COMMENTARY: Creating a benchmarking program for precious metals miners

The 2011-2016 metals bear market marked a historic inflection point for the mining industry. With an erosion of market cap exceeding hundreds of billions of dollars, the focus shifted from maximizing tonnes mined and processed to reducing all-in sustaining costs (AISC) and optimizing free cash flow. Over the past five years, I have noticed firsthand how companies are realizing the benefits of collaborating for the betterment of the industry. There have been more joint ventures in the industry, and more importantly, a greater effort to work together to decrease costs and improve efficiencies. Until now, there have been limited ways for mining companies to compare their mine site costs to those of their peers. They could contact other companies directly with specific questions, or they could study publicly available operating and financial information. The first option worked, but required time and effort to build the trusting relationships necessary to facilitate the sharing of information. The second option worked as well, but there were just too many hidden costs, which prevented accurate analyses and comparisons. What the industry needed was a benchmarking platform to facilitate the sharing of detailed mine site information in a controlled environment. There was not a good reason as to why such a platform did not exist. We were not talking about pharmaceutical and technology industries, for example, which are concerned about protecting intellectual property and keeping revolutionary technologies under wraps for competitive reasons. Three years ago, in the midst of a major cost reduction program, I was asked by our board of directors, in particular Bob Dengler and Guy Dufresne, whether we could compare our mine site costs to those of other companies. Having come from the oil and gas industry where benchmarking performance against that of the industry was commonplace, I saw no reason why there should not be an affordable way for mining companies to routinely and consistently compare granular mine site costs to those of their peers. The best we could do was make high level cost comparisons, AISC per oz. included, and even then we were not always comparing apples to apples. So Iamgold decided it was time to do something to facilitate the sharing of detailed mine site information in a controlled environment. We initiated a study and engaged a consulting firm who were able to enlist support from other companies so that we could increase the number of mine sites in the benchmarking analytics. Using a third party allowed each participating company to maintain an appropriate level of anonymity when sharing data with the broader group. Although this study was beneficial, it did not allow us to achieve our objective as it only provided a snapshot in time of the benchmarked key performance indicators (KPIs). In other words, it would not provide us with “living” reports. In addition, ensuring the consistency of data between different companies proved challenging. After assessing the results and realizing the flaws, the project stalled. One of our employees, with previous experience working at site in the area of performance optimization, examined the data from the study and saw the benefits of continuing with this initiative, but with a different approach. This time we engaged a data services company that was a strong proponent of performance benchmarking, and claimed to have the technology and expertise necessary to achieve our objective. Six companies What followed was a two year process, during which time we collaborated with six other gold mining companies. Unlike the first iteration which provided only snapshots of KPIs at a certain point in time, the second iteration provided granular cost comparisons on a quarterly basis. This allowed us to build cost curves, so that from one period to the next we could address potential issues that affect efficiencies and costs. As we moved this project forward, the benefits began to unfold. The anonymous environment prevented the creation of silos and facilitated the controlled sharing of specific performance metrics. The relationships created by the benchmarking project enabled us to obtain data from mine sites similar to ours. Instead of waiting weeks or months for this data, which had been the case in the past, it now took only a few days to get the information we needed. Using the data collected we were able to improve working capital management and reduce G&A costs at our mine sites. And using data that specifically analyzed labour and reagent costs, we initiated process improvements at site that led to further cost reductions. Although the second iteration of the project was more successful than the first, we still lacked the ability to see detailed mine site data for the peer group in real time and we needed to have more companies involved with the project. After three years of progressing through the necessary learning curve, we have settled on a solution which we believe will be ground breaking for the mining industry. We now understand that what was needed was a technology partner who could provide us with an affordable and effective solution, while at the same time help us to broaden participation in the benchmarking program and expand the application of the technology. We found such a partner in the London-based company MiTRAQ. The technology platform provided by MiTRAQ enables the routine sharing of meaningful information without compromising confidentiality and security. The results thus far have been exceptional. The new cost benchmarking program created by MiTRAQ and a group of Canadian precious metals mining companies is confidential, centralized, routine and affordable. On an annual basis, it costs the equivalent of less than a price of a haul truck tire. Most exciting, is that we have identified an opportunity to eventually provide participating companies with a secure, live benchmarking platform. MiTRAQ organizes and maintains a database of agreed upon KPIs for each of the participating mining companies, segregated by operation. The basic premise is that company information will remain confidential on a military grade, secure private cloud. Companies will see their own mine data, while the mine data of their peers will remain confidential. This will allow participating companies to see how their mines are doing against others without compromising the confidentiality of specific mine information. With a “private cloud”, companies can see where their mine costs rank versus their peers’. But data for a company’s mines will be strictly confidential to that company, and data will not be provided to anyone outside the cloud. Mining companies looking at the data will be able to filter the comparator set of peer data to refine the analysis, providing there are a sufficient number of peer operations available to preserve anonymity. The first phase is focused on a smaller set of higher level KPIs to prove the concept. The second phase will expand and deepen the level of KPIs used. It is expected that the periodic data upload process, which is initially being done on a quarterly basis, will be a relatively simple exercise for each of the participating entities, thereby minimizing system overhead. MiTRAQ and the participating mining companies continue to work together to make enhancements to the process so as to eventually enable the retrieval of data in real time. While this is a precious metals mining industry project, Iamgold has overseen the project since inception. Iamgold’s board is fully supportive because it demonstrates a proactive approach to managing and reducing site costs. Throughout our industry, efforts to control costs and improve efficiencies at site level are ongoing. I believe there is an opportunity to enhance the culture of the mining industry in a way that facilitates the sharing of information between companies, while respecting data security and disclosure concerns. So far, I am inspired by how well the current group of mining companies has collaborated to improve the efficiency of their operations. I am confident in the capabilities of MiTRAQ and believe this program will become an industry staple. After a year of testing, the benchmarking project is ready to be marketed to mining companies around the world. Designed by miners for miners with no other purpose than to help mining companies target their inefficiencies and improve operations, it would benefit the precious metals industry tremendously if all companies were to join the program. Reducing costs and improving efficiencies is an ongoing process, not a single event, and I believe this benchmarking initiative is the lynchpin to get us to the next level.  — Stephen J.J. Letwin has been president and CEO of Toronto-based gold miner IAMGOLD since 2010. Prior to joining Iamgold, he held senior positions at Enbridge, TransCanada Energy, TransCanada Pipelines, Numac (Westcoast Energy), and Encor Energy. He holds an MBA from the University of Windsor, is a Certified General Accountant, a graduate of McMaster University (B.Sc., Honors), and a graduate of the Harvard Advanced Management Program. For more information on the benchmarking program, please contact: Anthony Moreau, CFA, Special Projects & Innovation Manager at IAMGOLD, at tel. 1-416-594-2879 andAnthony_Moreau@IAMGOLD.com.