AM-Nov-2012 by Business Excellence Magazine

ACHIEVING BUSINESS EXCELLENCE ONLINE

AMERICAS EDITION November 2012

Walter Energy:

Irreplaceable

Westshore Terminals: Canadaâ&#x20AC;&#x2122;s coal cornucopia

Orbite Aluminae: The impossible, made possible

treasury metals:

All systems go CEO Martin Walter talks about the advantages of the Goliath project and the progress beingmade towards production

Weekly

in touch EDITORIAL

Martin Ashcroft Editor In Chief mashcroft@bus-ex.com Will Daynes editor wdaynes@bus-ex.com

DESIGN

Matt Johnson Art Director mjohnson@bus-ex.com Louise Culling Production Designer lculling@bus-ex.com

BUSINESS

Richard Turner Director of sales rturner@bus-ex.com Vince Kielty Director of Editorial Research vkielty@bus-ex.com Sharon Rooke Administration & Operations srooke@bus-ex.com Matt Day Head of technology mday@bus-ex.com Andy Turner Chief Executive aturner@bus-ex.com

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Editor’s letter

Four more years

resident Obama has emerged triumphant from the longest, most expensive election campaign in history. Knowing it was his last campaign must be a great personal relief, but removing the burden of re-election also gives him more scope for progressive policies. Once the hullabaloo dies down, I hope you can find time to sample the exclusive editorial we present for you in this issue, from Treasury Metals to Nyrstar Tennessee Mines, from Orbite Aluminae to Walter Energy and Westshore Terminals. We have some thought-provoking features, too, including George F Brown Jr’s iconic piece about preparing to enter new markets, Known unknowns and unknown unknowns, and Chris Faulkner’s insight into the natural gas market in China. Mike Gault’s comments on Disaster recovery in the cloud have already proved extremely popular on our home page. Do you have your DRaaS covered? Whether a second term for President Obama proves to be a good thing for business and the economy remains to be seen, but you know you can always rely on the support of the Business Excellence team.

M.Ashcroft Martin Ashcroft Editor-in-chief mashcroft@bus-ex.com

CONTRIBUTORS Chris Faulkner

Founder, president and CEO of Breitling Oil and Gas, an independent oil and natural gas company based in Irving, Texas.

Kate Tojeiro

An executive coach and facilitator, Kate is founder of Xfusion, a progressive leadership consultancy based in the UK.

George F. Brown, Jr.

A regular contributor, George is CEO and cofounder of strategy consulting firm Blue Canyon Partners.

Mike Gault

CEO of Guardtime, a developer of digital signatures that proves the time, origin and integrity of electronic data.

be americas | 3

FEATURES

8 Comment: Cloud computing

Disaster recovery in the cloud

Mike Gault argues that disaster recovery as a service (DRaaS) brings welcome cost reductions and increased capacity.

10 Supply chain

Looking Through an aerospace lens

Supply-chain risk management has been a key issue with almost every natural disaster, labor dispute, or new regulation. Letâ&#x20AC;&#x2122;s shed some light on the subject.

20 Strategy

Known unknowns and unknown unknowns

New markets can spring spectacular surprises, but much can be learned from others who have been there before.

26 Leadership

A counterintuitive approach

Instead of battening down the hatches when the going gets tough, smart leaders inspire their employees to find better ways of achieving their objectives.

32 Pinnacle Strategies

Changing how we change

Just as continuous improvement programs involve changes in operating processes, the way we look at continuous improvement is changing all the time, too.

4 | BE AMERICAS

contents 40 Systems Application Engineering

A legislative mandate

The Food Safety Modernization Act (FSMA) is driving traceability and helping to increase food safety.

48 Energy

Chinaâ&#x20AC;&#x2122;s natural gas potential

Can China overcome its geology and infrastructure problems to become the dominant force in natural gas? asks Chris Faulkner.

56 QuickBooks

Small business excellence

Finding the right technology fit for small and medium sized businesses is not as complicated as you might think.

64 Scientific Management Techniques

Hiring heroes

Rapid skills training and assessment can help veterans be accepted for new employment opportunities and fill skills gaps for manufacturers.

72 Product perspective: PennzSuppress D

A revolution in dust control

Bruce Coulthard, president of PZS Stabilization, talks about this revolutionary dust control product.

72 BE AMERICAS | 5

business showcase

78 142

78 Treasury Metals All systems go

CEO Martin Walter talks about the advantages of the Goliath project and the progress being made towards production.

88 Nyrstar Tennessee Mines

Galvanized into action

One of Americaâ&#x20AC;&#x2122;s most reliable and highest grade source of zinc comes from Nyrtsarâ&#x20AC;&#x2122;s underground mines in Tennessee.

102 Orbite Aluminae

The impossible, made possible

Revolutionising the way in which alumina and other high value materials are recovered from the earth.

102

110 Levon Resources Ltd A project in its prime

Reporting on the progress of the Cordero Project in Mexico and the exciting future ahead for this high value asset.

120 Walter Energy Irreplaceable

120 6 | BE AMERICAS

Dan Cartwright, president of Canadian operations, talks about developing reserves of a material that society can neither do without, nor replace.

contents 130 Westshore Terminals Canadaâ&#x20AC;&#x2122;s coal cornucopia

The largest coal terminal in Canada handles more than the combined capacity of other ports on the North American west coast.

140 Xstrata Technology A slow grind

130

Greg Rasmussen talks about the introduction of new mining technology to the industry.

140

148 Finn Equipment Sales Safer dust control

President Joe Finn explains the role of process ventilation systems in mining operations.

150 Vale: Long Harbour Project Breaking new ground

Demonstrating how new technologies can be used to exploit Canadaâ&#x20AC;&#x2122;s mineral riches.

158 Aurizon Mines

Keeping the pipeline filled

Ambitious mining companies need to be continually planning ahead, as shown here in northern Canada.

166 Saxon Energy Services Management to match

150

The Saxon Management System, lean and six sigma, and a new Oracle ERP platform.

BE AMERICAS | 7

by: Mike Gault

Disaster recovery

in the cloud

isaster recovery, like insurance, seems like a waste of time and money until disaster strikes. At that point, quick and easy system and data recovery are essential and well worth the price. Organizational service level agreements continue to drive the need for disaster recovery strategy and services, causing more and more businesses to seek solutions that will offer the right protection at the right cost. More choices than ever are available for disaster

8 | BE americas

recovery schema and practices with cloud services becoming more popular and available every day. Does it make sense to go to the cloud for DR? Is disaster recovery as a service (DRaaS) a viable option at all? Traditional disaster recovery often means creating a duplicate system that replicates both applications and data in two separate geographical areas. The plan is for the system to fail-over to a duplicate system in the event of unfortunate service disruption. When IT services were less vital

to daily operations, this approach was acceptable. The internet and the expansion of computing power and usage changed all that. Duplicating a system sufficiently to run operations as needed during extreme exigency has become very costly. Choices of necessary versus non-necessary applications must be made, meaning less service can be provided during down-time. Total business continuity is impossible, and the farther away the duplicate system is from the home office, the

comment: Cloud computing slower the transaction. Disaster Recovery as a Service (DRaaS) recreates a system virtually within the cloud. This brings welcome cost reductions and increased capacity to disaster recovery planning a nd implementation. Virtualized provisioning for computing, networking, and storage for backup servers allows for a more extensive set of services to be offered while the homesite is off-line. DRaaS provides the same advantages as all cloud computing, namely, decreased infrastructure needs, f lexibility in applications offerings and storage, and thirdly, increased mobility and portability. With 60 percent of companies placing a high or critical priority on their disaster recovery plans, more players will be entering the marketplace to offer these types of services, particularly as cloud-based solutions. A clearly defined service level agreement (SLA) is essential when working with cloud service providers, particularly in the case of a

60% Companies placing a high or critical priority on their disaster recovery plans disaster recovery. A realistic determination of what is absolutely needed for business continuity will keep SLA costs down without sacrificing performance and productivity. A business impact analysis should cover questions concerning recovery methodology and timeframe. Testing and validation for backups and system restores must be part of the guarantee for the fail-over process, including how long it takes to switch over and make data and applications accessible. By approaching disaster

recovery as a service, the cost of business continuity drops while services are maintained at the expected rate. Not only is it more likely that service disruption is minimal with DRaaS, testing the system becomes much easier as does the recovery of all data with full integrity intact. The savings for the business hit with server failures, power loss, building destruction, or security problems, is even greater. The firmâ&#x20AC;&#x2122;s reputation and customer base remains intact during and after service failures and customer acquisition opportunities abound as those unfortunate enough to be doing business with a less prepared organization decide to change to a more reliable hedge against the next disaster. Do you have your DRaaS covered?

Mike Gault

Mike Gault is CEO of Guardtime, a developer of digital signatures that algorithmically prove the time, origin and integrity of electronic data. Mike.Gault@guardtime.com www.guardtime.com

BE americas | 9

Supply-chain risk management has been a key issue with almost every natural disaster, labor dispute, or new regulation. Letâ&#x20AC;&#x2122;s shed some light on the subject written by: Thomas Yagel & Evan S Shenkin

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supply-chain

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ndersta nding supply- cha in risks is critical because of the sig nificant effects that supply-chain hiccups can have on production, corporate revenues, a nd even company reputations. In this supply-chain analysis, S&P Capital IQ’s Solutions Architects have reviewed important supply-chain factors and highlighted Boeing Co.’s supply-chain management and methods. We decided to review the aerospace industry and Boeing Co. as an example because the industry relies heavily on a large global supply-chain net work. Boeing has had supplychain problems in the past because some parts that suppliers fabricated were not consistent with

Boeing designs, resulting in assembly problems. In this article, we analyzed Boeing’s own perception of supply-chain risk and how the company’s operational performance compares to its peers. We also developed a framework to analyze risks and identify operationally critical suppliers that could experience financial distress and therefore disrupt production. What did we find? • The supply-chain has high visibility and presents important risks which can be seen in table 1 by observing 4 of the 21 risk factors for Boeing Co. • Some traditional supplier concepts such as just-intime may be reversing. • A ssessing the financial risks of suppliers is critical. • It is also important

to consider supplier importance to the production line. Supply-Chain Trends The S&P Capital IQ Equity Research team’s Aerospace and Defense Industry Survey (published Feb. 9, 2012) highlights that aircraft production has declined with each recession prior to 2008. However, during the last recession, production for Boeing only experienced a slight period of softness, followed by continuing increases, despite significant economic contraction. The company cited the following factors that contributed to the strong current and future demand for aircraft: • Demand from emerging markets, such as Asia, the Middle East, Eastern Europe, and Latin

Table 1 Boeing Company Risk Factors (summarized)* Aircraft development and planned production increases Depend heavily on the performance of subcontractors and suppliers Estimates in accounting for contracts Supplier workforce labor unions may lead to work stoppages *Subset of Boeing’s company risk factors. Source: S&P Capital IQ, Boeing Co. 2011 10K.

