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The Emerging Role of Information
Technology (IT) within the South
African Mining Industry
James AH Campbell
B.Sc (Hons) ARSM MBA (Dunelm) C.Eng MIMM Dipl Datm (UNISA)
General Manager, Information Technology
De Beers Consolidated Mines Limited
Gartner ‘Mining Event’
Mining Industry Technology Update
29th July 2003
Johannesburg, South Africa
2November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 2
Preamble
For this presentation the ‘emerging role of IT’ has been interpreted in two
ways:
 The role of the IT function within a mining company, including its focus, how it is
governed, and its management practices
 The role of IT solutions in both supporting and enabling a mining company’s
business operations
The emphasis in this presentation is on the role of the IT Function.
3November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 3
Presentation Agenda
This presentation will look at the global and local drivers for change in the
mining industry and how these effect the IT function and the IT solutions of a
“typical” South African Mining Company
Global Mining
Industry
Trends
1
Local Mining
Industry
Trends
2
Mining Co.
Strategic
Response
3
Global Trends in
the Role of the IT
Function
4
Impact on SA
Mining Co. IT
Function
5
Impact on SA
Mining Co. IT
Solutions
7
Global
Technology
Trends
6
4November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 4
Mining Industry Characteristics
The Mining industry has similarities with other Resources industries but has
a number of additional characteristics that are unique:
 Global operations
 Commodity pricing of many minerals
 Geographically dispersed and frequently remote operations
 Generally autonomous local operating philosophy
 Significant capital requirements over finite mine lives
 High environmental impact and hence regulation
 Non-renewable resource
5November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 5
Major Global Trends
A number of emerging industry trends are forcing mining companies to
rethink their strategies to remain competitive:
 Focus on shareholder value
 Consolidation of players – in gold, platinum, coal, copper and other sectors
 Increasingly global markets, with capacity for expansion in developing countries
 More stringent governmental regulation
 Increased environmental awareness and responsibility
 Adoption of new technologies to increase productivity
 Tighter links to customers, suppliers, utilities, and transportation
6November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 6
Mining Industry Trends
Generally, trends in the mining industry are making cost reduction and
productivity improvement increasingly important:
Increasing
environmental /
safety compliance
requirements
Long-term decline
in commodity
prices
Growing emphasis on
cost reduction and
productivity
improvement
Increasing mining
costs
Declining reserves
Increasing operating costs caused by
 Work practices reform
 Growing infrastructure provision and supply
costs
 Increasing safety and environmental
compliance requirements
Increasing development costs
caused by
 Increasing native title requirements
 Statutory approvals processes
Long-term decline in commodity
prices
 Global downturn leading to reduction in
sales volumes: oversupplied markets
 Release of company and government
stockpiles undermining prices in some
commodities
 Substitute materials
Declining reserves
 Some companies have mines that are
close to the end of their working lives
 Development of the reserves pipeline is
either very lengthy and risky (implement
major exploration effort) or expensive (buy
into existing project)
7November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 7
Major Local Trends
In addition to these global trends, the South African Mining industry will be transformed by
the new Minerals Development Act and proposed Money Bill:
 The transfer of mineral rights from private into state hands
 The need to transform and develop the workforce, whilst managing the impact of AIDS
 The emergence of black mining companies
 The requirement of legacy mining companies to transfer production to black mining companies
 The need to meet the other requirements in the ‘scorecard’, from BEE, procurement to sound
environmental management
 New royalty regime proposed for the mining industry
 (Impact of the ECT Bill on information management and privacy)
… this is aside from an increasingly global management view: from a capital financing
perspective, to globally dispersed exploration programmes and operational mine sites, to
managing talent and knowledge capital.
8November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 8
Mining Companies Strategic Response
Tomorrow’s ‘winners’ in the industry will be those who find the right balance
across growing shareholder value, satisfying regulatory demands, and
ensuring sustainability of operations
 Partnering with complementary companies
 Melding diverse cultures created through acquisition, joint ventures and internal
transformation
 Complying with government regulations
 Balancing the benefits of standardisation vs. local autonomy
 Ensuring effective company-wide collaboration
 Transferring knowledge and best practices across global operations
 Acquiring and integrating effective technologies
.. without losing focus on the traditional mining success factors
9November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 9
Winning Characteristics
Research* into the performance of companies in the mining industry confirm
that despite different corporate strategies, ‘winners’ seem to consistently excel
in three key areas
 Effective investment in high-quality reserves to replace / grow production
 Exploring and developing new greenfield projects
 Exploiting existing mines to discover additional reserves
 Acquiring operational mines from competitors
 Joint-venturing to spread capital and hedge risk
 Mining operations excellence
 Optimising mine, concentrator, and smelter operations to maximise productivity
 Invest strategically in existing assets to optimise long term value potential
 Disinvest from operations that do not meet a specific hurdle rate
 Sound but aggressive financial / risk management approaches
 Hedging price uncertainty
 Using debt selectively and wisely
* Source : Accenture Shareholder Value Analysis for the Mining Industry
10November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 10
Agenda Revisited
Before we look at how mining companies’ strategic focus impacts the IT
function, we need to consider global trends in the role of the IT function
Global Mining
Industry
Trends
1
Local Mining
Industry
Trends
2
Mining Co.
