Stephen J.J. Letwin has been president and CEO of Toronto-based gold miner IAMGOLD since 2010. Prior to joining Iamgold, he held senior positions at Enbridge, TransCanada Energy, TransCanada Pipelines, Numac (Westcoast Energy), and Encor Energy.
The 2011-2016 metals bear market marked a historic inflection point for the mining industry. With an erosion of market cap exceeding hundreds of billions of dollars, the focus shifted from maximizing tonnes mined and processed to reducing all-in sustaining costs (AISC) and optimizing free cash flow.
Over the past five years, I have noticed firsthand how companies are realizing the benefits of collaborating for the betterment of the industry. There have been more joint ventures in the industry, and more importantly, a greater effort to work together to decrease costs and improve efficiencies.
Until now, there have been limited ways for mining companies to compare their mine site costs to those of their peers. They could contact other companies directly with specific questions, or they could study publicly available operating and financial information.
The first option worked, but required time and effort to build the trusting relationships necessary to facilitate the sharing of information.
The second option worked as well, but there were just too many hidden costs, which prevented accurate analyses and comparisons. What the industry needed was a benchmarking platform to facilitate the sharing of detailed mine site information in a controlled environment. There was not a good reason as to why such a platform did not exist.
We were not talking about pharmaceutical and technology industries, for example, which are concerned about protecting intellectual property and keeping revolutionary technologies under wraps for competitive reasons.
Three years ago, in the midst of a major cost reduction program, I was asked by our board of directors, in particular Bob Dengler and Guy Dufresne, whether we could compare our mine site costs to those of other companies. Having come from the oil and gas industry where benchmarking performance against that of the industry was commonplace, I saw no reason why there should not be an affordable way for mining companies to routinely and consistently compare granular mine site costs to those of their peers. The best we could do was make high level cost comparisons, AISC per oz. included, and even then we were not always comparing apples to apples.
So Iamgold decided it was time to do something to facilitate the sharing of detailed mine site information in a controlled environment. We initiated a study and engaged a consulting firm who were able to enlist support from other companies so that we could increase the number of mine sites in the benchmarking analytics. Using a third party allowed each participating company to maintain an appropriate level of anonymity when sharing data with the broader group. Although this study was beneficial, it did not allow us to achieve our objective as it only provided a snapshot in time of the benchmarked key performance indicators (KPIs). In other words, it would not provide us with “living” reports. In addition, ensuring the consistency of data between different companies proved challenging.
After assessing the results and realizing the flaws, the project stalled.
One of our employees, with previous experience working at site in the area of performance optimization, examined the data from the study and saw the benefits of continuing with this initiative, but with a different approach. This time we engaged a data services company that was a strong proponent of performance benchmarking, and claimed to have the technology and expertise necessary to achieve our objective.
What followed was a two year process, during which time we collaborated with six other gold mining companies. Unlike the first iteration which provided only snapshots of KPIs at a certain point in time, the second iteration provided granular cost comparisons on a quarterly basis. This allowed us to build cost curves, so that from one period to the next we could address potential issues that affect efficiencies and costs.
As we moved this project forward, the benefits began to unfold. The anonymous environment prevented the creation of silos and facilitated the controlled sharing of specific performance metrics. The relationships created by the benchmarking project enabled us to obtain data from mine sites similar to ours.
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