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supply-chain

25 0 1972 75 78 81 84 87 90 93 96 99 02 25 08 11 E2014 aircraft production lags economic conditions*

(Number of units delivered, four quarter moving average) 175 150 125 100 75 50 25 0 1972 75

11 E2014

*Boeing only. Adjusted to exclude effects of fall 2008 machinists strike at Boeing (S&P estimates). E-Estimated. Note: Shaded areas indicate recession periods. Sources: Boeing; National Bureau of Economic Research; S&P Capital IQ. Source: Standard & Poor’s Investment Advisory Services LLC, which is a part of S&P Capital IQ, Aerospace and Defense Industry Survey (published Feb. 9, 2012)

America; and • A need for replacing aging fleets in the U.S. and Europe. Given this, it should not be surprising that Boeing expects to significantly increase production across all their major airplane lines over the next several years. “Boeing employees are carrying out a historic increase in the production

So what factors differantiate this cycle from the last one? S&P Capital IQ sees two primary dynamics driving demand for aircraft. The first is continued robust demand from emerging markets such as Asia, the Middle East, Eastern Europe, and Latin America. Many airlines in these regions have remained profitable, and fleet sizes must rise to accomodate increased demand for business and personal travel. The second is the need among airlines to replace aging and less fuel-efficient planes to address rising fuel prices. Although the price of oil (and jet fuel) has fallen sharply from its mid-2008 peak, prices are again rising, and many believe the supplydemand balance for petroleum favors a return to higher oil prices in the future. The two regions with the oldest (as well as largest) fleets are the U.S. and Western Europe. As a result, demand for aircraft from these regions, while not high, has begun to improve.

rates of all five major commercial airplanes programs: the 737, 747-8, 767, 777, and 787,” Boeing said on their website in October 2011. “An overall 40-percent production increase, to be phased in over three years, aims to meet airlines’ growing demand for more fuel-efficient and environmentallyprogressive airplanes.” While Boeing and other

aerospace companies have learned many lessons in recent years, significant production increases put added pressure on supply-chains. Global outsourcing of suppliers and inventory practices such as “just-in-time” have expanded the complexity of assessing and managing the risks of suppliers and other counterparties. Decentralization, complex supply-chain structures, and

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an increasing number of observed a key supply-chain potential suppliers have made metric--inventory days-$30,000 it harder than ever to stay on for Boeing Co. and found a steady increase in the top$25,000 of supply-chains. We reviewed recent amount of time inventory is $20,000 in the aerospace trends held--a potential signal that industry that might explain just-in-time is less of a focus $15,000 how practices are adapting than in the past. to $10,000 accommodate these Dollar volume from M&A complexities. First, increased transactions in the aerospace $5,000 M&A in the aerospace industry (defense excluded) industry seems to indicate reached its highest total since $0 2002consolidation 2003 2004 2005a record 2006 2006 2007 year, 2008 according 2009 2010 a potential of suppliers, potentially to S&P Capital IQ data indicating a reversal of supply (see chart 1). Interestingly, decentralization. Second, we we see that most of that

consolidation occurred in the sub-industry--aircraft systems, components, and equipment. Not surprisingly, companies in this subindustry are the aircraft suppliers. Not only was this sub-industry responsible for the largest deal volume, it also grew significantly--by 240%--from 2010 to 2011. A lt houg h volu me 2011 alone cannot tell us what motivated these transactions, consolidation of suppliers is one effective

Chart 1

aerospace M&A 2002-2011 by target industry Total Transaction Value ($USDmm)

$30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Total

Aerospace and Defense Maintenance and Services (Primary)

Aerospace Research and Development (Primary)

Aerospace Transportation Support Systems (Primary)

Aircraft Systems, Components and Equipemnt (Primary)

Passenger and Cargo Aircraft and Airplanes (Primary)

*Note: Criteria were: Announced and not cancelled M&A transaction from 1/1/2002 to 12/31/2011 where the target company primary industry was an Aerospace sub-industry. Transactions may be represented in multiple sub-industries, but are not only counted once in the total. For this reason, the total columns will not be a sum of the sub-industry values.

14 | Be americas

supply-chain Chart 2

five-year trend in inventory days 200 175 150 (Days)

approach to better control supply and quality of critical components. In July 2010, CEO of Aerospace Structures at Senior PLC, Jerry Goodwin said, “Boeing, Airbus and the other airframers are looking to consolidate their supplychain, and we’re getting back into acquisition mode now, doing some research.” Beyond M&A, we also see some potential trends in inventory management. Traditionally, we have come to associate a lower inventory-days number as a good measure of how well a company is managing its supply-chain. However, Boeing’s inventory days has increased year over year for the past five years, exceeding the peer average in December 2009 (see chart 2). By increasing inventory on hand, Boeing is likely making a tradeoff between optimal high inventory turnover and carrying an excess of inventory to buffer against changes in production velocity. In this case, given the risks of production stoppages, Boeing’s method of holding inventory longer than its peers may be a good risk-management strategy.

125 100 75 50 2007

Boeing Co.

2008

2009

2010

2011

Peer group

Data as of Mar. 19 2012. Source: S&P Capital IQ Credit Health Panel

Assessing Supplier Financial Risk One of the most critical aspects of supply-chain risk management is gauging the financial risk of a company’s suppliers. Even if a company in trouble does not default, credit concerns can cause delays and quality issues that all supply-chain managers should be on the lookout for as early as possible. Given the right tools and data, financial risk is also one of the easiest risk factors for a supply-chain manager to follow. Beginning in September 2007, Boeing Co. announced the first of a series of delays in

the production of the newly designed 787 Dreamliner. In January 2008, president and CEO of Boeing Commercial Airplanes Scott Carson said, “The fundamental design and technologies of the 787 remain sound. However, we continue to be challenged by start-up issues in our factory and in our extended global supply-chain.” This statement addresses an extremely complicated and global supply-chain and the importance of being able to identify suppliers who might cause disruptions. Although many disruptions are unforeseen, especially when

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caused by natural disasters, the ability for a supplier to maintain production is paramount for a supplychain manager. Table 2 displays the 31 key suppliers of the 787 as reported by Boeing Co. The scoring is taken from S&P Capital IQ Credit Health Panel, which ranks a group of peers based on 22 different financial metrics related to credit health. These metrics are grouped into operational, solvency, and liquidity categories, and then combined to form an overall relative credit health score. The scores for each of the individual panels and the overall score are divided into quartiles from bottom (4) to below average (3) to above average (2) to top (1). Scoring the 787 suppliers on a relative basis against each other, CTT Systems AB, Esterline Technologies Corp., Finmeccanica SpA, JAMCO

Corp., Korean Air Lines Co. Ltd., Panasonic Corp., Spirit AeroSystems Holdings, and Thales S.A. have the weakest relative credit health of the 787 suppliers. Table 2 also displays both Standard & Poor’s Ratings Services’ foreign long-term credit ratings and the S&P Capital IQ probability of default (PD) score for the list of suppliers. While credit ratings can be an important part of the analysis of financial health for these companies, ratings do not cover all of the suppliers. The PD is a separate quantitative estimate of the one-year forward-looking default probability and is especially useful when broader coverage of a list of companies is necessary to make acrossthe-board comparisons. As the PD is updated daily, it is not completely consistent with the ratings or the overall credit health comparison,

which are more stable measures. However, the average PD for categories 1 and 2 above (0.04%) is significantly lower than for categories 3 and 4 (0.18%), as would be expected. One exception is SAAB AB, which scores in the top quartile on a relative basis but has a PD higher than that of many companies in the bottom quartile (0.2232%). This might signify recent credit concerns for the company that deserve further research. Frontier of Risk While it’s necessary to analyze the credit health of the suppliers, it’s also crucial to understand the importance of the suppliers to the company being analyzed. In the past, the importance of a supplier to a company’s supply-chain was based on total spend. However, we have identified a more useful means to assess a supplier’s

“we continue to be challenged by start-up issues in our factory and in our extended global supply-chain” Scott Carson, CEO of Boeing Commercial Airplanes 16 | Be americas

supply-chain Table 2 Relative Credit Health Analysis (summarized)* Credit Health Panel company scores LTM Foreign Long Probability Company Name Overall Operational Solvency Liquidity Period Ending Term Rating of Default (1)(%) CTT Systems AB

30-Sep-2011

0.1449%

Esterline Technologies Corp.

31-Jan-2012

BB+

0.0105%

Finmeccanica SpA

30-Sep-2011

BBB-

0.4168%

JAMCO Corporation

31-Dec-2011

Korean Air Lines Co. Ltd. 4

31-Dec-2011

Panasonic Corp.

31-Dec-2011

Spirit AeroSystems Holdings, Inc.

31-Dec-2011

0.0183%

Thales S.A.

30-Jun-2011

1.3242%

Dassault Systems

30-Jun-2011

0.0066%

Donaldson Company, Inc. 1

31-Jan-2012

0.0035%

General Electric Co.

31-Dec-2011

AA+

0.0069%

Parker-Hannifin Corp.

31-Dec-2011

0.0062%

Rolls-Royce PLC

31-Dec-2011

A-

0.0327%

SAAB AB

31-Dec-2011

0.2232%

Ultra Electronics Holdings PLC

31-Dec-2011

0.1187%

A-

BBB+

0.0572% 0.0553%

*Additional key suppliers not represented in table: Honeywell Industries, Inc., Kawasaki Heavy Industries Ltd., Meggitt PLC, Mitsubishi Heavy Industries, Ltd., Moog Inc., PPG Industries Inc., Bridgestone Corp., GKN PLC, Goodrich Corp., Rockwell Collins Inc., SAFRAN, Toray Industries Inc., United Technologies Corp., Zodiac Aerospace. Data as of March 19, 2012. Source: S&P Capital IQ, Credit Health Panel.

importance. Components that are supplied by one firm or a critical component that cannot be replaced easily have been identified as being of high importance. In this article, we would like to propose one potential framework--Frontier of Risk-for combining the financial risk of suppliers with the operational importance of the

supplier. In this framework, we plotted supplier financial risk versus operational importance. This allowed us to visualize the intersection of these two factors causing the suppliers of most concern to stand out in the north east quadrant (see quadrant 4 in chart 3). Since only the individual supplychain managers can actually

measure the importance or scarcity of a given component, we used a rough measure of industry competitiveness as a proxy. We assumed that individual supplychain managers or company analysts will likely exchange or augment our measure for their own assessments. There are several measures that we could use

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to measure financial risk, but we used the PD measure for the Frontier of Risk analysis. Although the PD measure is an estimate of the percentage chance that a given company will default in 200 the next 12 months, we converted it into a scale 175 that maps to the 20 different 150 credit ratings categories but125uses lower case letter symbols to signify that it is a 100 different measure, from d (0) 75 to aaa (20). Categories cc and c are 50 not represented in this 2008 2009 scale. 2007 This is accomplished by measuring the observed default rates for different rating categories to obtain an observed PD range for each rating category.

For our measure of operational risk, we created a Competitiveness Index similar to that of the Herf indahl–Hirschman Index (HHI). We calculated the index by determining the percentage of total industry revenue that each company in an industry contributes. We then summed these values for each company in the industry and multiplied by 10,000. Finally, we took the log of the result to create a scale from 0 to 4. Values close 2010 2011 to zero indicate extremely competitive industries, and those close to four indicate extremely noncompetitive industries. For our purposes, competitive industries are

Chart 3

Frontier of Risk 12

(Credit score)

8 6 4

less operationally risky than noncompetitive industries (where there may be scarcity of replacements). For example, in an industry with two companies-one with $100 in revenue and a second with $900 in revenue--the first company’s percentage of revenue (10%) would be squared (0.01) and added to the second company’s (90% ^ 2 = 0.81) to yield 0.82. Multiplying by 10,000 and taking the log results in a value of 3.9. Chart 3 shows the Frontier of Risk for Boeing 787 Dreamliner suppliers. Suppliers in quadrant 2 have low financial and operational risk, and those in quadrant 4 have high financial risk as well as high operational risk. CTT Systems AB, Saab AB, Finmeccanica SpA, Ultra Electronics Holdings PLC, Korean Air Lines Co Ltd., and Fuji Heavy Industries Ltd. appear in quadrant 4. (See table 3 for the list of all suppliers on the Frontier of Risk.)