Strategic
Response
3
Global Trends in
the Role of the
IT Function
4
Impact on SA
Mining Co. IT
Function
5
Impact on SA
Mining Co. IT
Solutions
7
Global
Technology
Trends
6



11November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 11
Evolving IT Agenda
The role of the IT function is changing from purely that of a service provider, to
that of a ‘business value’ creator
Focus on IT
Processes (Budgets,
Requirements)
Focus on IT Efficiency
(Techniques, Metrics)
Focus on IT
Effectiveness (Cost-
Benefit, Sourcing)
IT Cost Effectiveness Impact
Limited Focus
on IT Value
Generation
Aligning with
Predetermined
Strategies
IT as a Key
Enabler of
Business Value
StrategicImpact
1990-
200x
1970-80
1980-90
12November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 12
Striking the Right Balance
Hence, IT functions globally are trying to balance their focus on both managing
critical IT capabilities, and driving value from new technologies.
 Invest ‘smart savings’ in new
technologies / capabilities
 Target new technologies at the right
stage in the lifecycle / evolution
 Focus on capturing ‘big benefits’
 Strategic sourcing of products and
services
Build and Manage
Critical IT
Capabilities
Drive New Economic
Value in Business
Through Technology
 Increase business / IT productivity
 Reduce IT operational costs and manage
legacy costs
 Capture quantifiable ‘smart savings’
 Focus on ‘incremental’ economic value
creation
IT As An Economic
Value Creator
13November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 13
IT Function – Top Challenges*
 Demonstration of the value that IT
brings to the organisation
 Pressure on costs in a difficult
economic climate
 Need to increase IT efficiency and
effectiveness
 Need to more closely integrate with
the business to enable measurable
results
 How to launch specific initiatives to
create new value when budgets are
constrained: shorter project life cycles
 Need to evaluate how emerging
technologies can be applied
 Must mitigate security risks and
ensure business continuity: business
risk management
 How can IT leaders operate at higher
levels of influence and responsibility
However, the IT function and its management team face a number of key
challenges in playing this value creator role
* Sources: Accenture CIO Surveys, Gartner 2003 CIO agenda, De Beers 2002 Group IT customer survey
14November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 14
IT Value Challenges
Despite many efforts, most companies are still ill equipped to capture the value
creation potential of IT
Source: *Mainstay Partners survey of 450 companies; **Standish Group International; ***Meta Group 2003 Worldwide IT Benchmarking Report
0% 100%
Tie IT investments to their business strategy and goals*
Accurately measure business impact of IT investments*
Prioritise and manage technology investments*
Proper governance structures to deliver IT value*
IT investments completed on time, on budget, or within scope**
Actively and regularly collect and use IT metrics***
28%
12%
21%
9%
60%
20%
IT Value Practices
Degree of Adoption
Low Value High Value
of companies
of companies
of companies
of companies
of IT projects
of companies
15November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 15
IT Value Creation Strategies
In response, IT functions are typically following three strategies to increase the
value they are delivering to the business
BusinessValue
3. Create new IT-enabled business
model(s)
2. Optimise current business
operations through IT
1. Optimise the existing IT function
Value Today Potential Value
Low risk, low return
More risk, higher returns,
but value constrained
High risk, but potentially
unbounded returns
16November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 16
Agenda Revisited
Given Mining companies strategic focus and the global trends in the role of the
IT function, let’s bring this into perspective for SA Mining companies IT
organisations
Global Mining
Industry
Trends
1
Local Mining
Industry
Trends
2
Mining Co.
Strategic
Response
3
Global Trends in
the Role of the IT
Function
4
Impact on SA
Mining Co. IT
Function
5
Impact on SA
Mining Co. IT
Solutions
7
Global
Technology
Trends
6




17November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 17
Impact on SA Mining Co. IT Function
SA Mining Co IT functions are becoming more global, and more focused on
delivering value to the business, whilst remaining solidly oriented on ‘keeping
the shop running’
• Efficient, cost-effective
service provider
• Budget driven
• Internally oriented IT
measures
• Regional / local
management of IT
• Self-sufficiency in IT
service delivery
• SLAs measuring IT
metrics
Traditional IT Role
• Global governance &
architecture, regional
delivery
• Business value creator
• Service delivery
improvement
• Transforming the IT
workforce
• Managing relationships
with multiple external
service providers
• SLAs measuring end-to-
end business processes
Emerging IT Role Globalisation
 Consolidation
 Shareholder Value
 SHE
 Partnering / BEE
 Operational
Excellence / CI
3
 Build / manage
critical IT
capabilities
 Drive new value
through
technology
4
18November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 18
Global
CIO
SA Mining Co – Global IT Management
SA mining companies are now more global in operation – particularly in the
gold, base metals, diamond and coal sectors. Global IT governance, standards
and architecture have to be combined with the need for more local delivery.
Collaborative
IT Solutions
Business
Support
Applications
National GlobalRegionalLocal
Technical
Applications
IT
Governance
IT Service
Delivery
IT Model,
Innovation &
Strategy
19November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 19
SA Mining Co – Business Value Creator
Mining operations management still demand (loudly) that IT must focus on the
basics – but if the IT function is to avoid diminishing importance, budget and
sponsorship must be found for the higher value, discretionary projects
Non-discretionaryDiscretionary
Examples
Non-discretionary costs (‘must
have’) are costs required to
maintain current IT functionality
and operations
IT Spending
Strategic
Tactical
Discretionary costs (‘want
to’) are investments in new
IT functionality and
improvements to the IT
organisation / processes
Definition
 IT operations
 Service reliability & cost reduction
 Applications maintenance
 Planning and administration
 Hardware and software licenses
 Replace legacy business support
applications and processes
 Business Intelligence in both core and
business support areas
 Integrating technical and business
support applications
20November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 20
SA Mining Co – Service Delivery Improvement
IT management practices in the past have been quite insular – focused on
internal metrics and budgets – and perceptions of service (internal and
outsourced) have suffered. More IT functions in mining are adopting Service and
Portfolio management techniques to effectively manage customer expectations
– Service Alignment Levers –
Service
Management
Framework
Incentives
Process
Ownership/
Leadership
Collective
Oversight
Groups
Cost and
Performance
Measures
Reporting
Relationship
s
Service
Agreements
Pricing
Arrangements
Increasing Business Risk ->
0
0.5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
1
1.5
2
2.5
3
3.5
4
4.5
5
IncreasingValue->
Portfolio Management
22November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 22
SA Mining Co – Transforming the IT Workforce
In the SA context, despite the shortage of skills, managing black IT talent and
achieving EE goals is a major emphasis – Mining executives see IT as a major
area of opportunity – this is given impetus by the new Minerals bill.
