen. The most important effects James Reason mentions in his report “the Chernobyl errors” are:

  • Forgetting the power of the beast. Operators get so used to working with large and potentially dangerous objects that they forget the potential impact of a mistake.
  • Rationalizing away. What are the odds that something will go wrong? It won’t happen to us!
  • Trusting the others will know/act. Especially in interaction between groups uncertainty is not shown. In the Deepwater case the interaction between Trans-ocean, BP and contractors will have contributed to this situation of groupthink.

Secondly, are there situations in mining that could have an impact comparable to the oil leak in the Gulf of Mexico? The fact that it takes some time to think about examples shows just how much we are used not to think about potential consequences of our actions. Both the health/safety and the environmental impact of the blow out can certainly be matched in mining. The numerous mine explosions in coal mining, slides in open pit mines and caving above underground mines are just examples. “The big one” could happen anytime and anywhere. Similarly, breaking tailings dams, uncontrolled leaching operations and many other process related accidents could destroy the flora and fauna in a large area, especially when the poison is spread by a river.

Finally, mining shares the schizophrenic safety culture with the petroleum industry. Most companies are very strict about personal safety, but relentlessly driven by production targets in operations at the same time. This culture results in a frequent disregard of potential hazards or even violation of “redundant rules” in making operational decisions that do not directly appear to be related with personal safety. In the BP case this was the cementing of the casing, in the mining case this could be the spacing of boreholes or the dewatering of a dump. As long as miners don’t learn to think about the power of the beast, an “oil spill” could certainly happen in mining.

©2010 – thebusinessofmining.com

Top 10 Priorities of BHP Billiton’s CEO Marius Kloppers

May 28, 2010 Comments off

Marius Kloppers

What are the things the CEO of the world’s largest mining company is doing? What keeps BHP Billiton’s CEO Marius Kloppers awake at night? What are the categories of his “To Do”-list?

An analysis of BHP Billiton’s latest annual & financial reports, investor presentations and the news about the company in the last months yields a list of 10 issues that are likely to be at the top of Kloppers’ list of priorities. The list holds strategic, operational, financial and relational activities, each of which are scored in terms of importance and urgency. Priority 1 on the list is the lobby on the new Australian mining tax. Priority 10 is improvement of the safety record of the company. Read on for the full list of priorities.

Priority 1 – Lobby against Australian mining tax

The campaign against the super profits tax proposed by the Australian government is currently on top of the list of the CEO. Corporate profits are projected to decrease by over 15% if the proposal is implemented without changes.

Priority 2 – Screen potential acquisition targets

With BHPB’s strong balance sheet and the failed take-over of Rio Tinto in the back of the mind the company will be looking for acquisition targets. Growth by acquisitions should help the company to meet achieve positive growth again in 2010. There are rumours that the company is on the verge of announcing acquisitions in the petroleum business.

Priority 3 – Complete cost cutting projects to restore margin

The margin has taken a major hit in the past two years. Kloppers will need to show the shareholders he is able to restore the margin by cutting costs. Especially the aluminum and stainless steel metals business units will need to cut costs significantly.

Priority 4 – Manage Pilbara Iron ore investment

The iron ore project in Western Australia is by far the largest capital project of the company at this moment. The structure of a JV with Rio Tinto makes additional executive attention is required in order to align the operations and to ramp up production quickly.

Priority 5 – Refinance debt while retaining credit rating

A significant part of BHP Billiton’s debt needs to be refinanced in the coming years. The companies strong balance sheet has helped it to achieve an “A” credit rating. Kloppers will be working hard with the Alex Vanselow, the CFO, to retain this favourable position.

Priority 6 – Get new petroleum projects on steam

Fuel costs are the most important driver of costs in the mining industry. Having a strong petroleum business unit helps to hedge against the likely price increases of oil. BHP has six capital petroleum project in the execution phase (Turrum, Pyrenees and NWS North Rankin B being the largest). The CEO will keep a close watch on the development of these projects.

Priority 7 – Reduce portfolio dependency on steel making

The percentage of BHP Billiton’s sales related to steel making has increased in the past 5 years from approx. 50% to approx. 70%. Although this means the company is well positioned to benefit from China’s growth, it does pose a great risk of volatility. Kloppers will be looking for opportunities to strengthen the aluminium, base metals and diamond business to cover this risk.

Priority 8 – Align with Jack Nasser, the new chairman

Don Argus has retired as chairman and Jac Nasser has started in this position. As the position of any CEO is subject of continuous questions, Kloppers will make sure he is aligning with the new chairman.

Priority 9 – Position for Chinese and Indian growth

BHP expects India to follow the growth trajectory of China. However, the current infrastructure of the company is not yet aligned with the large part of consumption of its goods in Asia. Kloppers will be working on strengthening the focus of both the supply chain and the marketing departments.

Priority 10 – Improve safety record

In 2009 the company had 7 fatalities in its operations. Kloppers will be concerned about getting the safety at all operations at par. Public and legal opinion pressure the executives to undertake additional action.

Link to this article: http://www.thebusinessofmining.com/2010/05/28/BHPBPriorities

Sources: BHP Billiton annual report 2009, BHP Billiton summary review 2009, BHP Billiton investor presentation February 2010