2 0

1.0

1.5

2.0

2.5 (Operational score)

Data as of Mar. 19 2012. Source: S&P Capital IQ

18 | Be americas

3.0

3.5

4.0

Conclusion • The supply-chain has high visibility and presents important risks.

supply-chain Table 3 Exposures Of The Frontier of Risk (summarized)* Company Name Industry (GICS)

Operational score

Credit score

CTT Systems

AB Aerospace and defense

2.76

Saab AB

Aerospace and defense

2.76

Finmeccanica SpA

Aerospace and defense

2.76

Ultra Electronics Holdings plc

Aerospace and defense

2.76

Fuji Heavy Industries Ltd.

Automobile manufacturers

3.78

Korean Air Lines Co. Ltd.

Airlines

2.86

Goodrich Corp.

Aerospace and defense

2.76

Honeywell International Inc.

Aerospace and defense

2.76

PPG Industries Inc.

Diversified chemicals

2.65

Donaldson Company, Inc.

Industrial machinery

2.14

Dassault Systemes SA

Application Software

1.22

*Additional key suppliers not represented in table: GKN PLC, Kawasaki heavy Industries Ltd., Jamco Corp., Panasonic Corp., Thales SA, Safran SA, Rolls Royce Holdings PLC, Zodiac Aerospace SA, Meggitt PLC, Spirit AeroSystems Holdings Inc., Mitsubishi Heavy Industries Ltd., Toray Industries Inc., United Technologies Corp., Rockwell Collins Inc., Esterline Technologies Corp., Moog Inc., United Technologies Corp., Bridgestone Corp., Eaton Corporation, Parker Hannifin Corporation, General Electric Company. Data as of March 19, 2012. Source: S&P Capital IQ.

• Some traditional supplier concepts such as just-intime may be reversing. • A ssessing the financial risks of suppliers is critical. • It is also important to consider supplier importance to the production line. Boeing Co. has had its fair share of supply-chain issues in its goal to launch the 787 Dreamliner. By exploring Boeing Co., the S&P Capital IQ Solutions Architect team outlined potential trends in the industry and the importance of identifying and monitoring a company’s

supply-chain. Risk to a company’s integrated and possibly global supply-chain is difficult to identify and even more difficult to monitor. Deficiencies in a supply-chain usually arise in the most inopportune moment, such as after a natural disaster like the ones that hit Japan and Taiwan in 2011. The Frontier of Risk framework,

when used with additional monitoring capabilities such as up-to-date news and alerts to key developments and daily movements in S&P Capital IQ proprietary metrics can allow a supply-chain manager (or company analyst monitoring supply-chain) to shed more light on potential risks. Click here to download the full report.

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Known unkn 20 | BE americas

Strategy

New markets can spring spectacular surprises, but much can be learned from others who have been there before

n unknowns and nown unknowns written by: George F. Brown, Jr.

BE americas | 21

cl ient in the medical equipment industry recently shared the following experience with me: “You might remember about a decade ago the media having a great time with Secretary of Defense Donald Rumsfeld when he made the comment about ‘known knowns, known unknowns, and unknown unknowns’. It’s probably true that politicians have to be careful when they try to turn a clever phrase, but he was right in citing all three categories as relevant to decision making and operations. Our company has spent the last year dealing with ‘known unknowns’ and ‘unknown unknowns’. And it hasn’t been a fun experience. “In retrospect, we probably bit off more than we could reasonably chew. We tried to combine a significant change in our technology with entry into a key new global market. Going back to the insights that were provided fifty years ago by Professor Igor

22 | BE americas

Ansoff, we should have recognized we were in the territory of ‘new product AND new market’, the most challenging of the possible combinations. “We went wrong in two ways. First, while we did a pretty decent job in cataloguing the ‘known unknowns’, we didn’t shine in terms of figuring out how to address them. Looking back on our plans, we understood some of the issues we were going to confront and some scenarios that might unfold as we moved forward. But our plans for addressing them were pretty basic. We just didn’t have the expertise to do better. And second, we really didn’t think about the ‘unknown unknowns’. That cost us in several ways, time and money both.” One of the realities of mo st st rateg y implementation projects is that eventually the firm involved will find that it must sail into uncharted waters. The nature of those uncharted waters changes from project to project – a new geographic market, a fundamental change in the firm’s business model, an

“One firm c advisory panel from other o that had exper business

Use an advisory panel to prepare for s

created an l of individuals organizations rience in doing s in China”

surprises

Strategy unfamiliar technology, etc. And, as the firm cited above suggested, sometimes there are many dimensions of uncharted waters that interact in ways that add even more to the challenge. An important part of project planning involves the identification of those importa nt uncha rted waters that the team will have to navigate – not only figuring out the “known unknowns”, but also trying to at least think about the possible character of the “unknown unknowns”. Another firm with which we worked had made an important strategy decision involving entry into the Chinese market. They recognized that this was going to involve new challenges along many dimensions, and as part of the implementation project planning effort, they created an advisory panel of individuals from other organizations that had experience in doing business in China. At the first meeting of this advisory panel, they presented their strategic plan to the members of this

group, as well as outlining the implementation plan that had been drafted by the project team. The questions they asked of the advisory panel were these: “From your experiences in China, what are the surprises we should expect? What is going to be different in China relative to our experience? Where is our plan naive?” To a certain extent, getting answers to the above questions might be viewed as basic “blocking and tackling” in the context of solid project management, although far too often we see firms heading into uncharted waters without creating any such compass. This firm viewed the answers they got from their advisory panel as pure gold. Not only did they gain insights into the challenges they had already anticipated, but they learned of some challenges that had previously been in the “unknown unknowns” category. The steps that this firm next took, in any case, make it onto the roster of creative practices. After gaining answers from the advisory panel, the executives

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responsible for the project then set out to identify other firms, mostly in noncompetitive industries, that were likely to have faced similar challenges. Some of these firms were identified quickly by queries to the advisory panel, while others required some research and networking. Once they had identified such firms, members of the implementation team were tasked to visit

with individuals in these organizations, and complete a quasi-benchmarking effort to learn from their experiences. Through that process, the uncharted waters became much more real, and the implementation team built an inventory of great insights as to what to watch for and what had helped these other firms in dealing with such challenges. The learning that emerged

from these discussions was then incorporated into both the implementation process itself and into the monitoring process associated with the project. As it completed these benchmarking efforts, this firm also shared what it had learned with its advisory panel, and brought them back twice during the implementation project to provide an experienced perspective on progress

Most strategy implementation projects involve sailing into uncharted waters

24 | BE americas

Strategy

“The uncharted waters became much more real, and the implementation team built an inventory of great insights as to what to watch for” and problems. In one of the executive interviews that we did in developing our framework for strategy implementation, Mark Weber, President of Federal Signal’s Environmental

Solut ions Compa ny, emphasized the need to bring “the right kind of gray hair” into strategy and implementation planning and execution. Through both the advisory panel and the external benchmarking process, this firm certainly responded to that challenge. Most businesses have at this point learned the value of hearing messages from the market, and have put into place voice of the customer programs and other initiatives to gain insights from suppliers, channel partners, and customers at all stages of the customer chain. When sailing into

uncharted waters, initiating programs to gain lessons from other environments can yield the same, highquality contributions. Other firms, often in very diverse industries from the one in which your firm participates, have often gained insights into how to resolve the “known unknowns” that your firm has identified, and can often also shorten the roster of “unknown unknowns”. To gain these contributions, however, it is necessary to take creative steps like those that were implemented by the firm heading into China’s markets.

George F. Brown, Jr. is the CEO and cofounder of Blue Canyon Partners, Inc., a management consulting firm working with leading business suppliers on growth strategy. Along with Atlee Valentine Pope, he is also the author of CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs. www.bluecanyonpartners.com

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A counter approa

When the going gets tough, employees to find better ways

written by: K

26 | BE americas

Leadership

rintuitive roach

, smart leaders inspire their s of achieving their objectives

Kate Tojeiro

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heard the unmistakable sound of a Harley Davidson motorcycle in the car park of a business that I’m currently working with. It reminded me of the incredible transformation story of this company. It is easy to understand in times of economic uncertainty why businesses often retrench; stop spending, stop investing in product and people and seem infinitely more risk averse, hiding from the world at large. Marketing and PR is slashed, innovation compromised and, as a consequence, so too is quality. A reduction in sales causes organizations to feel that they have a burden of staff and resources and this is when the culling starts; sometimes smart culling, often rather less so. I don’t know any manager who enjoys letting people go, but the smart ones recognize that it is often a requirement for success and progress.

Change management programs often go hand in hand with business challenges, often at the expense of addressing true company culture, and therefore these programs are unlikely to address longterm sustainable shifts in behavior, never mind growth and success. If employees, particularly when they have lost colleagues, are involved and have responsibility and accountability in the change, it is more likely to succeed. In any economic downturn companies have two basic choices: they either change their strategies to thrive, or batten down the hatches to survive. Irrespective of which approach is taken, there are costs involved in adopting either choice. Success depends on how those costs are managed and the strategic approach taken by management. An equally important consideration

“companies either change their strategies to thrive, or batten down the hatches to survive” 28 | BE americas

is that strategies based on thriving tend to engender a positive attitude in the company, while battening down the hatches and reducing costs tends to have the opposite effect. C omp a n ie s that concentrate on meeting short-term targets will often pay a price for their frugality when the economy turns around, since it is not clear what the long-term impact of their cost cutting will be. There have been plenty of examples where staff are let go, only for management to find that they are unable to recruit the necessary skills when required in the future. It can be counterintuitive for companies to adopt the ‘thrive’ approach, but this is exactly what I am seeing with some organizations today, even though the immediate costs are usually greater. So back to the shiny ‘Hog’ (Harley Davidson) in the car park. The company’s sales were down, and it was virtually on its knees. It had begun to earn a reputation for unreliability, poor build quality and an inferior product to the competition. The approach which marked

Leadership

Change programs are more likely to succeed when employees are engaged

a major turnaround in the organization’s fortunes started with a quality retune. Some would say a counterintuitive act; a focus on utterly shifting that reputation to one of reliability, great build quality, design and, ultimately an outstanding product. The impact of having a positive and forward looking sense of collaboration and shared purpose made a huge difference. The encouragement of freedom, innovation and creativity

to find new opportunities and ways forward started Harley Davidson on that phenomenal journey to great success and renewed market share. Risky, inspirational, courageous—yes—but the results were astonishing. Not so long ago I was invited by the CEO of a plc to sit in on a critical strategic management meeting. The executive team and department heads were discussing the losses the company had experienced over the preceding three quarters—something that

A sense of collaboration and purpose makes a huge difference

30 | BE americas

had never happened in the company’s 15 year history. In a lively and sometimes heated debate, the decisions they were rapidly coming to were that there would have to be an immediate 10 percent reduction in costs across all departments –which would include a drastic cut in staff numbers; marketing and PR budgets would have to be slashed, anything but essential travel was to be banned, and the traditional company Christmas party cancelled.

Leadership

“The company is surviving because management was able to get past the common practice of thinking as we’ve always thought” The CEO remained quiet for much of the time, mostly listening to the discussions between his managers and jotting down a few notes. After almost five hours, he brought the discussions to a halt, rose and quietly walked around the room, contemplating his notes. The silence was deafening. Then he addressed all those present. “We’re not going to lose anyone from this company; we’re certainly not going to stop promoting our business; we will continue with the current product development and team training programs, and we will most certainly have our Christmas party.” He tasked everyone to think about this and to come up with some innovative ways of achieving the company’s long-term objectives. These would then be discussed the following day. That evening, he quoted

me a proverb. “If we know a storm is coming, we make sure that we have ample firewood and we feed the fire with as much wood as we need.” What he was not prepared to do was seal all the doors and huddle around the fire using as little wood as necessary just to stay warm. The following day, the result of the CEO’s demand for innovative thinking was almost palpable and it served to visibly inspire every single member of that management team. It was galvanizing, doable and, most interestingly, completely counterintuitive, not only for the team but also the business. That meeting was almost

three years ago and since then the company has captured market share, they are more profitable than they have ever been and have also acquired two companies. They have created value, nurtured their culture and developed an amazing spirit. The company is surviving because management was able to get past the common practice of thinking as we’ve always thought. It takes courage to face facts and it takes imagination to come up with ways of circu m nav igat ing challenges, but both traits pay off in the long run, especially when failure is simply not an option.

