Indonesia's Tax Breaks Help Bridge Deal with Freeport-McMoRan
Freeport-McMoRan Copper & Gold Inc. is set to resume mining operations in Indonesia after the country offered a tax concession to end the six-month dispute over copper exports.
The new tax incentives will cut the levy on mineral concentrate exports to less than 10 percent for miners that guarantee to build a smelter. As construction of the smelter progresses, the export tax falls to zero.
Freeport-McMoRan said on Wednesday the signing of a memorandum of understanding (MOU) to resume exports was imminent.
"It is a compromise to create a bridge for us so that we can return to normal operations," Freeport Chief Executive Richard Adkerson said. The US mine is expected to become the first company to take the deal.
As Freeport enjoys the success of overcoming Indonesia’s tax obstacles, Newmont Mining hasn’t been so lucky.
After suspending operations at its Batu Hijau mine in June, the company filed for international arbitration earlier this month. In response, Indonesia threatened to terminate their mining contract if the company didn’t withdraw its lawsuit.
"There have been no MOU discussions with Newmont. None at all," Coal and Minerals director general Sukhyar said on Thursday.
"The government's position is we will face them in court."
Since winning Indonesia’s presidential elections, Joko Widodo has vowed to resolve the six-month dispute, which has exhausted government mining revenue. The ban on exports has halted roughly $500 million of monthly mineral ore and concentrate exports.
Freeport and Newmont are Indonesia's top copper miners, and account for 97 percent of the nation's copper output.
Mining 4.0: How innovation is shaping mines of the future
Mining may be the gateway to the world’s carbon neutral future. Green energy storage systems, for one, are largely dependent on minerals. According to the World Bank Group, clean energy needs will escalate demand for rare earth minerals by nearly 500% by 2050.
While this growing demand holds much promise for mining companies, it also creates new challenges. Mining operators must navigate the ever-present highly cyclical market conditions and capital-intense operations. Recent trends layer on additional challenges, such as the progressive retirement of the industry’s most experienced workers, increasing regulatory pressures, and rising energy costs. To proactively manage these multiple challenges and capitalize on rising demand, mining companies must innovate and lower operating costs to remain both profitable and viable.
Why the urgent need for innovation?
Leading mining companies have shown that lower operating expense (OpEx) is a pre-requisite to on-going business success. This need is driven by the cyclical mining market and ever present,, hefty capital requirements, both of which are inherent in the mining industry. And, when demand is high, the OpEx cost component of unplanned downtime grows steeper. Data indicates that, in mining operations, the root cause of OpEx overages lies in maintenance issues that impede operating efficiencies and incur unnecessary costs. Left unaddressed, these gaps will prevent mining companies from fully capitalizing on increasing demand.
According to McKinsey, mining companies have historically struggled with significant productivity declines, as shown below. In recent years, there is evidence that a slow recovery is underway, however, full resolution is in its’ infancy, primarily rooted in maintenance cost optimization.
Other data points on current mining operations underscore the urgent call for innovation and change:
- 70% operating efficiency due to breakdowns and stalled production, which translates to real potential for increased productivity and throughput
- 30-50% of mining operations costs spent on maintaining plant, fleet and equipment, so, the magnitude of potential improvements on bottom-line profitability is significant
- 3-5X cost for urgent repairs and corrective work requests versus planned maintenance, often made evident by tracking the percentage of work orders managed through the planning office.
While change is always difficult, the promise of technology (and Industry 4.0, Mining 4.0) is a welcome and required one for mining companies. Digital technologies and automation, or Mining 4.0, is defined by smart equipment, drive data-driven (and thus better) decisions, catalyze connected communications and provide easier, more affordable maintenance. From there, mining companies will be able to speed up production, reduce downtime and boost employee safety – three pillars that have challenged mining operations for years.
The first step: Predictive maintenance via condition monitoring
As the first step to regain operational optimization and lower costs, mining companies must get “ahead of the curve” and prevent process interruptions and unplanned downtime. The key is predictive maintenance via condition monitoring systems. By proactively assessing equipment health, mining operators can be alerted to developing failures before they occur and schedule planned repairs at the lowest possible cost and with minimal impact to production.
Condition monitoring systems are based on the principal that failure is a process, not an event. By monitoring asset characteristics, latent anomalies become apparent well before full failure, allowing for low-cost interventions, root-cause analysis and proactive planning for resolution, thereby mitigating process interruptions. Concurrent with deployment of well-engineered predictive maintenance strategy, a thorough rationalization review can minimize unnecessary or redundant maintenance tasks and, in many cases, eliminate human-induced failure modes.
Maintenance optimization is a powerful lever – and the first step -- to achieving and sustaining lower production costs in mining.
When 14% equals $8 million
Consider this PwC mining example, where predictive maintenance enabled a 14% reduction in maintenance spend by mitigating unplanned downtime to deliver US $8 million savings in operating expense (OpEx).
Goal: Reduce unplanned downtime
Solution: Condition monitoring system on critical equipment
- Condition monitoring insights provide operator alerts of potential failures.
- Proactive scheduling of repairs moves resolution to occur during planned maintenance, partial outage periods or normal equipment rotations.
