MOVING MINING FORWARD WITH TECHNOLOGY

Richard Benson President Global Mining Division Caterpillar Inc.

Its been another challenging year for the mining industry here in South America and around the world. Commodity prices are still low and only the coal industry has gotten some help on the price side. The environmental movement is as strong as ever.

But despite the difficulties, the Peruvian mining community has kept driving forward, building for the future. You have persevered through difficult times, and, as a result, good things are happening at many mines in this country.

Antamina was up and running four months ahead of schedule. Yanacocha must be congratulated for the successful launch of the La Quinua expansion project. The people from Barrick at Pierina are setting new standards of excellence also; they continue to rank among the worlds lowest cost producers. And new benchmarks are being achieved in Southern Peru Copper, Tintaya, Cerro Verde and elsewhere in Peru. This is truly an exceptional group of mineral producers. Its a real privilege for the people from Caterpillar and our associates to work in partnership with them.

While Peruvian mining have been busy adapting to changing business environment, the Caterpillar mining team has been experiencing change also. About ten months ago, we announced the formation of a new division at Caterpillar, called Caterpillar Global Mining. Its essentially a company within a company a single entity focused more intensely than ever on the worldwide mining industry. We work with the rest of the Caterpillar enterprise and the dealer organization to serve miners around the world.

As weve built this new organization, I have had the opportunity to meet with many members of the global mining community. Weve had some very interesting discussions about the future, the road theyve traveled, the obstacles standing in their way, and how their equipment suppliers and dealers can help them overcome these obstacles.

The feedback Ive heard during these discussions has been remarkably consistent whether its from a copper producer or a gold miner, an operations person or a corporate purchasing manager, a large global company or a small regional one. Virtually, everyone Ive talked to is focusing on the same four priorities:

1. Improving safety 2. Increasing efficiency 3. Lowering cost per ton 4. Improving profitability

Mining companies are committed to taking their mines forward, to set new and more aggressive performance targets, and do the hard work that it will take to achieve them. But they realize that in order to reach these goals, in order to achieve best-in-class status, they will need more than a fleet of big machines and a 24-hour-a-day service shop. They will need to capitalize on the power of 21st century information technology to maximize the return on the investment.

I want to talk about information technology, focusing primarily on financial gains that are being realized by some mining companies around the world, the so called early adopters of new technology, information-age pioneers who are demonstrating that the right technology, properly implemented, can drive down cost/ton and improve the return on their assets. There are three types of assets: human assets, mineral assets and equipment assets.

But, what constitutes the right technology? And what do I mean by properly implemented? The miners I have met with have strong opinions on both of these topics.

Mining companies have told us that in order for technology to be right for them it must be practical and proven, easy to use, easy to expand and upgrade, flexible enough to accommodate the unique mine conditions, and rugged enough to withstand the tough mining environment. They also said they want systems designed with open architecture, much like Internet protocol; systems that function on any manufacturers machine, in any mine anywhere in the world. They expect any new technology they invest in to enhance their decision making capability. It should also improve safety and give them the ability to provide operators with Key Performance Indicators, like total production per shift or total machine up-time. They want their on-board machine systems information such as payload, material type and health events to the mine office in real time; no more downloading to a laptop and uploading to the office computers. They also insist that the mining system they use for truck assignment, production and maintenance be capable of linking up to their other business systems for human resources, for purchasing, finance, mine planning and the processing plant.

Clearly, they have high expectations for the information technology they expect to employ in their mines over the coming years. Caterpillar and our counterparts throughout the industry have been working hard to meet these expectations. But, no matter how well we do our jobs, no matter how good our technology solutions are, theres still that issue of implementation. Remember, its the right technology properly implemented that really gets results.

As Ive visited mines around the world during the past months, Ive seen some examples of effective implementation and, frankly, some that were not so effective. Of course, every situation is unique. But it does appear that the companies gaining the most from their new technology share some common characteristics.

For one thing, they understand the importance of process improvement. They realize they wont get the results they are after if they continue doing things the way they did before new technology came on-stream. So, they are investing time and resources in the process side of the business; doing the hard work it takes to document processes, streamline them, or completely re-engineer them when its necessary.

In addition to having a process orientation, mining companies that implement technology successfully tend to have a certain breed of people on board, positive, visionary types, who welcome change, the kind of people who believe while others are skeptical. Theres usually a sponsor at a fairly high level who can make resources available and resolve problems and issues that arise during implementation. Theres also at least one champion in the ranks, someone who is highly respected, who works well across department lines, and who is knowledgeable about the new technology and about the day-to-day operations of the mine. In the best of all worlds, this champion is set free to explore alternative applications for the new technology; to discover more ways to use it in the business, things that were not included in the original investment proposal. And he or she is also a good communicator, always keeping senior managers and the rest of the organization informed about the benefits the company is realizing.

What are these benefits? The early adopters of technology are using it to drive down cost/ton and get a higher return on assets (their human assets, their mineral assets and their equipment assets).