Kate Tojeiro is founder of Xfusion, a progressive leadership consultancy. She has worked as an executive coach and facilitator with some of the world’s largest organisations and some of the most cutting edge start-ups. www.the-x-fusion.co.uk

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Changing how we change Just as continuous improvement programs involve changes in operating processes, the way we look at continuous improvement is changing all the time, too written by: Thomas R. Cutler 32 | BE americas

Pinnacle Strategies

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either the t heor y of constraints (TOC) nor lean six sigma is a religion, although there are zealot believers in both who may disagree. Mark Woeppel, president and CEO of Pinnacle Strategies, ack nowledges ma ny organizations struggle to achieve real bottom line results with continuous improvement (CI) efforts, whether in cost savings or increased revenues. In spite of the widespread implementation of lean and six sigma principles, poor results persist. Just as lean and six sigma became an integrated process, we now have another integration with the theory of constraints lean six sigma (TLS) process, which generates 15 to 20 times better performance than lean or six sigma alone.

The root causes of poor CI program performance must be considered first. A systematic framework for creating positive ongoing bottom line results is essential. At the heart of continuous improvement is the need to change, but many changes result in little real improvement, thus the mismatch between expectations for change and the desired results. Additive versus system approach There are two distinct approaches to improvement. One, the traditional additive approach, suggests that when there is improvement in many different places, it will improve the entire system; or put another way, “every little bit helps”. In contrast, the systems approach to improvement delineates that not every improvement yields an

“organizations struggle to achieve real bottom line results with continuous improvement (CI) efforts” 34 | BE americas

TL Six sigma

Many changes result in little real impr

Pinnacle Strategies

rovement

Lean

improvement to the system as a whole. Woeppel agrees; “Not every bit helps….most changes don’t do a thing”. US manufacturers believe in continuous improvement, with seven out of ten using lean, and nearly three out of ten using six sigma. “US manufacturers are trying a variety of tools to improve their competiveness,” Woeppel acknowledges, “but there is a long way between trying and achieving. When we look at results, we see that fewer than 25 percent of companies report significant progress towards becoming world class. Even though many organizations try to improve their performance, most of the time, their results fall far short of expectations.” The goal for any continuous improvement program is to systematically create improvements. The CI teams must get results; they must improve. The improvement targets that seem to be closest at hand are the biggest time sinks in the process; the steps that take the longest or consume the most time. The longest setups, the highest scrap

rates, the longest process times, are tempting targets for improvement. The teams must not only get results, they have to get meaningful results; improve the things that are important to the business. Most CI projects are focused on reducing the process time—unless there is a major business problem such as a quality or reliability issue, which threatens the organization. Management will intervene with a special team to solve that problem. Once the danger has passed, CI teams are left to decide where to work next. The methods of lean and six sigma guide project teams to focus on either the time sinks directly (lean) or indirectly, targeting the high variation processes (six sigma). “CI teams are not systematically deployed to create meaningful business results,” noted Woeppel. “They improve the process in the hopes of a real return; this is the traditional approach to improvement. The goal for any continuous improvement program is to systematically

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create improvements.” For most organizations, an improvement is not really an improvement unless it improves the bottom line either now, or sometime in the future. Just because a company is leaner does not mean it is more profitable. The improvement program must demonstrate measurable and financially justifiable results for its efforts. Clearly, the traditional approach to continuous improvement is not working and gives way for the TLS approach. The projects undertaken are almost exclusively focused on eliminating or reducing process time. Most improvement teams simply choose the wrong processes to improve. Fooling ourselves

into believing that saving an hour in the process is going to eliminate an hour’s worth of expenses is false; that it will lead to improvement in the bottom line is also false. The priests of lean and six sigma say, “someday it will,” but the data shows that “someday” never comes. Since most organizations do not reduce their workforce as a result of improvement efforts, rarely do time savings appear on the bottom line. Unless the organization produces (sells) more with the same quantity of resources, the return on these “improvements” will be negligible. Only the projects focused on the leverage point have any significant return at all. The weakest link determines the strength

The result of CI failure… • Most projects don’t deliver the results for which they are designed • Overall company performance does not improve • Implementations are difficult • Managers get frustrated with CI projects • Most managers stop supporting CI projects and initiatives • People become cynical about CI initiatives • Resistance to change is rampant in the organization • The problems CI programs were implemented to solve still exist

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of the chain; to improve the chain companies must focus on the weakest link, yet CI teams continue to work on projects elsewhere. They “improve” the links that do not affect the strength of the chain. The lack of measurable results creates problems for the continuous improvement programs and the managers who commission such programs. Senior managers wonder why investments in programs do not create

Pinnacle Strategies

The lack of measurable results creates problems for continuous improvement programs

the promised returns and become skeptical that CI programs will do anything significant. When senior management loses confidence in CI, the rest of the organization soon follows. Double the bottom line The Lean Enterprise Institute surveyed lean practitioners about the biggest obstacles to lean implementations. Most

practitioners cite “resistance to change” as the biggest obstacle…from every level of management, the middle, front line, and employees on the plant floor. Unrealized financial value ranked very low in obstacles, indicating the practitioners do not connect the lack of bottom line results to organizational resistance. Rather, they seem to be focused on implementation “maturity”, which is another way of

saying that the organization is using all the tools. Results indicate that there is a disconnection between the goals of lean practitioners a nd ma nagement; emphasizing tool adoption over results achievement. Woeppel is clear that the integration of TOC, lean, and six sigma create a more balanced approach. He suggests that using TOC to create alignment with the goal is useful. It allows CI managers to identify

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â&#x20AC;&#x153;Continuous improvement and business excellence are not something to be added to the work of managers; this is the work of managersâ&#x20AC;?

There is not a straight line from process excellence to financial performance

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Pinnacle Strategies the constraint, align the measurement system, and project deployment around the constraint. It also prevents local optimization conf l ic t s, ident if ies movement of the constraint, as well as stabilizing the global process with strategic buffers. Lea n methodolog y allows for the elimination of waste by articulating the value—what is important to the customer. It allows all parties to understand core processes, identify the sources of waste, and remove waste from processes. The result is a smooth flow which eliminates excess inventory and removes unnecessary steps and activities. Six sigma used in conjunction with lean and TOC is able to stabilize processes to create consistency, identify and

systematically remove the source(s) of process variation, as well as match the voice of the customer to the voice of the process., “It also allows CI practitioners to design robust processes with minimum variation and understand when there is a limiting factor or process capability,” adds Woeppel. Tools are important, but they are not as important as the core skill of leadership. Pinnacle Strategies’ data revealed that process management is twice as important when predicting customer satisfaction as when predicting financial results. Good processes are important to customers, but there is not a straight line from process excellence to financial performance. Companies may have happy customers, but unhappy stockholders. The lesson for

Thomas R. Cutler is the president & CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc. Cutler is the founder of the Manufacturing Media Consortium including more than 4000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling,

ma nagement and continuous improvement program directors is that the soft skills of leadership are very important to delivering results. The real leaders must be commissioning, guiding, and delivering real accountability to CI teams. CI and business excellence initiatives cannot be delegated to the ‘business excellence department’. “Leadership must be fully engaged in continuous improvement,” says Woeppel with urgency and conviction. “Continuous improvement and business excellence are not something to be added to the work of managers; this is the work of managers.” Implementing TLS deviates from a single theistic approach. It takes the best from many solutions. It is an integration of best practices and lessons learned.

and process improvement. Cutler is a member of the Society of Professional Journalists, Online News Association, American Society of Business Publication Editors, and Committee of Concerned Journalists. trcutler@trcutlerinc.com www.trcutlerinc.com

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A legislative mandate

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Systems Application Engineering

The Food Safety Modernization Act (FSMA) has shifted the focus from response to prevention, driving traceability and helping to increase food safety written by: Thomas R. Cutler

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u s i n e s s excellence is often driven by regulatory requirements. Left to their own devices, food manufacturers would rather handle safety challenges in a reactive manner. There is an inherent integrity that food manufacturers express…. after all, people could die if the food is contaminated. Michele Southall, an implementation director at the standards organization GS1 US, recently explained how the Food Safety Modernization Act (FSMA) is driving traceability and helping to increase food safety in all areas of the foodservice industry. “With foodborne illnesses affecting 48 million people every year, food safety is of paramount importance to consumers and companies in the food industry,”

Southall noted, “whether that be a farm, fishery, ranch, food manufacturer, processor, distributor, logistics provider, retailer or restaurant.” FSMA was signed into law on 4 January, 2011. In the nearly two years since it was signed by President Obama, it has shifted the federal focus from response to prevention. The law and consequences for violations have necessitated that food manufacturers establish a product tracking system; these processes must track and trace food as well as granting authority to use preventative tools. There are mandatory recalls included in FSMA as well as expanded access to records, administrative retention, and enhanced product tracing requirements. Healthcare Packaging recently suggested that the GS1 system of standards

“foodborne illnesses affect 48 million people every year” 42 | BE americas

should be used to improve visibility and efficiency in the supply chain. GS1 is based on the philosophy identify, capture, and share. The additional item level tracking requirements are detailed in the GS1 Foodservice Guidelines which recommend data acquisition through the scanning of GS1 case labels. According to Greg Braun, director with Houstonbased Systems Application Eng i neer i ng (SA E), “Traceability at a pallet level breaks down when residual cases are combined in a slot during replenishment or when returned product is reintroduced to the picking slot.” Braun’s firm developed the Selector Pro System which has built-in GS1 features for capturing date code and lot information at the time of pick, unlike many other technologies. Paperless picking and scanned-based validation are critical in compliance. Mobile case label printing, automatic distribution of orders and real-time floor management displays result in reduced selection errors. By increasing

Systems Application Engineering

The Food Safety Modernization Act (FSMA) is helping traceability and food safety

inventory accuracy, selector performance is improved. “Eliminating nonproductive warehouse labor is vital in lean efficiencies and cost containment,” says Braun. “Enabling realtime notification of product outages eliminates the need for order checkers.” The high cost of mis-picks The mis-pick rate of a leading food service company improved from 1:1,200 to an average rate of 1:12,500

Item level tracking requirements are detailed in the GS1 Foodservice Guidelines

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with some houses averaging much higher rates. This improvement resulted in labor cost reductions, eliminating order checking personnel. Case pick data improved from 120 cases per hour to 170 cases per hour and achieved an ROI (return on investment) in less than 12 months. Braun also referenced how a major food distributor was able to reduce training from weeks to less than a day; the same organization found that picking accuracy

improved 83 percent and an additional 6 percent since upgrading to voice guidance (a unique hybrid, multi-modal system that combines the benefits of voice direction and the wearable display to make food safety more verifiable and validated). Other SAE findings reveal a productivity increase of 16.32 percent and an additional 4.32 percent since upgrading to voice guidance. Other benefits included a dramatic

