GUIDE: 3 Things To Remember Before Outsourcing
The mining sector is a highly competitive, highly profitable global business. Mining companies are continuously looking to implement newer operation models into practice, finding more ways of increasing productivity, reducing costs and improving effectiveness.
This process is forcing management teams to confront tough choices on how to balance the needs of the individual mines as well as the broader scope of corporate goals for boosting enterprise value. Due to the remote locations, mine lifecycle, limited and specified supply market and challenging production, the industry is full of facets for outsourcing.
The key theme here is differentiating what should, and shouldn’t, be outsourced.
Understand your needs
Outsourcing is the practice of using outside firms to handle work normally performed within a company.
The first step in outsourcing is identifying the company’s needs. According to Niskanen Salla from the University of Oulu, outsourcing in the mining industry is guided by two contextual factors: the production factors and the capacity-based factors. The key for mining companies is to identify and assess how critical outsourced processes are to the organization.
The outsourcing process is detailed in a five stage process model. The first stage is identifying the noncore and core activities and analyzing the possible scope of the outsourcing as well as risks and benefits. Mining companies should always retain complete control over its core functions.
Second stage is the evaluation of desired criteria from suppliers. The third stage is the selection and negotiation of an agreement with suppliers with the fourth stage being the implementation of suppliers. The fifth and final stage is supplier performance with possibilities for continuous improvements.
To be strategic companies must first look for overall business improvements rather than simple cost cutting measures. Focusing on central activities for organizational success is the first step in identifying potential outsourcing needs.
Mining operations consist of a number of processes, which vary in importance depending on the type of mine and mineral being mined. Large teams of specialists are often required, and specialist consultants are more likely to be able to provide and coordinate such a team.
Potential benefits of outsourcing
By outsourcing certain job functions, companies can spend more time concentrating on goals, achieving better customer satisfaction and therefore earning better profits. When done right, the benefits of outsourcing can be paramount.
Benefits include more innovation, quality, independence, reduced overheads, choice and continuity. Outsourcing allows companies to reap the benefits of comprehensive services and added expertise.
Accenture, for example, provides mining companies with outsourced support services in a variety of commercial and IT areas. Their outsourcing application can support SAP and Ellipse applications and help mining companies create IT organizations that can control costs while delivering improved services.
Recently, Accenture teamed up with a major mining company to revitalize its automation, instrumentation and controls of the unitary operations of one of its bottleneck plants. Accenture conducted a production analysis and was able to identify potential production gains and cost reductions for the plant. In return, Accenture was able to decrease in process variability by 1.3 percent, increase equipment production availability by 1.8 and 3.3 percent and decrease water use by 2.1 percent.
Outsourcing equipment is another viable option for mining companies. If a company owns its own equipment it would typically need to employ a maintenance team to maintain the complex, automated equipment. This would obviously result in increased costs. By outsourcing equipment needs, companies can therefore save on capital costs.
Another benefit is companies have more time to manage areas in its core focus. With cost saving space of outsourcing, there is more available capital for other operations.
Do's and don'ts for outsourcing
Before selecting an outsourcing partner mining companies should consider certain factors. Do you and your selected partner share the same values? Does the external provider have a proven reputation? What is their financial stability? How much experience do they have?
When correctly used, outsourcing can serve as a useful tool in bolstering performance, profits and efficiency. Some do’s and don’ts to remember when choosing what functions to outsource and who to partner with:
Do: use outsourcing as a leaner way to grow with less overhead: To maximize the benefit of outsourcing, mining companies should use it to expand their talent pool as well as save money. This allows companies to quickly adjust to changes in demand, attract better workers and stay current with technology.
Don’t: outsource core workers or job functions: Core employees are the underlying center of your organization. Don’t outsource them. They help to drive and direct the process and projects of your company. Keep the talent you have.
Do: outsource skills or expertise you don’t often need: Don’t pay for the things you don’t need or use often. One of the biggest benefits of outsourcing is attaining experienced services. Companies should outsource skills or expertise they don’t often need; tools and technologies they don’t own; or special cultural, geographic or industry expertise.
Lithium producers bullish as EV revolution ramps demand
Rising demand for lithium is stoking prices for the electric vehicle battery metal, fueling long-delayed expansions that still may not produce adequate supplies that automakers need to meet aggressive production plans.
Growing industry optimism from higher lithium prices is a change from last year when funding for mines and processing plants dried up during the pandemic.
Albemarle Corp, Livent Corp and other producers are scrambling to make more lithium, but some analysts worry the recent price jump will not spur a big enough expansion to meet a planned wave of new EV models by mid-decade.
Since January, General Motors Co, Ford Motor Co LG Energy Solution and SK Innovation Co, along with other automakers and battery parts manufacturers, have said they will spend billions of dollars on EV plants.
U.S. President Joe Biden has proposed spending $174bn to boost EV sales and infrastructure. The European Union has similar plans, part of a rush to catch up with global EV leader China.
Those moves have helped an index of lithium prices jump 59 percent since April 2020, according to data from Benchmark Mineral Intelligence, a commodity pricing provider.
The rising demand “reflects what feels like a real and fundamental turning point in our industry,” said Paul Graves, chief executive of Livent Corp, which supplies Tesla Inc. On Monday, it said it would more than double its annual lithium production to 115,000 tonnes.
Graves warned, though, that “it will be a challenge for the lithium industry to produce sufficient qualified material in the near and medium term.”
Albemarle, the world’s largest lithium producer, aims to double its production capacity to 175,000 tonnes by the end of the year when two construction projects are complete. Albemarle's Q1 profit beat expectations thanks to rising lithium prices. Chile’s SQM, the No. 2 producer, said its goal to expand production of lithium carbonate by 71 percent to 120,000 tonnes should be complete by December.
Australia’s Orocobre is paying $1.4 billion for smaller rival Galaxy Resources, a strategy designed to boost scale and help it grow faster in regions closer to customers.
“The next few years are going to be critical in terms of whether there’s enough available lithium supply, and that’s why you’re starting to see commodity prices start to ramp,” said Chris Berry, an independent lithium industry consultant.
The price gains helped Albemarle and other major producers, including China’s Ganfeng Lithium Co and SQM, post big gains in first-quarter profit and boost forecasts for the year.
Even China’s Tianqi Lithium Corp, saddled with debt due to years of low lithium prices, signaled that recovering demand should help it swing to a profit this year.
Forecasts call for demand for the white metals to surge from about 320,000 tonnes annually last year to more than 1 million tonnes annually by 2025, when many automakers plan to launch new EV fleets, according to Benchmark.
Still, demand is expected to outstrip supply in 2025 by more than 200,000 tonnes, so lithium prices may need to rise to encourage producers to build more mines. That could boost the prices consumers pay for EVs. “Companies across the lithium-ion supply chain are in the best position they’ve been in for the last 5 years,” said Pedro Palandrani of the Global X Lithium & Battery Technology ETF , which has doubled in value in the past year.