Generic
Structures
Performance
Management
Staffing reviews
& Succession
Planning
Career Path
Streams
Generic Job
Descriptions
Training and
Development
Generic Job
Designations
Competence
based
recruitment
IT HR Best
Practice
23November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 23
SA Mining Co – Managing External Service Providers
Given the growing complexity of the IT environment, more SA mining
companies have turned to external service providers – requiring that IT develop
more advanced relationship and contract management skills.
V.
Transformational
Outsourcing
IV.
Targeted
Business / IT
Transformation
III.
Co-sourcing;
Targeted
Capabilities
II.
Leverage External
Advisor
I.
Keep Internal
Rapid Step ChangeIncremental Change
SA Mining Industry
 De Beers  Anglo Platinum
 AngloGold (SA)
 Gold Fields Limited (SA)
 Impala Platinum
 (De Beers)
 Anglo Coal
24November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 24
Agenda Revisited
The next part of this presentation looks at global technology trends
Global Mining
Industry
Trends
1
Local Mining
Industry
Trends
2
Mining Co.
Strategic
Response
3
Global Trends in
the Role of the IT
Function
4
Impact on SA
Mining Co. IT
Function
5
Impact on SA
Mining Co. IT
Solutions
7
Global
Technology
Trends
6



25November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 25
Global Technology Trends
Whilst most organisations remain focused on realising value from their mature
and roll-out technologies, some are looking for new sources of value from
technologies which are just starting to be taken-up or adapted
Incubation Adaptation Take-up Rollout Maturity
Web Services
Virtual
Collaboration
Powerline
Communications
Intelligent
Objects
Silent
Commerce
Mobile
Commerce
Business
Intelligence
Digital Content
Services
Enterprise
Security
Enterprise
Integration
ERP
Customer
Relationship
Management
Services
Knowledge
Management
Natural Computer
Interfaces
Payroll
Product Life
Cycle Mgmt
26November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 26
Emerging Technologies
Emerging technology is creating new business opportunities:
28November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 28
Technology Evaluation Matrix
Companies can evaluate these technologies by trading-off their maturity against
the potential business impact
Insight
Experiment Pilot and/or deploy
MonitorMaintain Radar Contact
Potential
Business
Impact
(Value)
ProvenUnproven
Low
High
Technology
Maturity
Silent commerce
Natural computer interfaces
Enterprise integration
Mobility
Digital content services Next generation systems
High-impact Waves Of Technology Change
29November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 29
Agenda Revisited
Let’s now looks at how global technology trends and Mining companies’
strategic focus could impact IT solutions in the SA Mining industry
Global Mining
Industry
Trends
1
Local Mining
Industry
Trends
2
Mining Co.
Strategic
Response
3
Global Trends in
the Role of the IT
Function
4
Impact on
Mining Co. IT
Function
5
Impact on SA
Mining Co. IT
Solutions
7
Global
Technology
Trends
6



30November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 30
Impact on SA Mining Co - IT Solutions
There is already evidence that newer technologies are helping mining
companies implement their strategies
• Exploit opportunities to
standardise / share back office
systems through (ERP) solutions
• Greater focus on getting more
business insight through BI tools
• Leverage collaborative
technologies to work more
globally
• Use of EAI to integrate technical
applications
• Use technology to integrate
internal processes and with
business partners / suppliers
• Adoption of mobile solutions
Impact on IT Solutions
Mining Co.
Strategic Focus
 Globalisation
 Consolidation
 Shareholder Value
 SHE
 Partnering / BEE
 Operational Excellence / CI
3
Global
Technology
Trends
 Digital Content
 Enterprise Integration
 Mobility
 Silent Commerce
 Natural Computer Interfaces
 Business Insight
 Next Generation Systems
 Web services
6
31November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 31
• Exploit opportunities to
standardise / share back office
systems through (ERP) solutions
• Greater focus on getting more
business insight through BI tools
• Leverage collaborative
technologies to work more
globally
• Use of EAI to integrate technical
applications
• Use technology to integrate
internal processes and with
business partners / suppliers
• Adoption of mobile solutions
Impact on IT Solutions
Impact on SA Mining Co - IT Solutions
We’ll focus only a few of these areas in this presentation…
32November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 32
SA Mining Co - Technology Adoption
Before we explore these areas, it is important to be aware of technology adoption by
SA mining companies, which is mixed – many have adopted leading edge
technologies in business support processes, whilst the core areas lag behind
Incubation Adaptation Take-up Rollout Maturity Services
HR & Payroll
Financial
Accounting
Procurement
Maintenance
Planning
Performance Management
Logistics/
Materials
Vehicle Monitoring
Process Control & Monitoring
Seismic Monitoring & Analysis
Engineering Design
Geological Modelling
Exploration Management
Mine Planning
Mine Design
ERP
PMS
PMS = Production Management System
33November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 33
Exploit Opportunities To Standardise
There are significant opportunities to free-up non-discretionary spending and
to use this to invest in value-adding solutions in the infrastructure
environment
 Network convergence: voice, video and data
 Integration of IT, Control & Instrumentation (C&I), telecoms and security
networks
 Internet Protocol (IP) Telephony opportunities
 Server and storage consolidation
 Enterprise Systems Management
 Standardisation of the front and back office
 … Grid Computing
35November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 35
SA Mining Co - ERP Solutions Opportunities
Given consolidation activity, many large mining companies will have a mixed ERP
environment to manage for years to come - creating opportunities for standardisation.