Systems Application Engineering reduction in shorts on trucks. This process improvement lean quality system continues to demonstrate an improved picking rate for one of the largest food service organizations, where the mis-pick rate improved from 1:2,500 cases to a company average of 1:22,500. Performance improved between 9 percent and 11 percent and training time required only a 10 minute overview class. The ROI was based on 1:5,600 mis-pick rate. Challenges of voice-only systems While voice recognition solutions have improved dramatically over the past decade, there is a sad truth that impacts quality and accuracy. “With voiceonly solutions,” says Braun, “accuracy decreases as the number of characters or numbers spoken increases, and memorization destroys the location verification scheme as check digits are memorized by selectors.” Product traceability is equally challenged by voice-only solutions; new legislative initiatives

How voice guidance actually works… • FSMA compliance starts with specific commands • Repeat – click the trigger once • Next prompt– click the trigger twice • Scan – click and hold the trigger down • GS1 support already built-in

for lot tracking increase recognition problems and are quickly becoming too time intensive in voice recognition only mode. Since most voice recognition systems run on a voice-only hardware platform (no display, keypad, or scanner) they lack the real-time display to guarantee accuracy. Even Mike Miller, s en ior d i re c tor of consulting services for Vocollect conceded, “Voice recognition is very critical. Even a one-second delay in understanding…can result in cumulative losses of time that can amount to…$400 to $2,500 a year per each worker.” Braun is adamant that there is a better solution. “Why tolerate recognition errors and costs when voice guidance eliminates them?” A single scan of case GS1

validates the Global Trade Item Number (GTIN), captures weight, and lot. GTIN is an identifier for trade items developed by GS1 (comprising among others of the former EAN International and Uniform Code Council). Such identifiers are used to look up product information in a database (often by inputting the number through a bar code scanner pointed at an actual product) which may belong to a retailer, manufacturer, collector, researcher, or other entity. The uniqueness and universality of the identifier is useful especially across organizational boundaries. Systems Application Engineering holds many patents in voice guidance and Braun explains, “This hybrid combination is the best of both technologies, providing voice guidance

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â&#x20AC;&#x153;With voice-only solutions, accuracy decreases as the number of characters or numbers spoken increasesâ&#x20AC;?

SAE has a proven record for delivering high quality systems and support to keep food companies strong and consumers safe

46 | BE americas

Systems Application Engineering for heads-up navigation and instruction, scan slot or (UPC/GS1) barcodes for product verification, as well as catch weights and lot tracking purposes.â&#x20AC;? This hybrid can be operated with or without a headset; wearable speaker is loud enough in most environments. The optional headset does not require expensive noise cancellation needed for voice-only solutions. Voice Guidance never has recognition issues; there are no repeats due to misrecognition (performance delays). A direct cost-saving is realized because no voice training is required nor learning the phonetic alphabet. Employees prefer this solution because it eliminates selectors speaking to the system all day, while scan validation ensures accuracy, eliminates

1:22,500 Mis-pick rate after implementing voice guidance

memorization, and enables catch weight scanning and lot tracking. When a GS1 barcode is scanned, all the application identifier information in the barcode is retained, including the lot number. If the lot number is contained in a separate bar code label it must be scanned separately. If more than one item is to be picked, and the item requires lot tracking, each case must be scanned or lot number manually keyed. If the lot numbers cannot be scanned, there is the option of keying the number.

FSMA is driving action. Compliance (and the cost of non-compliance) is forcing food manufacturers and distributors to follow the rigor and rules spelled out clearly in the new law. Yet every week, sometimes every day, there is another news story about food contamination in the supply chain. Companies are relying on the technology experts, the pioneers of hybrid voice systems on open platforms. Only these leading companies understand the critical need to offer more operational modes. Braun points to number of patents granted by the US government and the forty year history of SAE as the proven record for delivering high quality systems and support to keep food companies strong and consumers safe.

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Chinaâ&#x20AC;&#x2122;s natural gas potential

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Energy

Can China overcome its geology and infrastructure problems to become the dominant force in natural gas? And can other economies benefit from the opportunities this might create?

written by: Chris Faulkner

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he world’s biggest energy user is also one of the world’s worst polluters, due to its heavy reliance on coal and oil. Though China is now also the world’s largest installer of wind turbines and the leading builder of nuclear reactors, it’s not enough to meet China’s unquenchable thirst for energy. In hopes of lessening its growing dependency on imported energy while increasing its consumption of cleaner energy, China is eagerly looking to the United States for guidance on shale gas extraction methods. There is much speculation about China’s potential for becoming a major player in the global natural gas market, with all eyes on the country’s potentially huge reserves that mostly sit untouched, just waiting to be exploited. A long and winding road Alas, nothing is simple when you’re talking about China. Supply is not the problem. Industry experts believe China holds the world’s

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largest shale gas reserves, with total recoverable shale gas resources estimated at 1,275 trillion cubic feet. Nor is desire the problem. China has introduced a range of new policies aimed at encouraging increased investment in research and development to unlock its vast reserves. The problem? Well, there are several. For starters, China has historically

hampered by hilly terrain. While the government is seeking foreign investors with the technical knowhow to exploit its reserves, China’s unique geology means that shale drilling technologies from other countries cannot be copied directly. It remains to be seen whether the large state-owned oil companies will kick in with the necessary investments to

“Industry experts believe China holds the world’s largest shale gas reserves” been a country closed to foreign energy investors and developers, and its own oil companies have been reluctant to invest at the level necessary to attack some of China’s other problems: geology, infrastructure, land access and water shortages. China’s geology poses technological problems unique to the shale gas industry, with most reserves fully twice as deep as those in the US and further

fund development of their own drilling technology. China is also hobbled by a lack of proper infrastructure. Its fragmented pipeline net work, processing and storage facilities are not currently capable of handling the potential volume promised by its reserves. As much of China’s natural gas reserves lay far below mountainous terrain, developing technology for the deep reserves isn’t the

Energy Gas containers in Hong Kong

only obstacle. Typically, oil companies must construct new roads, bridges, and other infrastructure for largescale drilling operations. Additionally, China suffers water shortage issues, which could impact its ability to reach shale reserves using the fracturing methods that require large quantities of water. In February of this year, China issued a warning about its worsening water problems. The government has issued strict water consumption restrictions

and has heavily invested in water conservation systems, but these measures have done little to curb growing demand for water in the world’s second-largest economy. Complicating matters has been China’s difficulty in keeping its water sources free of pollution, despite increased monitoring and additional measures to protect its water. In light of China’s water issues, it should be no surprise that China is no exception to environmentalists’ concerns

over unconventional drilling techniques. Along with the high water requirements, critics worry about potential drinking water pollution from chemicals and byproducts of hydraulic fracturing, as well as the release of methane gas. Such concerns have led to bans on hydro fracking in France and ongoing efforts to increase regulation in other countries. Following standardized best practices will help China minimize the environmental impact, but increase production costs.

Jiangxi Province, China. Drilling will be difficult due to China’s diverse geology

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Energy

“China’s unique geology means that shale drilling technologies from other countries cannot be copied directly” A journey worth taking Aside from the huge profit potential, China’s increased interest in tapping its vast reserves is fueled by its own initiatives aimed at lowering its greenhouse gas emissions. Natural gas was first used in China nearly 3,000 years ago, yet the country with the

largest natural gas reserves in the world has been powered by coal for many generations. In fact, China ranks as the greatest consumer of coal in the world. Even as China, the most populated country and largest energy consumer in the world, has sought to increase its use of natural gas, it still ranks 8th in the world in natural gas consumption, with the US and Russia topping the chart. The IEA in its latest report, Golden Rules for a Golden Age of Gas, recently noted the tidal change that’s about to upend those statistics: the IEA expects China’s natural gas consumption to grow by 13 percent per year, doubling by 2015 and trebling by 2030. By as early as 2013, the IEA says China could be the world’s third-largest natural gas consumer, behind the US and Russia. Ch ina’s projec ted consumption of natural gas far outpaces its projected production of

the resource—more than double by 2030. This is due not only to China’s growing consumption, but also likely due to the difficulty China faces in effectively extracting its natural gas reserves. As it stands, however, dozens of exploratory shale gas wells have thus far yielded disappointing

1,275

Trillion Cubic feet of estimated total recoverable shale gas resources in China results, so China is looking to more experienced foreign partners like Shell Oil to help unlock the resource. Earlier this year, PetroChina entered into the country’s first shale gas production sharing contract with Shell. Under the

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contract, Shell will share its shale gas technology with PetroChina. China is also courting private investment to underwrite infrastructure improvements, not only to increase domestic production, but also to gear up for increased imports. However, despite its

great need for foreign investment and technology partnerships, China has yet to offer incentives in the form of tax breaks or subsidies. As recently as March of this year, China imposed a “resource compensation fee” on both foreign and Chinese companies producing oil and

gas in the country. Foreign investors are also likely to worry about the possibility of nationalization after China’s hostile takeover of oil companies in 2005. China is investing in integrating its fractured pipeline network and plans to add nearly 15,000 miles of new

“China will require increased import options to meet its increasing need, and a number of other countries stand to benefit” 54 | BE americas

Energy

Drilling rig in china

pipe, but some analysts worry that the Chinese government is underestimating the time and cost required to make the necessary infrastructure improvements. China has demonstrated its patience in the past, however, foreseeing future opportunities and developments like a master chess player anticipating his opponent’s next seven moves. In the meantime, China will require increased import options to meet its increasing need, and a number of other countries stand to benefit. North

America, with lower prices and positioned to become a net exporter of liquefied natural gas, could be the primary beneficiary, but pipeline suppliers Central Asia and Russia, and LNG exporter Australia, will also profit. In August, China announced an investment in Cheniere Energy Partners’ planned LNG export

terminal in the US. Will China become one of the world’s top natural gas producers? The country’s complicated geology, infrastructure, and political landscape make it difficult to say, but China’s singular commercial and political solidarity has shown great strategic results in the past.

Chris Faulkner is the founder, President and CEO of Breitling Oil and Gas, an independent oil and natural gas company based in Irving, Texas. www.breitlingoilandgas.com

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QuickBooks

Small business excellence Finding the right technology fit for the multitude of small and medium sized businesses is not as complicated as you might think written by: Thomas R. Cutler

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mall and mediumsized enterprises (SMEs), or small and mediumsized businesses, (SMBs) are companies with personnel counts falling below certain limits. The abbreviation “SME” is used in the European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization (WTO). In most economies, smaller enterprises outnumber large companies by a wide margin. SMEs are said to be responsible for driving innovation and competition in most economic sectors. Standard Industrial Cla ssif ication Codes differentiate bet ween categories of industry. The SIC Code is a four-digit code the US government uses to show company sector specialization. The range

of products represented is vast, from fasteners to chemical manufacturing to computer manufacturing and cosmetics. The list goes on from electronics to playground equipment; agricultural equipment and machinery, to firearms. Finding the most effective technology solutions to handle such a wide variety of business practices reminds one of Goldilocks and the Three Bears. Goldilocks walked into the living room where she saw three chairs. Goldilocks sat in the first chair to rest her feet. “This chair is too big!” she exclaimed. So she sat in the second chair. “This chair is too big, too!” she whined. So she tried the last and smallest chair. “Ah, this chair is just right,” she proclaimed. It is indeed a challenge to imagine how inventory management of boat

“In most economies, smaller enterprises outnumber large companies by a wide margin” 58 | BE americas

QuickBooks can streamline inventory and order management

QuickBooks

manufacturers, HVAC installation and repair, and medical devices could be simply solved by a single solution. The industry sector nuances facing pharmaceutical manufacturers could not possibly be the same as plastic manufacturers. Technology solutions to fit sector requirements A more accurate indication of what these unique

m a nu f ac t u r i ng a nd distribution firms require is better found by employee size. According to the official United States Department of Labor, Occupational Safety & Health Administration (OSHA) description of SIC codes, more than 88 percent of all manufacturing and industrial organizations have fewer than 250 employees. Seventy-one percent of these companies have fewer than 100 employees.

