Major Mine Equipment

Asset Acquisition Strategy

Or
How not to buy a lemon or a dog or a
pup

Spending millions of your employers

money on DOGS and LEMONS might
be fun
BUT

It could seriously damage your career

prospects

THIS is the sort of

equipment that we are
talking about!

Asset Acquisition Process

Introduction
An attempt to generalise the process
Each company has different procedures
Multinationals often have global purchasing
agreements with major suppliers
Surprisingly some companies very lax
Consultants can be utilised at any stage and often
are

Asset Acquisition Process

Define Requirement

Asset Acquisition Process

Define Requirement

Establish the need for the asset (piece of

equipment) in broad terms
Apply for outline capital approval (process unique
to each organisation) depends on $s
Departments involved:

Mine planning
Maintenance
Financial
Production
Purchasing

Reasons for a New Requirement

New mine
Expansion
Replacement of old equipment
Whim

Asset Acquisition Process

Define Requirement
Outline approval
Outline Specification

Asset Acquisition Process

Outline Specification

Define in more detail what is required

Size, throughput, production required etc

Produce a draft specification

Will normally be generic and defined within industry
standard classes eg a 400t class reardump or a 500t class
hydraulic shovel
Departments involved:
Maintenance
Production
Purchasing

Often done by committee involve all stakeholders

Try to identify what is REALLY important

Asset Acquisition Process

Define Requirement
Outline approval
Outline Specification

Research Suppliers

Asset Acquisition Process

Research Suppliers

How might we find suitable suppliers of the

equipment we need?
Internet
Trade directories/journals advertising and
articles
Networking

Asset Acquisition Process

Method of
acquisition?

Meanwhile, the method of acquisition needs

to be considered because it might be
important in choosing a supplier
Purchase
Rent
Hire with option
Lease

Is ownership of the asset important?

Sub contract may be considered later

Asset Acquisition Process

Define Requirement
Outline approval
Outline Specification

Research Suppliers
Method of
acquisition?
Approach Suppliers

Asset Acquisition Process

Decide method of enquiry
Prepare documents as detailed as necessary
but not too restrictive
Tender, RFQ/RFP,
Single source or multiple suppliers
Use a common basis to review the replies
Draw up shortlist sometimes it is VERY short

Asset Acquisition Process

Define Requirement
Outline approval
Outline Specification

Research Suppliers
Method of
acquisition?
Approach Suppliers

Refine Acquisition Parameters

Asset Acquisition Process

In the light of the responses from suppliers it

might be necessary/prudent to revise the
specification for re-submission to those
shorlisted ie learning on the hoof
Not always necessary
This step is often included in the final prepurchase negotiations

Asset Acquisition Process

Define Requirement
Outline approval
Outline Specification

Research Suppliers
Method of
acquisition?
Approach Suppliers

Refine Acquisition Parameters

Negotiate & Purchase

Asset Acquisition Process

It is not uncommon to negotiate with more than

one potential supplier at once
Dutch Auctions should be avoided
High level of integrity and professionalism
required
Everybody should win a bit
Often very complex
Analysis of bids may lead to a dont buy
decision

What are some of the factors that

influence the choice of product - 1?

Performance
Technical excellence
Fuel consumption
Reliability (availability)
Capital cost
Dealer support
Spare part availability
On site acceptance

Suitability for the mine

Personal preference
Buyback
Guarantees/warranty
Cost cap
Trade in
Associated gains

What are some of the factors that

influence the choice of product - 2?
Price ie cost but WHAT cost
Capital cost
Whole life cost
Operating cost
Unit cost

What factors need to be considered?

MANY!

But (ex) Boss- the machine I bought was

$100,000 cheaper than its competition why
have you sacked me???
Upfront capital price is only one part of the
total COST of the machine to the mine. Other
factors effecting it include:
Availability
Cost of spare parts
Fuel consumption
performance

Lets just look at availability

Mine scheduled to work

6000 hours/year

yr1
m/c 1

Worked hours

yr2

yr3

yr4

yr5

yr6

yr7

yr8

yr9

yr10

93% AVERAGE

98

97

96

94

93

92

90

90

90

90

5880

5820

5760

5640

5580

5520

5400

5400

5400

5400

98

95

94

89

85

85

85

85

85

85

5880

5700

5640

5340

5100

5100

5100

5100

5100

5100

120

120

300

480

420

300

300

300

300

m/c 2

Worked hours

difference (hrs)

89% AVERAGE

2640 hrs total difference

Assume is a coal mine with a strip ratio of 10cum/1t coal

assume excavator production is 2500 cum/hr

loss of production over m/c life is 2500 x 2640 =

total coal lost over machine life

6,600,000 cum overburden

tonnes
660,000 @

70 $/t

$46,200,000

40 $/t

$26,400,000

Guaranteed Availability
Involves a contractual guarantee tied to
assured maintenance procedures. Contract
can be complex
Normally only available with a RAMP or where
dealer has a technician monitoring
maintenance and booking of hours
Penalties are usually token
Needs good admin practices to keep records

