Detailed and operational review

Cost and revenue optimisation initiatives through Business Process Re-engineering

The Business Process Re-engineering programme (BPR) commenced during the second half of calendar 2010. The BPR involves a review of the mines’ underlying organisational structures as well as the operational production processes from the stope to the mill. The objective is to introduce a new business blueprint, together with an appropriate organisational structure, which will support sustainable gold output at an NCE margin of 20 per cent in the short to medium term and 25 per cent in the longer term.

South Africa region

The BPR underpins the suite of M projects which were established during financial 2008 to optimise costs and revenue over a three year period.

Stoping full potential (Project 1M)

Project 1M is a productivity initiative that aims to improve quality mining volumes by increasing the face advance by between 5 and 10 per cent per annum. The BPR Stoping full potential project aims to enable the delivery of full potential at every workface by introducing standardised reporting and practices, and eliminating constraints.

The BPR Stoping full potential project aims to leverage advance per blast to drive quality-volume and address the key constraints which affect productivity on a shaft by shaft basis, including effective face times, logistics in-flow and out-flow models and mining cycles.

This is being achieved through the following key improvement initiatives:

Average face advance improved from 6.1 metres to 6.7 metres in the June quarter. The focus will remain on improvement of flexibility and panel availability factors for sustainable safe production.

Developing full potential (Project 2M)

Project 2M is a technology initiative aimed at mechanising all flat-end development (i.e. development on the horizontal plane) at the long-life shafts of KDC and Beatrix. South Deep is already a fully mechanised mine. The aim of the project is to improve safety and productivity, reduce development costs and increase ore reserve flexibility through higher monthly development advance rates.

The flat-end metres advance achieved by mechanised means was similar to the previous quarter at 86 per cent. Planning is being optimised in such a manner that a drill rig can service multiple ends to improve utilisation of the rig and thus improve strike rate and efficiency.

NCE full potential (Project 3M)

The BPR NCE full potential project focuses on all categories of spend. The first phase of the BPR initiatives, which commenced in the second half of calendar 2010 in South Africa and included the merger of the Kloof and Driefontein operations, now known as KDC, was concluded at the end of December 2010.

In the second phase of the project, targeted cost reductions of between R500 million (US$68 million) and R1.0 billion (US$137 million) have been scheduled for KDC and Beatrix for the period to December 2012. These cost saving initiatives are to be achieved through various programmes which include productivity improvement initiatives, continued reduction in staff through natural attrition and voluntary separation, and power cost savings initiatives. This will assist in absorbing some of the inflationary pressures faced in terms of input costs.

A key priority is a fit for purpose structure at South Deep which is:

• consistent with the new regional structure and principles;
• appropriate for the ramp-up; and
• customised for bulk trackless mechanised mining.

The completion of this work is a key deliverable in 2011.

The intent with BPR in 2011 is to mitigate as much of the anticipated mining inflation increases as possible. Cost reductions of R35 million were achieved in the June quarter, resulting in savings of R294 million since the initiative started in mid-2010. These savings were mainly achieved by changing to a more cost effective underground mining support regime, a reduction in staff through natural attrition and the voluntary separation programme, a reduction in non-specialised contractors and power cost saving initiatives.

Project 4M

Project 4M focuses on the Mine Health and Safety Council (MHSC) milestones agreed to on 15 June 2003 at a tripartite health and safety summit, comprising representatives from Government, organised labour and mining companies. The focus is on achieving occupational health and safety targets and milestones over a 10-year period. The commitment was driven by the need to achieve greater improvements in occupational health and safety in the mining industry.

One of the milestone targets is that no machine or piece of equipment may generate a sound pressure level in excess of 110dB(A) after December 2013. In order to achieve this target the company is focusing on reducing the noise at source.

The number of measurements expressed as a percentage of noise measurements of machinery/equipment emitting noise in excess of 110dB (A) is currently 0.3 per cent. Silencing of equipment is ongoing and each intervention is project managed.

Silicosis remains one of the biggest health risks associated with the gold mining industry. In order to meet the silicosis targets the company has several interventions in place, which include:

• the upgrading of tip filters by either replacing complete units or installing additional first stage pre-filtration systems to increase dust filtration efficiency by removing larger particles of dust before they enter the primary dust filtration unit (improved from 94 per cent to 99 per cent implementation to date across the South African region);
• the use of foggers to trap dust particles liberated from tipping points before dust enters the main air stream (similar at 83 per cent implementation to date across the South African region);
• footwall treatment to bind dust on the footwall and prevent it from being liberated into the intake airways (similar at 100 per cent implementation to date across the South African region); and
• installation of tip doors. The tip doors are installed into the tipping points and remain closed when no tipping is taking place, thus reducing dust from entering the intake airways. The tip doors being spring loaded are self-closing once tipping is completed (improved from 54 per cent to 60 per cent implementation to date across the South African region).