So whether biking equipment or lighting equipment, food manufacturing or apparel, the need for technology solutions is better captured by the size, scope, growth, and complexity of the organization. In the United States, the Sma ll Business Ad m i n i st rat ion set s small business criteria ba sed on indust r y, ow nership str uct ure, revenue and number of

Inventory management can have a profound effect on the bottom line of many companies

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QuickBooks

â&#x20AC;&#x153;The need for technology solutions is better captured by the size, scope, growth, and complexity of the organizationâ&#x20AC;? employees (which in some circumstances may be as high as 1,500, although the cap is typically 500). Many millions of these small and midsized manufacturers started as home-based businesses

or in very small operating facilities. Many generate under $250,000 in gross annual revenues and have simply turned to QuickBooks by Intuit for most accounting f unctiona lit y. These companies are able to run business more efficiently and also use proven solutions that integrate with QuickBooks. For some of these very small companies the QuickBooks solution alone has been sufficient to streamline critical workflows, solve unique business needs like inventor y and order management, and permit the owner to work anytime, anywhere and still access data. QuickBooks owns an estimated 78 percent of the accounting software market. Analysts estimate there are more than 7.1 million copies of QuickBooks in use. By conservative estimates, more than 40 percent of

these organizations directly need or could strongly benefit from inventory control. Cost-effective lean solutions Fishbowl Inventory has been the most frequently

88% Proportion of manufacturing and industrial organizations with fewer than 250 employees requested inventor y solution for QuickBooks users for more than a decade. As small-tome d iu m compa n ie s grow and face increasing competition, the flexible cost-effective combination of QuickBooks and Fishbowl

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Capabilities QuickBooks Only† QuickBooks with Fishbowl Accounting methods Average costing LIFO, FIFO, standard & average and FIFO costing Barcode printing & scanning None Supported Bill of materials Assemblies Multiple levels and stages Consignment None Supported Displays work-in-process None* Supported Drop shipping None* Supported Locations Sites Multiple locations supported Manufacture orders Assemblies Assembly, disassembly and custom and work orders Multiple location part tracking Some (limited) More than ever needed Part tracking Lot or serial Serial, lot & revision #’s, exp. date & custom fields Product/kit configurator None Unlimited Remote access VPN only* Any network connection RMA None Supported Transfer orders None Supported User access rights Role-based Role-based and granular feature-based Variable pricing and Percent, amount Percent, amount & group and discounting cost-plus pricing Warehouses None Supported † QuickBooks Pro, Premier and Enterprise * Enterprise has some functionality for these features

grows alongside SMBs regardless of the industry sector. These smaller firms need the same kind of inventory management large organizations enjoy at a more affordable price. Too often SMBs, fearful of big price tags for technology solutions, stick with Excel spreadsheets, and even a roll of butcher paper and Sharpies to mark

62 | BE americas

the business flow. The misconception for many owners of these dynamic companies is the belief that as small organizations grow, they must spend significant sums of money or undergo the learning curve to move to a bigger accounting and inventory platform. M a ny c ompa n ie s , ranging from wholesale dist ributors, light

manufacturers and service c ompa n ie s , q u ic k l y discover the benefits from inventory software and mobile inventory management. Inventory management can have a profound effect on the bottom line of many compa nies, including ser v ice organizations and other traditional companies that have yet to

QuickBooks consider the possibilities of inventory software. As companies are under competitive pressure to produce more with fewer resources, the search intensifies to locate a practical choice and an ideal solution for achieving maximum efficiency and profit for minimum costs. Additional technology solutions often include a barcoding solution to generate a mobile warehouse, allowing authorized personnel to view and adjust inventory levels from any location. The cost of shipping the wrong product or the wrong amount of a product is simply too great. Whether shipping or receiving inventory from one location to another, increasing inventory accuracy and worker productivity are vital to the growth and survival of SMBs.

78% QuickBooksâ&#x20AC;&#x2122; accounting software market share

Advanced inventory ma nagement and manufacturing software is designed specifically for small and midsize companies with 10 to 200 employees; these are often the ideal candidates seeking an integrated solution stepping to the next level beyond QuickBooks. Annual sales frequently average $2 million to $100+ million and it is common to find multiple warehouses or production facilities, regardless of the industry sector or SIC code. While some of these SMBs start with just a handful of users,

typical users range from five to thirty employees using the inventory management solutions. Scalability is vital for rapidly growing organizations. The next level Often SMBs are not sure when to take the next step in technology. Waiting for production problems, delivery mistakes and outof-stock supplies means things are out of control. Waiting for disasters is not the ideal timing to select additional technology (yet is often what prompts a small business to take action). An evaluation of the conditions causing an SMB to jump from a QuickBooks solution to add-on solutions such as Fishbowl, are detailed in the table opposite. For more information visit: www.fishbowlinventory.com

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Hiring h

Rapid skills training and as be accepted for new employ skills gaps for m

written by: Tho

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Scientific Management Techniques

heroes

ssessment can help veterans yment opportunities and fill manufacturers

omas R. Cutler

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Photo by Ian Wagreich / ÂŠ U.S. Chamber of Commerce

The U.S. Chamber of Commerce partnered with the USA and Hire Heroes USA (HHUSA) for a Career Opportunity Day for wounded warriors

Scientific Management Techniques

ccording to the US B u r e a u of La b or Statistics the unemployment rate among veterans who have served on active duty since the 9/11 terrorist attacks was 12.1 percent, about a third higher than the rate for the civilian population. The average US veteran will take two plus years to f ind susta inable employment after leaving the US military. In the interim, these heroic citizens and their families can sink into severe poverty. “This employment gap between transitioning from the US military and gainful employment is one that must be filled,” urges Stephen Berry, president of Scientific Management Techniques (SMT). Many of these men and women face barriers to

employment, including service-connected disabilities. Obtaining the qualifications and training necessary to compete in high-demand industrial positions will increase the self-sufficiency and quality of life of veterans while filling a national employment gap. The Wall Street Journal estimated 6 0 0,0 0 0 h ig h-t e ch , manufacturing jobs remain open because employers cannot find qualified applicants. Military veterans face a significant communication gap with hiring managers when searching for jobs in the civilian workforce, according to the findings of a 30 May 2012, survey conducted by Monster. com. Veterans’ efforts to secure employment, are often a greater challenge because of the complexities associated w ith the

“WSJ estimate 600,000 high-tech, manufacturing jobs available”

transition from military to civilian life. Ironically the Monster. com poll suggested that most veterans leave the military with the skills necessary to succeed in civilian jobs but that an increasing number of employers sense that they are not fully prepared to do so. When the first survey was published in November 2011, 77 percent of employers questioned said they thought veterans were prepared for a civilian career; that figure fell to 39 percent by May 2012. Unique training solutions Manufacturers need skilled labor and veterans need good jobs. It can be an ideal fit if the training of these veterans can happen quickly and cost-effectively. Berry sees the skills crisis as very solvable by helping manufacturers assess, identify and train the best candidates, including returning veterans. SMT, a global leader in hands-on industrial skills assessment solutions uses industrial skills assessment

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SMT Standard Timing Model

SMT Electrical Skills Test Device

programs and training programs to improve workforce skills and drive productivity. Too often pencil and paper testing fails to provide an accurate assessment of the talents and skills employers require. Some potential candidates may test well on

paper, yet perform poorly on the job. The only surefire solution is the kind of hands-on testing to ensure skillsets are truly acquired. Often in conjunction with community colleges, this rapid training modality delivers skilled graduates into industr y. “The

demand-driven education program has been built with extensive feedback from industrial operations professionals regarding the specific skillsets they require to achieve their performance objectives,” suggested Berry. Ha nds- on t ra in ing

“hands-on assessments are the most effective way to transfer theory and knowledge into skills that can be used with fidelity” 68 | BE americas

Scientific Management Techniques

SMT PLC Skills Assessment Tool

requires that veterans use the same kind of equipment that manufacturers will require on the job. The Standard Timing Model (STM) is the mechanical skills assessment tool used to identify mechanical aptitude, skills, and instincts when hiring machine operators, electromechanical technicians, and ma intena nce mechanics. There are assessment tasks in varying deg rees of difficulty depending on the position being offered.

12.1% Unemployment rate among veterans in service post 9/11

Industrial skills assessments A validated, scientificba sed, d a t a - d r i v en process that accurately pred ict s ca nd idate success a lso a lig ns with the hiring process

using lean initiatives. Per f or m a nc e ba s e d â&#x20AC;&#x2DC;assessment machinesâ&#x20AC;&#x2122; that identify and measure skills, competencies, and trainability prove far better than traditional written assessment tests. Me ch a n ic a l sk i l l s assessments, electrical skills assessments, PLC skills assessments and CNC skills assessments are frequently needed for returning veterans. SMTâ&#x20AC;&#x2122;s Electrical Skills Test Device (ESTD) is designed to screen and train for

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industrial electricians and electro-mechanic production positions. The device provides a means of quantitatively screening candidates for industrial electrician positions, for use in evaluating job applicants, and as a grading device for training purposes. According to leading education expert Dr. Rich McGrath, “Demonstrations and hands-on assessments are the most effective way to transfer theory and knowledge into skills that can be used with fidelity and automaticity. Just as many elementary school children have IEPs (individual education plans), returning veterans have i nd iv idu a l i zed skills, challenges, and opportunities. The ability to accurately assess skillsets among returning veterans seek ing employ ment in the manufacturing

sector requires effective a nd proven testing methodologies.” As the skills shortage grows more acute each year and margin pressures mount, it’s more critical than ever to make the right hiring decisions. Berry insisted, “Industrial skill assessment machines and assessment protocols are used in the veteran hiring process for the selection and evaluation of maintenance mechanics, m ach i ne op erators, industrial electricians, PLC technicians, electromechanical personnel, and CNC operation personnel. Identifying skills prior to hire is the single most effective way to insure a quality hire and drive performance in manufacturing.” “Training programs, like ours, effectively eliminate the manufacturing skills gap by matching the skillset trained to with the critical

skills required for long-term productive employment in industry,” assured Berry. Wall Street Journal reporter James R. Hagerty reported that the unemployment rate among younger US military veterans, long a source of worry, is declining as companies step up efforts to

“Identifying skills prior to hire is the single most effective way to insure a quality hire and drive performance in manufacturing” 70 | BE americas

Photo by Ian Wagreich / ÂŠ U.S. Chamber of Commerce

Scientific Management Techniques

Hiring Our Heroes job fair

hire them. Even with these improved efforts, Hagerty reports many veterans are still struggling to explain the skills they learned in the military in ways that are relevant for employers, and the unemployment rate for younger veterans remains

well above the national rate for nonveterans. With proper assessments and training the tide is turning. The US Chamber of Commerce over the past 18 months has been organizing Hiring Our Heroes job fairs around the

country. So far, the chamber says, it has held about 300 fairs, at which more than 10,000 veterans and their spouses have found jobs. Heroes can be honored; they can also be gainfully employedâ&#x20AC;Ś.the greatest honor.