Fuel consumption
The hydraulic excavators in the previous
example use about 360 l/hr when digging
Assume 90% time spent digging
A 5 l/hr difference (1.4%) gives
5 x .9 x 6000 = 27,000 l/yr @ 0.85/l = $23,000/yr

Other Factors to consider the product

support
Reputation of local dealer, experience in this type
of product
Availability of service labour
Availability of parts
Promises made by dealer/manufacturer
Support options offered
R&M (RAMP, MARC), Parts Cap, Service contracts
Consignment parts

Availability of finance, deferred payments etc

In the end
IF the numbers stack up and most other
factors are equal, the choice is often made
because of gut feel or confidence
Sometimes decisions are unfairly and
misguidedly influenced by personal opinion
Cow Harbour
Often, the decision is made for you (finance
availability single source)

TRANSITION
NEXT PRESO COMING..

Mobile Surface Plant

Maintenance Options
Although based on mobile surface plant
(shovels, trucks etc) the principles apply to all
plant fixed and mobile
An overview of some of the options available,
and their pros and cons but not exhaustive
would take a book!
Every mine is different

What are the options?

There are many options when it comes to
choosing how to maintain a fleet of mining
equipment
We will consider a fleet of, say,10 x 220t
dumptrucks, two matching 29cum hydraulic
shovels and a pair of 450kW dozers all from the
same manufacturer
Single sourcing is worth considering allows:
a rationalisation of parts holding and the ability to
consider comprehensive maintenance packages
Consideration of consequential downtime claims

Maintenance Strategy Options

1. Do it yourself
2. Do it yourself with some help
3. R&M, RAMP MARC

4. Parts Cap

In House Maintenance
Very popular in large organisations
Customer has total control of maintenance and repair
Customer supplies facilities (workshops, field vehicles,
cranes, parts storage, welfare areas)
Customer supplies labour supplemented by hired in
specialist when necessary (line boring etc)
Customer holds some stock and relies on dealer for back up
and large items
Customer budgets for maintenance expenditure and
assumes the risk
WARRANTY on new machines and parts is important
Organisation is essential - record keeping, stock control etc

In House Maintenance
Advantages
More control over maintenance
Can be cheaper than RAMP
Cash flow better than a level payment RAMP
Ability to take risks that dealer wont take (NOT of
course unsafe ones)
Ability to use 3rd party parts and will fits once
out of warranty period

In House Maintenance
Disadvantages
Costs not fixed lots of potential forass biting!
More own labour, organisation control, skill gaps
Training issues
Needs slick systems
Pressure often to delay maintenance from own
people
No one to blame! Always grey areas in warranty

Service & Inspection Contracts

Dealer carries out routine servicing and
regular inspections
Customer responsible for repairs
A halfway house to R&M
Helps keep up with condition of machines and
plan repairs
Some of the risk shared with the dealer

R&M, R.A.M.P or M.A.R.C

The dealer takes full responsibility for the
maintenance and repair of the machines
Dealer supplies all parts and labour and employs
an exchange before failure principle
Customer is charged per hour worked
NB worked hours or SMR different- why?

Hourly rate is inflated annually by an agreed

mechanism

Dealer usually has a back to back contract

with the manufacturer

R&M, R.A.M.P or M.A.R.C - 2

Advantages
Guaranteed cost per hour for life of contract
Enables customer to consider a guaranteed
availability clause penalties?
Warranty not an issue
Often, infrastructure is funded by the dealer
Dealer responsible for labour no training issues
Can exclude some items if desired

R&M, R.A.M.P or M.A.R.C - 3

Disadvantages
Customer still responsible for misuse and abuse
and some exclusions
Bad cash flow in early years stepped R&M
Might be more expensive than own maintenance
Need trust in dealer/manufacturer
Tendency for own staff to disown the machines
Might pay for parts not fitted
Needs a really good contract

Parts Cap Contract

Like an R&M without the labour
Guarantees the MAXIMUM cost per hour of spare
parts
Can exclude some parts if desired
Annual reconciliations of actual vs guaranteed
Customer supplies labour
Warranty is calculated into the contract
Usually supported by the manufacturer
Can include G.A.S.P or service level guarantee

Parts Cap Contract - 2

Advantages
Parts budget is fixed, only have to cover labour
Only upside on parts costs
Can opt to exclude some parts
Allows mine staff to own the machine
No warranty issues
Usually have a regular inspection contract with
dealer

Parts Cap Contract - 3

Disadvantages
Labour problems remain with customer
Potential conflict if parts fitted badly
Guaranteed availability not available
All parts must be bought from dealer. No cheaper
suppliers allowed

Summary of Maintenance Options

All mines are different
Availability of resources will form a key part of
the decision of how to maintain
Hybrid schemes are possible

Komatsu Mining Germany

THANK YOU!