However, few business cases are realised and therefore there is a need to tread
carefully in this space, particularly with large implementations
 A number of large SA mining companies
still have the opportunity to move to
ERP for business support areas –
possibly as an enabler of shared
services
 Global SA miners have an opportunity to
rationalise their different ERP solutions
– and take advantage of SA as a low
cost geography.
 Further opportunities for an SSV for
the SA mining industry?
 The new “extended ERP” vendor
offerings provide an opportunity to
broaden the footprint of the ERP and
realise greater value
 Most mining companies have
followed an ERP versus best of breed
strategy for business support – with a
few companies still on legacy
systems
 However, many of the larger
companies have different solutions
between corporate and BU
 Implementations are commonly
limited to a number of functions rather
than across the whole company
ERP = Enterprise Resource Planning, SSV = Shared Service Venture
36November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 36
SA Mining Co – Collaborative Technologies
One of the most tangible effects of globalisation is the resulting demand for
robust and common collaborative IT applications and the supporting
infrastructure
Rationale
• Mobility of executives
• Single e-mail platform
• Group-wide address book
• Common culture
• Knowledge sharing
• Virtual meetings
• Project collaboration
• Global sourcing
• Performance reporting …
IT Solutions
• Global network
• Wireless LAN
• Common applications
• Common operating systems
• Web solutions & competency
centres
• Document & knowledge
management solutions
• E-Learning
• Enterprise portal …
37November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 37
SA Mining Co – Integration Of Internal Processes
The impact of information technology
varies significantly depending upon
where it is applied in the value chain
 Technology investments in the mining
value chain have not necessarily been
given the same focus as in the business
support areas
 Integrated solutions are becoming
available for the business support areas
in Mining – the domain of ‘ERP for
Mining’. This currently is a significant
area of collaborative opportunity and
ultimately high value
 Most mining companies have a best of
breed approach to technology in the
mining value chain
.. resulting in faster take up in specific
areas – but less integrated solutions in
the core, mining value chain areas
Work-
shop
Ware-
house
Work-
shop
Ware-
house
Geology,
Planning &
Scheduling
Production
Orders
Mine
Planning
Geology,
Planning &
Scheduling
Production
Orders
Mine
Planning
Purchasing
Inventory
Management
Spares Parts Inventory
Purchasing
Inventory
Management
Spares Parts Inventory
Crew
Availability
Skills &
Training
Human Resources
Crew
Availability
Skills &
Training
Human Resources
Work
Orders
Planning and
Scheduling
Maintenance
Planning
Work
Orders
Planning and
Scheduling
Maintenance
Planning
Mining
Value
Chain
“MVC”
(value
creation)
Mining
Value
Chain
“MVC”
(value
creation)
Enterprise
Resource
Planning
“ERP”
( process
support)
Enterprise
Resource
Planning
“ERP”
( process
support)
Costing and Finance
SaleTransport
Drill
& Blast
Load
& Haul
Process
Plant
ExtractionMarketing
Stock-
Piles
SaleTransport
Drill
& Blast
Load
& Haul
Process
Plant
Process
Plant
ExtractionMarketing
Stock-
Piles
38November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 38
SA Mining Co – Integration Of External Processes (Inbound)
A prominent use of technology in the SA
Mining industry to integrate processes
with business partners / suppliers is
Quadrem Quadrem Founders include:
Alcan Ltd
Alcoa Inc
Anglo American plc
Barrick Gold Corporation
BHP Billiton Ltd
Companhia Vale do Rio Doce (CVRD)
Corporacion Nacional del Cobre de Chile (Codelco)
De Beers Consolidated Mines Ltd
Glencore International AG
Imerys
Inco Ltd
Newmont Mining Corporation
Noranda Inc
Pechiney
Peñoles
Phelps Dodge Corporation
Rio Tinto
Votorantim Group
WMC Limited
39November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 39
SA Mining Co – Integration Of External Processes (Outbound)
And in the outbound supply chain, there is the opportunity to change
perceptions and attitudes through providing a range of information-
based services that drive ‘downstream’ thinking:
 Build partnerships
 Service ethic - accessibility of people, processes and strategies
 Share ideas - grow support for involvement in incremental demand building activity
 Efficiency & effectiveness
 Automate existing processes
 Govern and manage a common identity and downstream use of ‘trust’ marks
 Promote
 Endorse intermediaries
 Promote specific programmes and end-product to trade and consumers
40November 2002
The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 40
Conclusions
In conclusion, the emerging role of IT in the South African Mining industry is
that of a ‘business value creator’ with a focus on providing IT solutions which
support the main strategic focus of the industry
• Global governance & architecture,
regional delivery
• Business value creator
• Service delivery improvement
• Transforming the IT workforce
• Managing relationships with
multiple external service providers
• SLAs measuring end-to-end
business aligned processes
Emerging IT Role
• Exploit opportunities to standardise
/ share back office systems through
(ERP) solutions
• Greater focus on getting more
business insight through BI tools
• Leverage collaborative technologies
to work more globally
• Use of EAI to integrate technical
applications
• Use technology to integrate internal
processes and with business
partners / suppliers
Role of IT Solutions
The Emerging Role of Information
Technology (IT) within the South
African Mining Industry
James AH Campbell
B.Sc (Hons) ARSM MBA (Dunelm) C.Eng MIMM Dipl Datm (UNISA)
General Manager, Information Technology
De Beers Consolidated Mines Limited
Gartner ‘Mining Event’
Mining Industry Technology Update
29th July 2003
Johannesburg, South Africa

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Emerging role of it within the SA mining industry

  • 1. The Emerging Role of Information Technology (IT) within the South African Mining Industry James AH Campbell B.Sc (Hons) ARSM MBA (Dunelm) C.Eng MIMM Dipl Datm (UNISA) General Manager, Information Technology De Beers Consolidated Mines Limited Gartner ‘Mining Event’ Mining Industry Technology Update 29th July 2003 Johannesburg, South Africa
  • 2. 2November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 2 Preamble For this presentation the ‘emerging role of IT’ has been interpreted in two ways:  The role of the IT function within a mining company, including its focus, how it is governed, and its management practices  The role of IT solutions in both supporting and enabling a mining company’s business operations The emphasis in this presentation is on the role of the IT Function.