It must be noted that although the footwall treatment was completed in all identified areas, periodic retreatment is required to maintain effectiveness. The re-treatment is 35 per cent completed.

Of the individual gravimetric dust sample measurements taken during the June quarter, 98 per cent of individual samples were below the occupational exposure limit of 0.1 milligrams per cubic metre, thus meeting the target of not less than 95 per cent.

In March 2011, the South African Constitutional Court ruled that legislation which limited employees’ rights to claim compensation for certain diseases, including silicosis, were unconstitutional. As a result, the Court found that employees had the right to sue employers for common law damages to the extent that such employees could prove that they had suffered loss as a result of the negligence of the employer and such loss could be quantified. The potential impact to the Group is being assessed. In addition, we are reviewing our current processes to determine what additional measures can be taken to further mitigate the risks to employees of contracting silicosis.

West Africa region

Tarkwa

The June quarter has seen the consolidation of several productivity and efficiency initiatives at Tarkwa which has resulted in savings of US$6 million on BPR initiatives for the quarter. The main contributors were cost reductions and drill yield improvement, i.e. increased volume blasted per drill metre. The increased drill yield was achieved by using stronger explosives, increasing the burden and spacing of drill patterns, while maintaining fragmentation performance and increasing the blasted capital waste bench height from 6 metres to 9 metres. This resulted in a US$2 million cost reduction against the 2010 baseline. The removal of bottlenecks at the North Heap leach facility has seen a 10 per cent improvement in tonnes processed against plan for the June quarter. This was mainly due to a reduction in operational and mechanical down time and the installation of three new large tertiary crushers commissioned during May. Metallurgical initiatives focused on improving recovery in the CIL plant. During the June quarter strategic sourcing and renegotiation of supply agreements for basic chemicals, explosives, grinding media and mill liners resulted in US$1 million spend reduction on these items against the 2010 baseline. Drill and blast efficiencies have improved by 20 per cent by optimising drill and blast design parameters.

Focus for the September quarter will be directed at removing bottlenecks from the mining operations and improving gold recovery at the North Heap leach facility. This will be achieved by improving utilisation and availability of mining equipment in order to maximise quality ore supply from the open pit to the processing plants and improve capital strip tonnages. At the North Heap leach facility the focus will be on optimising particle size distribution for maximum gold liberation from crushed ore placed on the North Heap leach facility as well as reducing gold in process currently on heaps, targeting a 10 per cent reduction over the next two quarters.

Damang

Focus during the quarter was on harnessing the benefits realised from the conversion from contractor to owner operation and owner maintenance. To date, benefits of US$9 million were achieved of which US$7 million were realised in the June quarter.

Phase 2 of the BPR commenced during the June quarter with the completion of a full review of further potential improvement initiatives. The focus during the September quarter will be on implementing the first phase of these additional improvement projects.

Australasia region

St Ives

The focus at St Ives has been on direct costs and productivity improvements within the existing site arrangements, including improvements in the heap leach operation, Lefroy mill area and shortterm interval controls in both the underground and open pit operations. The second point of focus involved detailed planning and implementation of owner mining for all underground ore extraction, while still maintaining the contractor development model similar to Agnew.

Recently an agreement was reached with the primary underground contractor to acquire a major portion of its site based employees, mining fleet and associated equipment required to facilitate the transitioning into an owner mining operation. This transition will be completed during the September 2011 quarter.

Further studies in the opportunities afforded by owner mining are being undertaken at St Ives in other contractor areas to improve the cost structure and productivities. A resource optimisation study is currently in progress to identify further improvements in mine scheduling.

Agnew

At Agnew the main focus has been on securing productivity improvements from the implementation of owner mining in mid-2010. This required focus on short-term interval control at the underground operations, allowing for improved scheduling of equipment and resources. This was a major contributor to a 25 per cent increase in tonnes extracted from the underground mines in the June quarter compared with the March quarter.

In addition, it was determined that a move from contractor to owner maintenance would also lead to cost improvements. This change was implemented during the June quarter. Currently contractors are only used for underground development activities.