Cradle to grave
Understand costs
to stay in business
T
he cost of running a quarrying
or mining business in South
Africa is escalating as energy,
maintenance, and labour are becoming
significant drivers. Quarrying relies on
various inputs and efficiencies based
on an accurate budgeted cost per ton
for aggregate and an acceptable margin
from a typically fixed sales price.
Costs need to be managed stringently
and throughput increased to achieve
higher returns. As explosives form a
large cost of operations, one needs to
understand what defines ‘a good blast’,
and the impact on profitability.
Using known and consistent values
of raw materials in the manufacturing
process of explosives will equate to
measurable results.
This means that the procurement
of vetted raw materials in the
manufacturing process for explosives
will ensure the consistent quality and
cost proposition of the final product, so
that customers can have confidence in
the explosives products they purchase
and that they perform in a reliable and
consistent manner.
This allows operations to form a
departure point or baseline to measure
improvements and concentrate on other
areas that need attention. In explosives,
this could include consistency of
viscosity, chemical stability of emulsions,
and predictable velocity of denotation
(VODs). If these parameters are all ‘in
check’, the explosives will perform work
down the borehole predictably.
Of course, the real measurement
of a good or brilliant blast can be
complicated to assess, given all
variables. Typically, the blame game
of poor explosives quality, poor
drilling control, suboptimal timing
designs, to name a few, are often used.
Management of these, poor planning,
and controls add to the mix.
Part of this solution lies in ensuring
the quality and reliability of the
explosive used, as this can rule out a
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potential issue attributed to explosives
performance.
Manufactured quality ‘down the
hole’ is of paramount importance,
as this can affect energy values and
reliability of detonation, which have
bearing on the fragmentation and
‘dig-ability’ results.
One could apply a similar logic to
companies in the automotive industry
taking similar uncompromising
positions on stipulating what fuels,
coolants, oils, and even tyres are used
with their vehicles to ensure that their
marketed performance and reliability
meet customer expectations.
Quarrying operations are no different.
It is the sum of all the components
that make for a successful blast. Proper
planning, bench preparation, correct
drilling and checking of boreholes to
planned spacing and depth are the
departure point.
This is underpinned by an effective
timing design of the blast, together
with ‘fit for purpose’ competitively
priced explosives, and then ensuring
that proper procedures and safety are
always adhered to. It is imperative that
each of these stages is given the time
required. If the ‘basics’ are taken care
of properly, then one will achieve a
successful blast.
Successful blasts form a large part
of production and processing costs, as
this speaks to efficiency. To establish a
total ownership model, one has to focus
on each component. Blasting costs
form a notable percentage of mining
contractor costs; in explosives, nitrate
prices, along with the fuel phase, is one
of the highest cost drivers. Ammonium
nitrate is a significant component for
emulsion explosives.
In South Africa, explosives could
be priced based on international
ammonium nitrate-based indices,
where relevant. Keeping tabs on the
ammonium nitrate price index is also a
transparent mechanism.
In understanding these dynamics, a
customer can see which methodology
allows for better comparison
of explosives prices. (Once you
complete these steps, you will have
the information you need to start
negotiating which supplier to use
without compromising quality.)
To remove the risk component in
suppliers’ prices, typically a rise-and-fall
price formula or adopting monthly
or quarterly pricing is used. One
should link the pricing to third-party
price indices. Good examples include
the ammonium nitrate index, or for
grinding media, the Scrap or CRUspi
Longs Index.
Study indices for information to help
you understand prices when making
purchasing decisions.
If one doesn’t proactively look into
pricing components, companies may
not end up getting competitive pricing.
At the same time, suppliers may
promise you that it is the best price
for that type of service delivery, which
may cost more for value-added services.
However, it is important to consider
what you are paying for and what
service you are getting, and how this
affects the bottom line.
If you keep track of prices and
market indices, it becomes easy to
anticipate legitimate price increases
from suppliers. It is also easier to avoid
what is referred to as ‘formula creep’.
This is where a pricing formula over
extended periods either pushes the
prices up or lowers prices too much.
These formulas need to be revisited at
least once a year and validated.
Solar Mining Services, a new entrant
to the explosives and explosives-related
services for the mining and quarry sectors
in South Africa, can offer a tailor-made
approach to assist their customers in
understanding the price curve.
The article was written by Charles Hurly,
marketing lead for Solar Mining Services.
www.miningmirror.co.za