  • 3. 3November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 3 Presentation Agenda This presentation will look at the global and local drivers for change in the mining industry and how these effect the IT function and the IT solutions of a “typical” South African Mining Company Global Mining Industry Trends 1 Local Mining Industry Trends 2 Mining Co. Strategic Response 3 Global Trends in the Role of the IT Function 4 Impact on SA Mining Co. IT Function 5 Impact on SA Mining Co. IT Solutions 7 Global Technology Trends 6
  • 4. 4November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 4 Mining Industry Characteristics The Mining industry has similarities with other Resources industries but has a number of additional characteristics that are unique:  Global operations  Commodity pricing of many minerals  Geographically dispersed and frequently remote operations  Generally autonomous local operating philosophy  Significant capital requirements over finite mine lives  High environmental impact and hence regulation  Non-renewable resource
  • 5. 5November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 5 Major Global Trends A number of emerging industry trends are forcing mining companies to rethink their strategies to remain competitive:  Focus on shareholder value  Consolidation of players – in gold, platinum, coal, copper and other sectors  Increasingly global markets, with capacity for expansion in developing countries  More stringent governmental regulation  Increased environmental awareness and responsibility  Adoption of new technologies to increase productivity  Tighter links to customers, suppliers, utilities, and transportation
  • 6. 6November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 6 Mining Industry Trends Generally, trends in the mining industry are making cost reduction and productivity improvement increasingly important: Increasing environmental / safety compliance requirements Long-term decline in commodity prices Growing emphasis on cost reduction and productivity improvement Increasing mining costs Declining reserves Increasing operating costs caused by  Work practices reform  Growing infrastructure provision and supply costs  Increasing safety and environmental compliance requirements Increasing development costs caused by  Increasing native title requirements  Statutory approvals processes Long-term decline in commodity prices  Global downturn leading to reduction in sales volumes: oversupplied markets  Release of company and government stockpiles undermining prices in some commodities  Substitute materials Declining reserves  Some companies have mines that are close to the end of their working lives  Development of the reserves pipeline is either very lengthy and risky (implement major exploration effort) or expensive (buy into existing project)
  • 7. 7November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 7 Major Local Trends In addition to these global trends, the South African Mining industry will be transformed by the new Minerals Development Act and proposed Money Bill:  The transfer of mineral rights from private into state hands  The need to transform and develop the workforce, whilst managing the impact of AIDS  The emergence of black mining companies  The requirement of legacy mining companies to transfer production to black mining companies  The need to meet the other requirements in the ‘scorecard’, from BEE, procurement to sound environmental management  New royalty regime proposed for the mining industry  (Impact of the ECT Bill on information management and privacy) … this is aside from an increasingly global management view: from a capital financing perspective, to globally dispersed exploration programmes and operational mine sites, to managing talent and knowledge capital.