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A revolution in dust control Bruce Coulthard, president of PZS Stabilization, talks about the revolutionary dust control product PennzSuppress D

Product perspective: PennzSuppress D

Deep stabilization for M-1 tanks at a military training center

ust is a problem in many industry sectors, but it has not been tackled seriously until relatively recently. This could be because the industries concerned had other priorities, or because the ‘solutions’ available were either not effective, or too expensive. PennzSuppress D removes all the obstacles to cost-effective dust control, says Bruce Coulthard, president of PZS Stabilization. “PennzSuppress D is patented technology. It’s structurally superior, it’s 30-40 percent less expensive, and it’s the only prime coat approved by the EPA. I have not been able to find a comparable product in the marketplace, anywhere.” PennzSuppress D is based on water emulsified paraffin wax resin, which can be effortlessly applied using proprietary water trucks. It contains no damaging solvents or asphalts, so it is environmentally benign. It soaks into the surface layer where salts in the soil deactivate the oxygen, enabling the resin to dry and lock hard. “It does not wash away,” says Coulthard. “It has a crush rate of 600 to 700 tons which is exactly what is required for a mine road, compared to a crush rate of 30 tons for asphalt. It just requires a light maintenance application after 7000 vehicle passes.” Although PennzSuppress D is patented technology, it’s not a brand new product. What is new is the marketing effort PZS Stabilization is putting into it. It was originally designed, invented and patented by Pennzoil in the early 1990s for mining applications, but a series of ownership changes conspired to limit its accessibility.

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Road stabilization, dust control, timber industry northern California

PennzSuppress D was eventually acquired by American Refining Group (ARG) in 2002 after a divestiture required of Royal Dutch Shell when it merged with Quaker State. ARG limited its sales and marketing of the product to the northeastern United States, but it was never more than a nominal percentage of revenues and was peripheral to its core business. Coulthard was part of a small consortium that understood the product’s potential and believed it could offer a cost-effective solution to customers’ dust problems, delivering significant environmental benefits at the same time. PennzSuppress D is still manufactured by ARG in Bradford, Pennsylvania, but two years ago, PZS Stabilization was granted exclusive rights to market the product around the world by its new owners PennzSuppress Corporation. Chuck Johnson, President and Will Summers COO had the foresight and opportunity to acquire PennzSuppress in early 2011. Potential customers exist everywhere, so managing a global expansion program needs a deliberate strategy. You can’t go everywhere at once, can you? “We’re concentrating on South America and Australia at the moment,” says Coulthard, “with large mining companies and farming companies. I’m also dealing

“It has a crush rate of 600 to 700 tons which is exactly what is required for a mine road, compared to a crush rate of 30 tons for asphalt” 74 | BE americas

Product perspective: PennzSuppress D

Road stabilization and dust abatement for BNSF Railway, western US.

with the largest railroads in put into their water trucks, mix it four to one, and put the United States, and the it down properly. We don’t largest paving contractors, need to do the application to educate them about the ourselves. I’m focused on product. We are also moving Normal dilution rate getting the product to the into some of the largest military training centers in people, and educating them the United States, where they to apply it themselves.” are training with M1 tanks and Bradley fighting However, there is an application division in vehicles. We’ve given them a surface that is the US for customers who ask for a turnkey amazing. These are the same industries we operation when needed. Shipping direct is a major cost saver for are concentrating on now in other countries.” Product education is an important customers, says Coulthard. “It’s the most component of the exercise. PZS provides efficient way of dealing with it, logistically. the product, but the customer handles its We don’t want to have PZS Stabilization application. “We teach customers or their warehouses in every country, because it’s contractors how to apply the product,” says much more economical to ship direct. We Coulthard. “We sell the product for them to can be anywhere in the world within 30

4:1

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Railroad BNSF

“I’m focused on getting the product to the people, and educating them to apply it themselves” days, it is simple advance planning.” Although the normal dilution rate is 4:1 (water to product), it can vary in different conditions. “There was a saying in Pennzoil when this was first invented,” says Coulthard. “‘Dilution is the solution’. If you have a very hard surface, you can go to 8:1 or 10:1 instead of the normal 4:1 dilution rate. That adds more water so it can penetrate more easily into the road surface, so the resin will follow the water down and agglomerate.” PZS asks for a soil sample from most customers,

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to understand what their conditions are. “That means that when we give them a recommendation, it’s spot on. Their comfort level is our success level.” Success levels continue to break the sound barrier. Growth has been in multiples of five every month this year, and shows no sign of slowing down. It’s not a case of sell once and move on, however—far from it. Coulthard is determined to forge long-term relationships with customers. “I personally meet with every large company, wherever

Product perspective: PennzSuppress D

Deep stabilization for Iowa DOT

Deep stabilization for M-1 tanks military training center

I have to fly to around the world,” he says. “When people sit down with me for three or four hours, they’re hooked. Then we try to build long-term relationships. I want to be able to look the guy in the eye a year after he started using PennzSuppress and have the same warm relationship that we had in the beginning. It’s the key to success in our business model, for repeat business with that customer in another location, or for maintenance materials in the future.” The potential for further growth is limitless, he says, for something that actually works. “Dust control is coming to the forefront now because of the emphasis on corporate social responsibility,” he says. “People are tired of breathing dust. The mining industry is leading the way and the big mining companies

in the US and Canada have dealt with this problem already, but there are people in other countries and sectors who do not have access to PennzSuppress D, and we want to make it available to them. “PennzSuppress D is patented technology, plain and simple,” he concludes. “When a multinational company such as Pennzoil spends tens of millions of dollars developing a product such as this it makes our job much easier. Simply put, PennzSuppress sells itself!”

For more information about PennzSuppress D visit: www.pzsstabilization.com

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All systems go CEO Martin Walter talks about the advantages of the Goliath project and the progress being made towards production

written by: John Oâ&#x20AC;&#x2122;Hanlon research by: Dan Finn

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Treasury Metals

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n these tough economic times, it is hardly surprising that a great deal of attention is being focused on natural resources and any country lucky enough to have oil, coal or mineral reserves feels a lot more secure for that. Just how much can be derived from Canada is a matter for speculation, but thereâ&#x20AC;&#x2122;s huge interest in the known resources. A recent report1 focusing on just one district, northwestern Ontario, estimates the value of un-mined gold in those projects expected to be producing by 2017 to be, at the April price of $1,630 an ounce, at $6.2 billion. The price at the time of writing is hovering around $1,750, having come close to $1,800 in October. As a result Canadian federal and provincial authorities, not to mention investors, are paying close attention to the companies that have any chance of delivering those ounces to the market. High on the list is Treasury Metals, owner of the Goliath project in the Kenora district, close to Dryden. Treasury listed on the Toronto Stock Exchange in 2008, upon resolution of a somewhat complicated conflict of interests between Teck, Corona and Laramide Resources. The 50 squarekilometre property, containing 1.7 million ounces of gold, is a large prospective and relatively underexplored land position in Canada, a mining-friendly country with its well regulated and well understood regulatory framework. Much of Canada is remote and energy, manpower and accessibility can be a big cost factor; and with so many lakes and rivers, underground work is often difficult, too. Goliath is all on dry land, only a mile and a half from the

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Treasury Metals

A driller examines the quality of recently drilled core

1.7 million Ounces of gold at Goliath

Rory, a senior project geologist, planning drill holes on the TML property

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Trans-Canada Highway and served by power lines, water and gas supplies. These factors contribute to smoothing the passage of the project towards first gold production in 2014. “One of the beautiful things about our location,” points out CEO Martin Walter, “is that we can source everything needed for a project this size from either Dryden or Thunder Bay – all within 3-4 hours’ drive to the east.” Drilling and engineering consultants, sourcing of equipment and expertise – all these are readily accessible, he says. The energy with which Walter and his team have pursued this project is phenomenal. When Business Excellence last visited Treasury Metals in May, we commented: “The Treasury Metals management team takes a cautious approach, admitting that until the project has been the subject of a full feasibility study nobody can be absolutely certain it will be economically viable.” At that time Walter said: “We have some work to do, though now mainly on engineering design rather than metallurgy.” That work has moved ahead quickly since then. In July an updated preliminary economic assessment (PEA) confirmed that the project can achieve an annual production rate of 80,000 ounces

Treasury Metals

TML staff and management gather for a shot in front of the ‘swimming pool’; a sunken pit where the ore body arrives at surface

from the high grade resource of around 3 grams per tonne of ore, and that the average cost per ounce will be below $700. Since the PEA also confirms a mine life of ten years with capital payback within 18 months at July gold prices and an achievable capital expenditure to get the mine up and running of around $90 million, Walter is now going all out to get through the remaining steps without delay. The first of these is to commission a full feasibility study (FFS). A number of engineering companies have already submitted their proposals to deliver an FFS that will incorporate detailed mine design, plant specifications and

extraction processes. Whoever is chosen to carry that out, he says, will be working very closely with the professionals that make up Treasury’s team right up until the feasibility report is complete. In September Treasury Metals completed a bought-deal $6 million financing with Canaccord to fund further development. Through the financing, the company notably attracted high-quality institutional investors. All the money banked will go ‘into the ground’, since Treasury Metals is in the happy position of receiving $1 million each year from its interest in Goldcorp’s Cerro Colorado gold mine in Mexico. These

“One of the beautiful things about our location is that we can source everything from either Dryden or Thunder Bay – all within 3-4 hours’ drive to the east” BE americas | 83

royalties take care of a portion of the costs of the company, so in a rare scenario among juniors, investors know that the money they put forward is all used to add value to their asset. “The money we raised is earmarked for three principal purposes: getting the full feasibility study concluded as thoroughly and quickly as humanly possible, continuing

the drilling program and pushing forward our land acquisition strategy,” says Walter. They are wasting no time. The 16 kilometres that were targeted during 2012 turned up some very encouraging results, culminating in August with the announcement that it had revealed a new body of gold bearing ore associated with the main deposit and

“We live here too, and we want people to know that they will benefit in more ways than just through employment opportunities”

TML has developed a proposed site plan

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Treasury Metals

TML recently executed a strategic acquisition of two additional properties along the strike line

potentially increasing the amount of ore that can be reached by open pit mining in the early stages of the operation. It also focused on areas that merit more drilling, so a further drilling program along with infill and expansion drilling commenced near the end of October. By the time a revised resource estimate is published by Treasury Metals, the Goliath gold project should amount to more than two million ounces. And though Goliath is the priority, we should not forget that Treasury owns another gold project to the south of Dryden. Aerial and electromagnetic surveys were done there in 2011; an initial drilling program has already started there to find out exactly what lies below the surface.