Lets look at the human side of the business first and see how one mine is exploiting new technology to improve operator safety and productivity. A particular system links the mines haul trucks with its office. Its designed with Internet protocol, integrated with the mines over all business system and features onboard computers, global positioning and high-speed wireless communication

technology. Its essentially a way for the company to extend its Local Area Network (LAN) from the office out into the pit. Each truck is a part of the companys Intranet and the operators now have a high-tech tool that is similar to what the office employees have on their desktops. At the start of the shift, the operator logs on to the system using his name and his ID number. That information can be compared to training records, so the mine managers know right away if the person in the drivers seat is trained to do the job. Then, as the truck is started up, the system can run through a series of automatic safety checks, like those done on an airline before take-off. But, unlike the airline systems available today, this one allows information to be sent back to the mine office automatically. So again, if theres a problem, management knows about it immediately. This system can also deliver a safety alert from the mine office to the truck; so if, for example, you have rescheduled a blast, or theres a problem spot on a haul road, you can let your operators know in plenty of time. You can send messages to the entire fleet or just a single truck thats affected. And the operators have the ability to acknowledge receipt of the safety alert. They can even send the messages themselves to coworkers and the mine office. While they are working, the operators can consult the on-board navigation system to verify the location of their next assignment, whether its the loading area, the crusher, the fuel bay or the service shop. The map is easy to read and can be updated automatically from the office as haul roads are changed. This is especially helpful for new operators or those returning from vacation or leave. It also gives managers the flexibility to use employees who may not be familiar with the haul roads technicians, for example as truck operators in overtime situations. With this type of navigation system at his fingertips, every operator from the new hire to the veteran will know where to go and how to get there, and that can only enhance safety and productivity.

During breaks and at shifts end, the operator logs off the system, so there is always a good accurate record of his time. And since the on-board system is integrated with human resources back in the office, the payroll process has been streamlined. Its faster and more accurate than ever before.

Its easy to see how a system like this could help improve safety and productivity, two key factors that affect the return, the earnings and the human assets mining companies have employed in the business.

Lets turn our attention now to the mineral assets and see how this technology can help mining companies maximize the return on the ore body. A company spent countless hours and millions of dollars to discover the ore that is extracting today. Then, once the exploration phase was over, the permitting process consumed more resources. Next came the construction of the mine itself. Obviously, it took a massive investment to create the infrastructure to support the operation. Stripping away the overburden was costly and time consuming too. Now, they are at the stage where the ore is ready to be extracted and, if they are like many other mining companies, the loading tool operators are relying on paper maps, wooden stakes and verbal instructions to determine which material to excavate. The odds of that process breaking down are quite high.

One world class mining company we do business with tracked this material flow several years ago and found that 17% of their loads were being improperly identified. In other words, close to 1 truckload in 5 had been misidentified and misdirected. Either the ore was going to the waste dump or the scrap was heading for the crusher. That problem has been solved now because the mining company linked its loading and hauling equipment with its electronic mine planning system. Now, they can translate the mine planning data into a clear picture that is displayed on the screen in the cab of each loading tool. The picture shows the operator which material is waste and which is ore. As that material gets excavated and loaded into a bucket, the system identifies it and notifies the office over the radio network. The mine plan is then updated automatically, and the truck assignment system automatically verifies that the hauler being loaded is headed for the right place.

Similar technology is available for track-type tractors, scrapers, motor graders and other support equipment. It is proven to reduce human error substantially. It gives more precise control over the ore body, which helps lower the cost/ton of material produced and gives a higher return on the mineral assets.

Finally, there are equipment assets. An integrated mining information system can enhance the return that mining companies are getting on them also. The truck fleet, for example. They have invested heavily in that iron, and the only way to recover the investment is to keep the fleet up and running, working productively and cost effectively whenever they need it. Fifteen years ago, most miners were happy to get 5.000 hours annual operating from their hauling units. But today, the standard is 7.000 hours and more.

Many miners look to the equipment dealers to help them reach their availability targets. Together, they manage the maintenance and service on the trucks with the goal of maximizing availability and minimizing owning and operating costs. But in order to make good decisions about their fleet when to increase a load, when to sacrifice a little production, when to schedule down time, mining companies need timely, accurate information about how much the unit is producing and what kind of shape its in: its operating temperatures and pressures, fluid consumption trends and much more.

For several years now, most trucks have been equipped with on-board monitoring systems that have allowed companies to capture vital production and machine health data. But until quite recently, companies had to download that data from the trucks on-board system to a laptop and then upload it again to the office systems. And many times, that process was only happening sporadically. Although the information they were getting was valuable, they made it clear that they would prefer to be able to monitor the trucks in real time. Suppliers like Caterpillar have been working hard to make that possible. But bandwidth restrictions have limited our ability to meet mining companies expectations, until now. An innovative radio

solution has been developed and is now used in some parts of the world. It allows them to transmit production and machine health information to the mine office or the service shop in real time. So it is possible to make better decisions about maintenance and repair, and keep trucks producing at an optimum level, working more hours, moving more tons of material at a lower cost/ ton, and making more profit.

Now, I invite mining companies to think about how some of the technology I described might help them take their operations to the next level. Are they interested in improving safety, boosting operator productivity, increasing flexibility, accomplishing more with the same number of employees? Are they achieving their availability targets, maximizing up time, minimizing maintenance and repair costs?

The technology leaders can answer these questions with a resounding yes. They have streamlined the basic business processes and equipped their mines with a comprehensive network that links the machines with the mining information systems and other business systems. They are capitalizing on a whole host of powerful technologies, from on-board computer systems to global positioning, the Internet, intranet and high speed wireless communications. By exploiting these technologies, they are getting a higher return on their human assets, their mineral assets and their equipment assets. They are achieving new benchmarks for safety, efficiency, cost/ton and profitability. And they are taking their organizations to bestin-class performance levels.

Im impressed by all the technology these early adopters are using: the processors, the network, the software, etc.. But what really amazes me is the people who are making it work. They are leaders and innovators, true pioneers who will help propel the entire industry forward.