  • 8. 8November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 8 Mining Companies Strategic Response Tomorrow’s ‘winners’ in the industry will be those who find the right balance across growing shareholder value, satisfying regulatory demands, and ensuring sustainability of operations  Partnering with complementary companies  Melding diverse cultures created through acquisition, joint ventures and internal transformation  Complying with government regulations  Balancing the benefits of standardisation vs. local autonomy  Ensuring effective company-wide collaboration  Transferring knowledge and best practices across global operations  Acquiring and integrating effective technologies .. without losing focus on the traditional mining success factors
  • 9. 9November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 9 Winning Characteristics Research* into the performance of companies in the mining industry confirm that despite different corporate strategies, ‘winners’ seem to consistently excel in three key areas  Effective investment in high-quality reserves to replace / grow production  Exploring and developing new greenfield projects  Exploiting existing mines to discover additional reserves  Acquiring operational mines from competitors  Joint-venturing to spread capital and hedge risk  Mining operations excellence  Optimising mine, concentrator, and smelter operations to maximise productivity  Invest strategically in existing assets to optimise long term value potential  Disinvest from operations that do not meet a specific hurdle rate  Sound but aggressive financial / risk management approaches  Hedging price uncertainty  Using debt selectively and wisely * Source : Accenture Shareholder Value Analysis for the Mining Industry
  • 10. 10November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 10 Agenda Revisited Before we look at how mining companies’ strategic focus impacts the IT function, we need to consider global trends in the role of the IT function Global Mining Industry Trends 1 Local Mining Industry Trends 2 Mining Co. Strategic Response 3 Global Trends in the Role of the IT Function 4 Impact on SA Mining Co. IT Function 5 Impact on SA Mining Co. IT Solutions 7 Global Technology Trends 6   
  • 11. 11November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 11 Evolving IT Agenda The role of the IT function is changing from purely that of a service provider, to that of a ‘business value’ creator Focus on IT Processes (Budgets, Requirements) Focus on IT Efficiency (Techniques, Metrics) Focus on IT Effectiveness (Cost- Benefit, Sourcing) IT Cost Effectiveness Impact Limited Focus on IT Value Generation Aligning with Predetermined Strategies IT as a Key Enabler of Business Value StrategicImpact 1990- 200x 1970-80 1980-90
  • 12. 12November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 12 Striking the Right Balance Hence, IT functions globally are trying to balance their focus on both managing critical IT capabilities, and driving value from new technologies.  Invest ‘smart savings’ in new technologies / capabilities  Target new technologies at the right stage in the lifecycle / evolution  Focus on capturing ‘big benefits’  Strategic sourcing of products and services Build and Manage Critical IT Capabilities Drive New Economic Value in Business Through Technology  Increase business / IT productivity  Reduce IT operational costs and manage legacy costs  Capture quantifiable ‘smart savings’  Focus on ‘incremental’ economic value creation IT As An Economic Value Creator
  • 13. 13November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 13 IT Function – Top Challenges*  Demonstration of the value that IT brings to the organisation  Pressure on costs in a difficult economic climate  Need to increase IT efficiency and effectiveness  Need to more closely integrate with the business to enable measurable results  How to launch specific initiatives to create new value when budgets are constrained: shorter project life cycles  Need to evaluate how emerging technologies can be applied  Must mitigate security risks and ensure business continuity: business risk management  How can IT leaders operate at higher levels of influence and responsibility However, the IT function and its management team face a number of key challenges in playing this value creator role * Sources: Accenture CIO Surveys, Gartner 2003 CIO agenda, De Beers 2002 Group IT customer survey
  • 14. 14November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 14 IT Value Challenges Despite many efforts, most companies are still ill equipped to capture the value creation potential of IT Source: *Mainstay Partners survey of 450 companies; **Standish Group International; ***Meta Group 2003 Worldwide IT Benchmarking Report 0% 100% Tie IT investments to their business strategy and goals* Accurately measure business impact of IT investments* Prioritise and manage technology investments* Proper governance structures to deliver IT value* IT investments completed on time, on budget, or within scope** Actively and regularly collect and use IT metrics*** 28% 12% 21% 9% 60% 20% IT Value Practices Degree of Adoption Low Value High Value of companies of companies of companies of companies of IT projects of companies
  • 15. 15November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 15 IT Value Creation Strategies In response, IT functions are typically following three strategies to increase the value they are delivering to the business BusinessValue 3. Create new IT-enabled business model(s) 2. Optimise current business operations through IT 1. Optimise the existing IT function Value Today Potential Value Low risk, low return More risk, higher returns, but value constrained High risk, but potentially unbounded returns
  • 16. 16November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 16 Agenda Revisited Given Mining companies strategic focus and the global trends in the role of the IT function, let’s bring this into perspective for SA Mining companies IT organisations Global Mining Industry Trends 1 Local Mining Industry Trends 2 Mining Co. Strategic Response 3 Global Trends in the Role of the IT Function 4 Impact on SA Mining Co. IT Function 5 Impact on SA Mining Co. IT Solutions 7 Global Technology Trends 6    
  • 17. 17November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 17 Impact on SA Mining Co. IT Function SA Mining Co IT functions are becoming more global, and more focused on delivering value to the business, whilst remaining solidly oriented on ‘keeping the shop running’ • Efficient, cost-effective service provider • Budget driven • Internally oriented IT measures • Regional / local management of IT • Self-sufficiency in IT service delivery • SLAs measuring IT metrics Traditional IT Role • Global governance & architecture, regional delivery • Business value creator • Service delivery improvement • Transforming the IT workforce • Managing relationships with multiple external service providers • SLAs measuring end-to- end business processes Emerging IT Role Globalisation  Consolidation  Shareholder Value  SHE  Partnering / BEE  Operational Excellence / CI 3  Build / manage critical IT capabilities  Drive new value through technology 4
