Press Room
March 20, 2019

Securing investors and delivering a return on their investment has become one of the key challenges facing the junior mining sector, that needs to guarantee the supply of sustainable, low risk, cost effective, quick-to-market projects.

On the back of more than 10-years of experience in Africa, contract crushing and mining specialist African Mining & Crushing, or AMC, has refined its service offering to assist this market sector to meet the objectives necessary to secure funding and stakeholder satisfaction, CEO WARWICK HUGHES tells LAURA CORNISH.

This article first appeared in Mining Review Africa Issue 2, 2019

“Our two core philosophies – ‘production first, safety always’ and ‘lowest, sustainable, cost per tonne’ are at the heart of who we are and what we do. It is for these reasons, in essence, that AMC is able to fill a fundamental role in helping new mines, in particular, junior miners, start and maintain their operations in a sustainable way,” Hughes begins.

Living this philosophy requires that each and every employee truly understand a mining client’s problem and from this point develop and implement a safe, innovative, and guaranteed cost per tonne solution that is extremely effective and profitable.

“If we are not able to add this type of valuable contribution to our clients, we would rather not be there.”

The effectiveness of cost per tonne operations

Hughes believes that any complicated process can be simplified and important changes made (often counter-intuitive decisions) when an operation’s performance is measured using a cost per tonne methodology across the mining supply chain.

“All our systems, processes and even our accounting system are designed to consistently provide this information which enables us to make better decisions within our business and for our clients.

“This cost per tonne measurement and management ensures that we don’t over-design or under-design our process plant.”

Based on this, the company has coined its operating model “The AMC business model” which means the company’s income stream is not dependent on the size of the plant but rather on the performance of the plant regardless of the size.

“We are not rewarded financially by over-designing the process plant or designing the mine for more trucks. Our reward is 100% in alignment with the mine owner, the shareholders and the community which in almost all cases is to have a sustainable mine.”

Successfully achieving this sometimes requires an ‘out of box’ approach where “we are forced to look beyond traditional drill and blast, load and haul, crushing and mineral processing mining silos.

“If for example, we can eliminate the necessity for drilling and blasting because a surface mine is better suited to in-pit mobile primary crushing, then this is the process we will implement.”

Innovation has more recently been key to AMC’s success – driven by the necessity to remain relevant and offer value during one of the most difficult decades the global mining industry, including South Africa, has experienced.

“We investigate, trial, measure (at a cost per tonne) the implications and reliability of new technologies and once we are satisfied that it meets the AMC benchmark, we adopt it – in some instances, this takes days or weeks not months, years or decades.”

Understanding Africa and its potential risks

AMC has learnt over the last decade to understand and overcome the challenges of working in Africa and this is built into the company’s design philosophy.

“Our experiences have varied from political interference and Ebola outbreaks to poor local management decisions. The effects that Africa’s harsh environment has on equipment designed for first world countries together with poor logistics and short-term unethical decisions driven by greed often put projects in jeopardy as well,” Hughes outlines.

“To mitigate this collective thread of risks we design and implement scalable or modular plant which offer numerous benefits to the client,” he continues, pointing out the key benefits of this approach (for all stakeholders):

  • The AMC business model has proven successful in optimising investment returns from exploiting resources through quick mobilisation.
  • Between prefeasibility and bankable stage, a smaller plant can be operated to produce early cash flow for the mine.
  • The cash flow generated during these early stages allows the funding of more exploration work with more confidence as there is an income statement to support results.
  • This staged approach allows real process improvements to be made in the second and third stage based on real-life findings from the first stages.
  • Well thought out, established and working systems and processes are brought onto site from the start of the project. Safety, people who are already accustomed to working in harsh African environments, parts supply systems, parts inventory management, risk management, measurable and manageable KPIs from the beginning of the project dramatically reduce risk.
  • Historically, the AMC model has proved to be considerably lower in capital expenditure costs.
  • Historically, based on a like-for-like scenario, the AMC model has delivered lower operating costs as well.

Accounting for hidden costs

By applying AMC’s business model approach to any project, clients also benefit from:

  • A reduction in infrastructure requirements, i.e. accommodation;
  • Needing less fuel to run the mine and to be transported to the mines;
  • Needing less food and lower logistics and storage costs are required;
  • Ramp-up time is dramatically smoother through the stages.

All of these additional costs are often lost to most operational mines in other income statement reporting lines but they ultimately have an effect on the cost per tonne.

“Many mines do not measure the capex costs of the plant on a cost per tonne basis but in our experience has a profound effect – not as a once-off but always. Our design philosophy takes these hidden costs into consideration due to the effects at the cost per tonne level.

“Due to the real risks of working in Africa and the fact that many of the large easy resources have been mined there are not many mines that can afford to write off assets over 20 years.

“More typically we see 3 – 5-year write-offs and in very high-risk places: 1 – 2-years. Capex costs can have up to a 42% effect on the cost per tonne when measured accurately,” Hughes reveals.

In summary, the results of the AMC business model for the mine owner and the investment community are:

  • Correctly de-risking mining projects;
  • Validating assumptions through an operational model before large investments happen;
  • If the project is not viable losses can be cut with less embarrassment and financial losses or just kept at a small scale – resource dependant;
  • Generating early, measurable, cash flow for the project – during the riskiest phases – before the heavy investment happens;
  • Achieving profitability earlier in the project – giving confidence to everyone involved;
  • Return on investment that is higher and quicker to achieve in the mine life – if the fundamentals are proven;
  • High-risk stages can be reduced and the formal investment community can invest when the returns are still high but without the traditional risks associated with the first stage.

Investor confidence has been proven to increase according to clients that have adopted the AMC business, Hughes concludes – and this is why the junior sector should consider the AMC model as a strategic objective towards delivering on their objectives.

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