OceanaGold (OGC) - Mining Global Interviews Innovative CEO Mick Wilkes
Read the latest interview with Mick Wilkes i...
OceanaGold CEO Mick Wilkes talks to Mining Global about building a Multinational Gold Mining Business.
Born and bred in New Zealand, OceanaGold was originally founded in 1989 as Macraes Mining. Starting from a single mine, the mining company has developed into a significant multinational gold producer with a dynamic portfolio of operating, development, and exploration assets in New Zealand, the Philippines and most recently the United States.
“We’ve gone from a single asset gold mining company to a multinational gold producer with four mines in three countries,” said Mick Wilkes, OceanaGold’s Managing Director and CEO.
In recent months, the mining firm has secured a string of key additions to build upon, including the purchase of Newmont Mining’s Waihi Gold Mine in New Zealand and the Haile Gold Mine in the U.S, and under the leadership of Wilkes, OceanaGold is poised for a breakthrough year in 2016 and beyond.
OceanaGold: Building a high quality gold mining company
Today, OceanaGold controls and operates a portfolio of mines in the three largest goldfields in New Zealand, including the Macraes operation.
As OceanaGold’s pride and joy, the Macraes operation has been operating since 1990 and has produced over four million ounces of gold to date. The site is comprised of an open pit and an underground mine (Frasers Underground), commissioned in 2008.
“The project started out with a seven year mine life. It’s never been particularly profitable as it contains a very low grade, but through the tenacity of our workforce and their innovation, they’ve been able to keep the operation generating a positive cash flow,” said Wilkes.
According to Wilkes, Macraes has an estimated 4 million ounces of gold left in resources but it’s an “incremental process” that includes more exploration and a few more years. With the addition of the Frasers Underground mine, which is currently 740 meters below surface and 200 meters below sea level, including over 48 kilometers of developed tunnel drives, OceanaGold intends to continue tapping the asset—despite low gold prices.
“The vision at Macraes hasn’t changed but the strategy has. We needed to adapt to the changing economic environment, and when prices dropped in 2013, we were able to quickly adjust,” said Wilkes.
“At Frasers, we’re chasing the higher grade hanging walls where we know we can mine profitably. It’s a very efficient design and we continue to chase higher grades and zones at new depths.”
In the Philippines, OceanaGold owns and operates the high grade gold-copper mine, Didipio, located on the island of Luzon north of Manila. The operation is home to roughly 1,800 Filipino employees, with approximately 50 percent derived from local communities in the immediate vicinity of the mine.
According to Wilkes, OceanaGold actively recruits, hires and trains locals for the operation. “Our workforce at Dipidio is 99 percent Filipinos. We’re very proud of that 99 percent,” said Wilkes. “We’re putting a lot of effort to developing the workforce here. The same thing applies to our New Zealand and Macraes workforce, and future locations.”
The mine, which commenced production in 2013, is one of the lowest cost gold mines in the world, with negative All-In Sustaining Costs in its first full year of commercial operations.
“2015 was another good year, with cost in line,” said Wilkes. “Although the copper price was lower than expected last year, we do expect the copper price to come back strongly in the next couple of years.”
OceanaGold: The Right Gold Mining Assets
In October 2015, OceanaGold finalized the acquisition of the Waihi Gold Mine from Newmont Mining. The mine, which achieved record gold production in 2014, producing 3.5 million tons, represents a calculated move for the New Zealand company.
“The Waihi Operation represents a strong strategic fit with our existing business, and we are excited to welcome this high quality asset and its talented team into OceanaGold,” said Wilkes. “Our ambition is to be the gold producer of choice globally and our strategy to get there is invest in high quality assets.”
Waihi is comprised of two areas: the Martha Open Pit and associated underground mines, including the Correnso Underground mine, which is the current active operation at the site producing approximately 130,000 ounces of gold each year.
According to OceanaGold, Waihi has a combined open pit and underground Proved and Probable Reserves estimated as 1.52 Mt at 6.33 g/t Au and 24.0 g/t Ag containing 310 koz of gold and 1,173 koz of silver.
“We purchased Waihi with a three year mine life and we fully expect to extend that through exploration and permitting,” said Wilkes.
Another upside of the purchase is its location. The township of Waihi is situated near the east coast of the North Island within ninety minutes’ drive of the country’s major cities and provides easy access to employment.
“We start with a culture within the organization that looks for efficiencies and we have the right processes in place to drive that,” said Wilkes. “Fundamentally it’s the people and team that make it happen.
“It comes back to values. As a company, we have specific values including respect, integrity, teamwork, action and accountability. Those values are embedded in how we work and live with local communities,” said Wilkes. “So when we hire people, we’re looking for people that have those values.”
“We are looking forward to working with employees, contractors, and local stakeholders to add further value to this unique operation by extending the mine life and seeking out operational efficiencies,” said Wilkes.
In late 2015, OceanaGold made a chess move to purchase Romarco Minerals Inc. for $856 million. The deal gave OceanaGold rights to the Haile Gold Mine in Lancaster County, South Carolina, providing its first U.S. gold mine site and paving the way for growth in new territories.
“The merger with Romarco allowed us to move even lower on the cost curvethrough the development of the high quality Haile Gold Mine. It’s complementary to our portfolio.” said Wilkes. “With the addition of the Haile Gold Mine and the Waihi Gold Mine to our portfolio, we look forward to integrating both assets and their its experienced workforce into our business, in the process unlocking significant value.”
Leading the Charge at OceanaGold
With Wilkes and his management team at the helm, OceanaGold has established a track record for ethical environmental management and community and social engagement. The company prides itself on its strong social license to operate, and rigorously works with its stakeholders to identify--and invest--in new social programs, designed to “build capacity and not dependency.”
“Wherever we work, we invest in the well-being of our communities by supporting programs that improve health, education, infrastructure and capacity building,” Wilkes said.
For OceanaGold as a business, the focus is how to make operations safer through technology and innovation, while increasing productivity.
“Our leadership team embraces modern technology and we use it to drive innovative ideas in everything we do. Modern technology, like wireless communication for example, has greatly advanced in recent years and it’s created a stepchange in innovative technology,” said Wilkes. “You don’t have to invest tens of millions of dollar to make a big change.”
Wilkes’ overall strategy for moving forward is simple, he said.
“As I look back on the past five years, we’ve been successful because we get people aligned with our vision,” said Wilkes. “Through our success, we have to be mindful to stay humble and just keep putting one foot in front of the other. It’s all about big vision—small steps.”
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.