  • 18. 18November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 18 Global CIO SA Mining Co – Global IT Management SA mining companies are now more global in operation – particularly in the gold, base metals, diamond and coal sectors. Global IT governance, standards and architecture have to be combined with the need for more local delivery. Collaborative IT Solutions Business Support Applications National GlobalRegionalLocal Technical Applications IT Governance IT Service Delivery IT Model, Innovation & Strategy
  • 19. 19November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 19 SA Mining Co – Business Value Creator Mining operations management still demand (loudly) that IT must focus on the basics – but if the IT function is to avoid diminishing importance, budget and sponsorship must be found for the higher value, discretionary projects Non-discretionaryDiscretionary Examples Non-discretionary costs (‘must have’) are costs required to maintain current IT functionality and operations IT Spending Strategic Tactical Discretionary costs (‘want to’) are investments in new IT functionality and improvements to the IT organisation / processes Definition  IT operations  Service reliability & cost reduction  Applications maintenance  Planning and administration  Hardware and software licenses  Replace legacy business support applications and processes  Business Intelligence in both core and business support areas  Integrating technical and business support applications
  • 20. 20November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 20 SA Mining Co – Service Delivery Improvement IT management practices in the past have been quite insular – focused on internal metrics and budgets – and perceptions of service (internal and outsourced) have suffered. More IT functions in mining are adopting Service and Portfolio management techniques to effectively manage customer expectations – Service Alignment Levers – Service Management Framework Incentives Process Ownership/ Leadership Collective Oversight Groups Cost and Performance Measures Reporting Relationship s Service Agreements Pricing Arrangements Increasing Business Risk -> 0 0.5 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 1 1.5 2 2.5 3 3.5 4 4.5 5 IncreasingValue-> Portfolio Management
  • 21. 22November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 22 SA Mining Co – Transforming the IT Workforce In the SA context, despite the shortage of skills, managing black IT talent and achieving EE goals is a major emphasis – Mining executives see IT as a major area of opportunity – this is given impetus by the new Minerals bill. Generic Structures Performance Management Staffing reviews & Succession Planning Career Path Streams Generic Job Descriptions Training and Development Generic Job Designations Competence based recruitment IT HR Best Practice
  • 22. 23November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 23 SA Mining Co – Managing External Service Providers Given the growing complexity of the IT environment, more SA mining companies have turned to external service providers – requiring that IT develop more advanced relationship and contract management skills. V. Transformational Outsourcing IV. Targeted Business / IT Transformation III. Co-sourcing; Targeted Capabilities II. Leverage External Advisor I. Keep Internal Rapid Step ChangeIncremental Change SA Mining Industry  De Beers  Anglo Platinum  AngloGold (SA)  Gold Fields Limited (SA)  Impala Platinum  (De Beers)  Anglo Coal
  • 23. 24November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 24 Agenda Revisited The next part of this presentation looks at global technology trends Global Mining Industry Trends 1 Local Mining Industry Trends 2 Mining Co. Strategic Response 3 Global Trends in the Role of the IT Function 4 Impact on SA Mining Co. IT Function 5 Impact on SA Mining Co. IT Solutions 7 Global Technology Trends 6   
  • 24. 25November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 25 Global Technology Trends Whilst most organisations remain focused on realising value from their mature and roll-out technologies, some are looking for new sources of value from technologies which are just starting to be taken-up or adapted Incubation Adaptation Take-up Rollout Maturity Web Services Virtual Collaboration Powerline Communications Intelligent Objects Silent Commerce Mobile Commerce Business Intelligence Digital Content Services Enterprise Security Enterprise Integration ERP Customer Relationship Management Services Knowledge Management Natural Computer Interfaces Payroll Product Life Cycle Mgmt
  • 25. 26November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 26 Emerging Technologies Emerging technology is creating new business opportunities:
  • 26. 28November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 28 Technology Evaluation Matrix Companies can evaluate these technologies by trading-off their maturity against the potential business impact Insight Experiment Pilot and/or deploy MonitorMaintain Radar Contact Potential Business Impact (Value) ProvenUnproven Low High Technology Maturity Silent commerce Natural computer interfaces Enterprise integration Mobility Digital content services Next generation systems High-impact Waves Of Technology Change
  • 27. 29November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 29 Agenda Revisited Let’s now looks at how global technology trends and Mining companies’ strategic focus could impact IT solutions in the SA Mining industry Global Mining Industry Trends 1 Local Mining Industry Trends 2 Mining Co. Strategic Response 3 Global Trends in the Role of the IT Function 4 Impact on Mining Co. IT Function 5 Impact on SA Mining Co. IT Solutions 7 Global Technology Trends 6   
  • 28. 30November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 30 Impact on SA Mining Co - IT Solutions There is already evidence that newer technologies are helping mining companies implement their strategies • Exploit opportunities to standardise / share back office systems through (ERP) solutions • Greater focus on getting more business insight through BI tools • Leverage collaborative technologies to work more globally • Use of EAI to integrate technical applications • Use technology to integrate internal processes and with business partners / suppliers • Adoption of mobile solutions Impact on IT Solutions Mining Co. Strategic Focus  Globalisation  Consolidation  Shareholder Value  SHE  Partnering / BEE  Operational Excellence / CI 3 Global Technology Trends  Digital Content  Enterprise Integration  Mobility  Silent Commerce  Natural Computer Interfaces  Business Insight  Next Generation Systems  Web services 6
  • 29. 31November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 31 • Exploit opportunities to standardise / share back office systems through (ERP) solutions • Greater focus on getting more business insight through BI tools • Leverage collaborative technologies to work more globally • Use of EAI to integrate technical applications • Use technology to integrate internal processes and with business partners / suppliers • Adoption of mobile solutions Impact on IT Solutions Impact on SA Mining Co - IT Solutions We’ll focus only a few of these areas in this presentation…