- Asset availability and reliability increases, production interruptions are minimized and maintenance costs are reduced.
Result: 14% reduction in maintenance spend generates US $8 million in OpEx
Source: PwC “Balancing Uptime and Working Capital: Maintenance and Inventory Strategies in Mining”
Reliability and employee safety
The example above illustrates the dramatic improvements to operating expense as mining operators move from reactive / unplanned to proactive / planned maintenance. With decreased downtime, overall operational reliability also improves and with it, a metric of paramount importance in mining: employee safety.
Studies indicate that more reliable operations are safer operations. That’s because technology serves to reduce human-to-machine interaction and urgent, reactive work declines. For one industrial company, as shown in the graph below, an OEE (Overall Equipment Effectiveness) improvement of 52% delivered a safety improvement of 69% during a 10-year period.
Customer Case Study: Slurry pumps
Let’s look at specific mining applications ripe for optimization and maintenance cost savings. The first is slurry pumps. In mining pumping stations, pump failures are responsible for 97% of unplanned maintenance costs. Pump reliability, however, is crucial in the areas of safety, environmental impact, and efficient transportation.
Key characteristics of slurry pumps can be monitored so that timely analysis of impending issues enable early detection of issues at inception and prior to failure. This avoids unplanned maintenance, unplanned downtime, and averts lost revenue.
In slurry pump applications, dynamic pressure sensors can be used to detect reciprocating diaphragm failures, providing a novel diagnostic to increase pump reliability. The solution is based on these design principles:
- The hydraulic fluid flexes the diaphragm
- When the diaphragm flexes, slurry is discharged
- Abrasive, corrosive slurries prohibit pressure sensor installations in slurry valves
- Thus, dynamic pressure monitoring of the hydraulic fluid assesses the effectiveness of slurry discharge
The result? A savings of US $3 million per year, based on maintenance cost recovery and capacity increases for a 10-pump station.
Customer Case Study: Haul Trucks
In mining operations, haul trucks are another critical asset, as they are relied upon to move raw materials. Alignment of extraction speed to transportation speed is required to keep operations flowing smoothly. Mining operators have invested in larger, automated haul trucks to facilitate this timing alignment and optimize logistics. Thus, haul trucks and their operational health is a key enabler of production reliability in mining operations.
Monitoring haul truck health to ensure reliability, however, presents unique challenges. Because haul trucks are in constant motion, data collection at precise and crucial times with linkage to a monitoring center and diagnostics requires innovative thinking and design.
For one mining company, a custom engineered solution for the haul truck’s control system was designed and installed. The system was devised to monitor haul truck health in two distinct operating states so that changes in the various failure mode characteristics could be accurately identified:
- Running and loaded. In this state, vibration data is collected while the truck is running, loaded and in reverse mode (braking the truck using the electric motor of the electric wheels).
- Unloading. During unloading, vibration monitoring data is collected when the haul truck dump or bucket is being raised.
The result? An estimated savings of US $5 million per year, based on an iron mine fleet of 30 trucks operating at 80% capacity.
Outcomes like the examples above are possible for mining operations via innovative condition monitoring systems. There are many other condition monitoring mining applications, such as wireless sensors for hoist systems and continuous monitoring for SAG (semi-autogenous grinding) mills that deliver transformational outcomes. The ultimate payoff for mining companies occurs when these applications and systems scale and interconnect into an operation-wide solution, enabling more holistic optimization.
Benefits of condition monitoring
Condition monitoring is part of Mining 4.0, the transformation driven by the adoption of automation and digital technologies. Mining 4.0 inherently supports the infrastructure and process requirements for condition monitoring systems. Specifically, Mining 4.0 will facilitate capabilities such as digitization, automation, analytics, artificial intelligence and machine learning, establishing a powerful foundation for predictive maintenance solutions and innovation.
Technology and predictive maintenance benefits have the potential to transform mining operations, starting with condition monitoring. In addition to managing and minimizing the impact of failures, mitigating downtime and reducing maintenance costs, condition monitoring systems also help to increase worker safety, reduce energy consumption and meet environmental requirements.
These benefits unleash significant potential for radical and positive changes in mining operations. All condition monitoring systems, however, vary in scope and effectiveness, so proper selection of a design and enablement provider with full-scale capabilities and proven expertise can impact outcomes significantly.
Innovation beyond technology
While innovation and transformation hold great potential, mining companies must go beyond reducing maintenance costs and implementing technology solutions. Companies must work differently and work smarter to capitalize on the full potential of digital technologies and holistic data strategies that deliver operation-wide benefits. For successful adoption, overcoming internal organizational barriers and cultural challenges to digital adoption is equally essential.
To reduce pressure on capital-intense mining operations, condition monitoring solutions can be “self-funding” initiatives on the journey toward Mining 4.0 as operational benefits of condition monitoring are realized progressively from the early stages of implementation.
The way forward for mining companies is clear -- and full of promise. As the world increasingly relies on mining to produce the minerals needed for green energy, innovative mining leaders will usher in an era of profound global transformation that ultimately benefits us all.
To learn more about condition monitoring systems in mining operations, please reach out to speak with one of us or another experienced professional at Baker Hughes.