  • 30. 32November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 32 SA Mining Co - Technology Adoption Before we explore these areas, it is important to be aware of technology adoption by SA mining companies, which is mixed – many have adopted leading edge technologies in business support processes, whilst the core areas lag behind Incubation Adaptation Take-up Rollout Maturity Services HR & Payroll Financial Accounting Procurement Maintenance Planning Performance Management Logistics/ Materials Vehicle Monitoring Process Control & Monitoring Seismic Monitoring & Analysis Engineering Design Geological Modelling Exploration Management Mine Planning Mine Design ERP PMS PMS = Production Management System
  • 31. 33November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 33 Exploit Opportunities To Standardise There are significant opportunities to free-up non-discretionary spending and to use this to invest in value-adding solutions in the infrastructure environment  Network convergence: voice, video and data  Integration of IT, Control & Instrumentation (C&I), telecoms and security networks  Internet Protocol (IP) Telephony opportunities  Server and storage consolidation  Enterprise Systems Management  Standardisation of the front and back office  … Grid Computing
  • 32. 35November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 35 SA Mining Co - ERP Solutions Opportunities Given consolidation activity, many large mining companies will have a mixed ERP environment to manage for years to come - creating opportunities for standardisation. However, few business cases are realised and therefore there is a need to tread carefully in this space, particularly with large implementations  A number of large SA mining companies still have the opportunity to move to ERP for business support areas – possibly as an enabler of shared services  Global SA miners have an opportunity to rationalise their different ERP solutions – and take advantage of SA as a low cost geography.  Further opportunities for an SSV for the SA mining industry?  The new “extended ERP” vendor offerings provide an opportunity to broaden the footprint of the ERP and realise greater value  Most mining companies have followed an ERP versus best of breed strategy for business support – with a few companies still on legacy systems  However, many of the larger companies have different solutions between corporate and BU  Implementations are commonly limited to a number of functions rather than across the whole company ERP = Enterprise Resource Planning, SSV = Shared Service Venture
  • 33. 36November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 36 SA Mining Co – Collaborative Technologies One of the most tangible effects of globalisation is the resulting demand for robust and common collaborative IT applications and the supporting infrastructure Rationale • Mobility of executives • Single e-mail platform • Group-wide address book • Common culture • Knowledge sharing • Virtual meetings • Project collaboration • Global sourcing • Performance reporting … IT Solutions • Global network • Wireless LAN • Common applications • Common operating systems • Web solutions & competency centres • Document & knowledge management solutions • E-Learning • Enterprise portal …
  • 34. 37November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 37 SA Mining Co – Integration Of Internal Processes The impact of information technology varies significantly depending upon where it is applied in the value chain  Technology investments in the mining value chain have not necessarily been given the same focus as in the business support areas  Integrated solutions are becoming available for the business support areas in Mining – the domain of ‘ERP for Mining’. This currently is a significant area of collaborative opportunity and ultimately high value  Most mining companies have a best of breed approach to technology in the mining value chain .. resulting in faster take up in specific areas – but less integrated solutions in the core, mining value chain areas Work- shop Ware- house Work- shop Ware- house Geology, Planning & Scheduling Production Orders Mine Planning Geology, Planning & Scheduling Production Orders Mine Planning Purchasing Inventory Management Spares Parts Inventory Purchasing Inventory Management Spares Parts Inventory Crew Availability Skills & Training Human Resources Crew Availability Skills & Training Human Resources Work Orders Planning and Scheduling Maintenance Planning Work Orders Planning and Scheduling Maintenance Planning Mining Value Chain “MVC” (value creation) Mining Value Chain “MVC” (value creation) Enterprise Resource Planning “ERP” ( process support) Enterprise Resource Planning “ERP” ( process support) Costing and Finance SaleTransport Drill & Blast Load & Haul Process Plant ExtractionMarketing Stock- Piles SaleTransport Drill & Blast Load & Haul Process Plant Process Plant ExtractionMarketing Stock- Piles
  • 35. 38November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 38 SA Mining Co – Integration Of External Processes (Inbound) A prominent use of technology in the SA Mining industry to integrate processes with business partners / suppliers is Quadrem Quadrem Founders include: Alcan Ltd Alcoa Inc Anglo American plc Barrick Gold Corporation BHP Billiton Ltd Companhia Vale do Rio Doce (CVRD) Corporacion Nacional del Cobre de Chile (Codelco) De Beers Consolidated Mines Ltd Glencore International AG Imerys Inco Ltd Newmont Mining Corporation Noranda Inc Pechiney Peñoles Phelps Dodge Corporation Rio Tinto Votorantim Group WMC Limited
  • 36. 39November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 39 SA Mining Co – Integration Of External Processes (Outbound) And in the outbound supply chain, there is the opportunity to change perceptions and attitudes through providing a range of information- based services that drive ‘downstream’ thinking:  Build partnerships  Service ethic - accessibility of people, processes and strategies  Share ideas - grow support for involvement in incremental demand building activity  Efficiency & effectiveness  Automate existing processes  Govern and manage a common identity and downstream use of ‘trust’ marks  Promote  Endorse intermediaries  Promote specific programmes and end-product to trade and consumers
  • 37. 40November 2002 The Emerging Role of IT within the South African Mining Industry (v.1.2) Page 40 Conclusions In conclusion, the emerging role of IT in the South African Mining industry is that of a ‘business value creator’ with a focus on providing IT solutions which support the main strategic focus of the industry • Global governance & architecture, regional delivery • Business value creator • Service delivery improvement • Transforming the IT workforce • Managing relationships with multiple external service providers • SLAs measuring end-to-end business aligned processes Emerging IT Role • Exploit opportunities to standardise / share back office systems through (ERP) solutions • Greater focus on getting more business insight through BI tools • Leverage collaborative technologies to work more globally • Use of EAI to integrate technical applications • Use technology to integrate internal processes and with business partners / suppliers Role of IT Solutions
  • 38. The Emerging Role of Information Technology (IT) within the South African Mining Industry James AH Campbell B.Sc (Hons) ARSM MBA (Dunelm) C.Eng MIMM Dipl Datm (UNISA) General Manager, Information Technology De Beers Consolidated Mines Limited Gartner ‘Mining Event’ Mining Industry Technology Update 29th July 2003 Johannesburg, South Africa