The team is working on a Project Description Document. The PDD is the document Treasury needs to kick start the permitting period for ultimate production, explains Walter. “It describes the operation, the processing and extraction methods, tailing dams and storage dams and where the waste rock will be piled, as well as environmental efforts and the company’s consultations and information meetings with area stakeholders.” Towards the end of October, Dryden’s communities will have an opportunity to find out more details about the project and what Treasury Metals hopes to bring to this part of northwest Ontario. “We live here too, and we want people to know

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TML completed its 60,000 metre in-fill drilling program for 2010 & 2011; an additional 20,000 metres are planned for 2012

Treasury Metals that they will benefit in more ways than just through employment opportunities.” Direct and indirect employment arising from a Treasury Metals mine will have a big effect on the local economy, which needs to replace the traditional timber and pulp industries as these contract. The company could generate up to as many as 1,000 direct and indirect jobs. Additionally the environmental strategy being adopted will reassure the community that here is a company that is serious about clean mining. The PDD should be submitted this year and at that point the permitting process will start. Treasury Metals wants to own the land above the deposits as well as the mineral rights to be able to drill where it needs to, so this will be the final destination for part of the recently raised capital. Its newly acquired 160 hectares brings the company’s land holding on Goliath to more than 50 square kilometres. “Owning surface rights makes it much easier to explore and develop the project, and should also signal to all our many stakeholders that Treasury Metals is very serious about bringing this project to production,” says Walter. Mining in Northwestern Ontario: Opportunities and Challenges September 27, 2012 Commissioned by Ambassador’s Northwest, with support from the City of Thunder Bay, Thunder Bay CEDC, Thunder Bay Ventures, Thunder Bay Chamber of Commerce, Northwestern Ontario Municipal Association, Lakehead University and Confederation College of Applied Arts and Technology. 1

For more information about Treasury Metals visit: www.treasurymetals.com

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Galvanized into

Zinc, one of Nyrstarâ&#x20AC;&#x2122;s primary products, is vital to Am industrial regeneration, and one of the most reliable an grade sources comes from its underground mines in Te written by: John Oâ&#x20AC;&#x2122;Hanlon research by: Dan Finn

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Nyrstar Tennessee Mines

into action

mericaâ&#x20AC;&#x2122;s nd highest ennessee

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The Nyrstar smelter in Clarksville now has all of its ore supplied by the mines in Tennessee

Nyrstar Tennessee Mines

yrstar was formed in 2007 by combining the zinc smelting and alloying operations of Australian mining company Zinifex and Umicore, a Belgian materials technology specialist. The combination included a Zinifex zinc refinery located four kilometers southwest of Clarksville. The smelter was built in 1978 to handle the high zinc content, low impurity Tennessee Valley zinc concentrates, something at which it excels – and in any case it is the only primary zinc producer in the United States, with an established reputation as a supplier of quality high grade zinc and alloys. In 2009, Nyrstar announced its intention to become a mining as well as a processing company, to take advantage of rapidly improving zinc fundamentals resulting from, among other things, economic development in China. It is well known that China is continuing to ramp up steel production to satisfy its massive urbanization projects – and zinc is required to galvanize the structural steel components. The mid-Tennessee complex of three mines was accordingly acquired in early 2009 as a distressed asset of the former Mid-Tennessee Zinc Corporation. The complex of three mines was in a bad way. “The mine was completely flooded with little infrastructure in place,” says Craig Jetson, now general manager of Nyrstar Tennessee Mines (NTM). A few months later in December 2009 Nyrstar bought from Glencore the East Tennessee complex comprising a further three mines, 250

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WE DO M

At Oldenburg Mining, we’ve built our reputation by building rugged and dependable mining equipment that makes your mining operation safer, more productive and more proﬁtable. And we’re here to make sure your equipment ﬁnishes the job. WE DO MORE because our customers expect more from their mining machinery. 800.575.9619 | oldenburggroup.com © 2012 Oldenburg Group Incorporated

PROUD TO CALL NYRSTAR A PARTNER Remarkable things happen when innovators work together. Oldenburg Mining brings rugged machinery to the mine, so Nyrstar can bring resources to a changing world.

NYRSTAR TENNESSEE MINES

OLDENBURG GROUP Our Pledge to You Oldenburg Mining is proud to call Nyrstar a valued partner. That we share many of the same guiding principles is no coincidence. The values inherent in the 7 Elements of the Nyrstar Way are present in almost every facet of Oldenburg Mining. Both of our companies are deeply committed to our people, communities, products and environment. Our vision at Oldenburg Mining is singular: We strive to be the best as defined by our customers. The strategy for achieving this is straightforward. We emphasize the things our customers value most: purposebuilt machinery, smart designs, rugged dependability, short lead times, and superior parts and service support. As a partner of Oldenburg Mining, you can expect rugged, purpose-built mining machinery that is specifically designed to meet the unique needs of your mine. To us a smartly designed machine is one that helps you bolster productivity and maximize uptime. For instance, our hydraulic drifter uses over 50 percent fewer moving parts than conventional drifters, greatly reducing maintenance costs without compromising performance. You can also expect from Oldenburg Mining some of the best lead times in the industry, as we are able to fulfill many of our machine orders in 120 days or less. Your machinery is backed by a world-class service organization that’s ready to provide expert service and timely parts support. Our dedicated service technicians, many of whom are drillers themselves, work hard to keep your

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equipment running. From start up commissions to servicing machines two decades old, we never turn our back on an Oldenburg machine. Streamlining our parts support has been a top priority of ours over the last year, as we have implemented considerable resources to improve our ability to react to your needs. In partnering with Oldenburg Mining, you realize what it’s like to work with a mining equipment supplier that understands your challenges and goals. We strive to be the best in every element of our business because that’s what it takes to provide the products and service you deserve. Moving forward we will remain deeply committed to our people, community, products and environment. And we will continue to find new ways to help your mining operation become safer, more efficient and more profitable. That’s our pledge to you. www.oldenburggroup.com

OCTOBER 2012 | 1

Nyrstar Tennessee Mines

When the mines restarted in 2009, they had a handful of employees. Today, they employ nearly 1000

miles to the east of the Clarksville smelter, and NTM was established. All six mines are underground operations at a similar depth of some 1,200 feet, though the ore bodies differ considerably in their geology and physical characteristics. They are very much focused on the zinc ore for processing by the Clarksville plant, which now has its entire capacity supplied by NTM.

There are no current plans to increase capacity at Clarksville, he adds, though the smelting plant is currently assessing the business case for extracting a by-product of the ore. Germanium is in demand for optics and electronics, and is found in the ore yielded by Middle Tennessee though not at East Tennessee. NTM is also looking at introducing operational efficiencies, in common with

“We have a range of lean production, or de-bottlenecking processes, using a program we call ‘operational excellence’” BE americas | 95

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Nyrstar Tennessee Mines all Nyrstar operations. The DUX Machinery Corporation commissioning in early DUX Machinery Corporation is a Canadian manufacturer 2011 of a new oxide washing of underground mining equipment. With over 40 years of facility eliminated the need experience, DUX products are designed to meet the needs to import oxide materials of mining and tunneling projects worldwide. and has allowed the smelter DUX offers a full range of underground mining equipment to treat local North American including: • Haulage Trucks (dump, teledump, ejector) • Scalers sources of material. • Remix trucks • Cassette systems • Maintenance trucks If Middle Tennessee has • Personnel carriers • Boom trucks (AN/FO, emulsion) grown from a standing start, • Scissor lifts East Tennessee has been no All DUX trucks come with on-site commissioning by less successful in ramping factory technicians and intensive training, as well as fast up to full production. parts service and technical back-up through a worldwide Current production rates network of distributors. www.duxmachinery.com have been reached in a number of ways and East Tennessee is now producing at a rate beyond any achieved by previous owners, says Jetson. “We have done that through a range of lean production, or de-bottlenecking processes, using a program we call ‘operational excellence’.” Working with the Brazilian consultancy Instituto Aquila, Nyrstar has been able to improve its grades, increase throughput, de-bottleneck its processes and improve its planning and production methodology, he says. “The result of the operational excellence program has been that in the fourth quarter of 2012 East Tennessee is meeting production rates we had planned for 2013, and there have been significant increases at Middle Tennessee too. We are going to stabilize the business over the next twelve months at those numbers.” NTM is a single business made up from six separate mines. The mindset of the company, which is global, is to Operating machinery

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share best practice across all operations. In Tennessee this is put into practice by spreading management responsibility across the six mines with Jetson himself and his safety, HR, finance, mine technical services and engineering managers traveling between sites and only the two operational managers at Mid Tennessee and East Tennessee staying put. The company’s balanced business

strategy (BBS) is a five-year rolling strategy that throws out a yearly detailed plan as to how targets are to be reached, using what he describes as ‘mining for value’ methodology to improve Nyrstar’s bottom line. “We are looking at things like equipment reliability, cycling times for equipment, traveling times underground, hoisting times, changes of shift, improvement in capacity of equipment, incremental growth in mining

“We are looking at things like equipment reliability, cycling times, traveling times underground, hoisting times, changes of shift, etc”

A pair of thickening tanks at the Middle Tennessee mill, with the conveyer belt that routes the agricultural lime to its storage area

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Nyrstar Tennessee Mines

Inside the Gordonsville mill

capacity – we also looked made public in the report at mine plans and mining and resource statement methods; changing our due to be published at the mining plans significantly start of 2013. to make underground Another way of getting Nyrstar employees at the mining more efficient than the most value out of a Tennessee mines it was in the past.” mine is ‘remote mucking’ Mining can be in which Nyrstar uses sustained from current fully automated loaders to resources at current rates for at least remove ore that couldn’t previously have five years – but in practice it will go on been safely reached. “We use remotely for considerably longer. An aggressive operated equipment to reclaim ore drilling program through the remainder from areas that were closed down many of 2012 and throughout the following years ago.” Equipment availability has year is aimed at extending the resource increased by 22 percent; consumption of and upgrading inferred classifications everything from tires to explosives and to proven – a revised assessment will be fuels has been optimized, he adds.

950

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Nyrstar already supplies ten percent of the industrial zinc requirement in the US

Nyrstar Tennessee Mines When the mines were purchased in 2009 they sustained just 30 employees. Today more than 950 work in them, many of them never having worked in a mine before. The impact on the community in mid-Tennessee has been dramatic – when Nyrstar came on the scene regional unemployment stood at 13.2 percent, now it is about seven percent, less than the national average. But this has placed a burden of training on the company. “We are very proud of our safety performance,” says Jetson. “Some of our mining operations have gone for more than a year without an LTI (lost-time injury) which is an impeccable record in this industry.” After a long checkered history these mines in Tennessee face some stability at last under the ownership of Nyrstar, which is good news for the employees, too. It is typical of mining that an asset will operate happily when prices are high but go into mothballs when they fall. “We have a good mining plan that we are turning into an efficient and effective production plan. We are managing the business so we can achieve operational value at a range of different zinc prices.” So, a lot less uncertainty for the community and a sustainable business for the longer term. The business is well on track for ISO 14001 accreditation by 2014 – and already supplying ten percent of the nation’s industrial zinc requirement. For more information about Nyrstar Tennessee Mines visit: www.nyrstar.com

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Orbite Aluminae

The impossible,

made possible How one company is revolutionising the way in which alumina and other high value materials are recovered from the earth written by: Will Daynes research by: Daniel Finn

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e it its breath-taking natural beauty, cultural diversity or its rich heritage that still resonates through a predominantly French-speaking population, there is much that the world already knows about Canada’s largest province, Quebec. What is perhaps less well known is the fact that Quebec holds the distinction of being the world’s third-largest producer of aluminum, behind China and Russia. Running along the south shore of the Saint Lawrence River, Quebec’s Gaspé Peninsula is the home of the Grande-Vallée property, a large aluminous clay deposit boasting a conservative estimate of one billion tonnes of indicated mineral resources in the first 100 metres of depth in one sector alone, as defined under NI 43-101. It is here that one Canadian company can today be found using state-of-the-art technology to revolutionise the industry. “Technology,” explains Richard Boudreault, president, chief executive officer and director, “is what sets Orbite Aluminae apart. Fundamentally, we are a cleantech company that is striving to make the unobtainable available.” The technologies used by the company for producing smeltergrade alumina from aluminous clay are widely recognised as the best and most environmentally sustainable to replace a significant portion of the higher-cost alumina that smelters across Quebec import annually. “When we extract clay from the ground,” Boudreault continues, “over 99.9 percent of the material in the deposit is turned into a sellable product or steam, whether it is

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Lava laboratory

Orbite Aluminae

alumina, pure silica, magnesium or rare earths.” Producing high-purity alumina is another of the company’s foremost concerns. This hugely in-demand material is used to manufacture LED lights and is found in all sorts of electronic devices including lithium ion batteries. Another element that is becoming of increasing importance is scandium. Generally used as a catalyst, scandium has a high potential for use within the aluminum and the electrical fuel cell industries. Perhaps more importantly, it is a material that, when combined with aluminum, becomes a part of a hexagonal crystalline structure that possesses similar structural, electrical and thermal qualities as titanium, but at a fraction of the cost and weight. “Aluminum-scandium is definitely going to become the next big thing in the aluminum industry,” Boudreault says, “because it is very likely to impact the aluminum-lithium used around the world within the next five years.” Until now, the fact that scandium has only been produced in a small region of Scandinavia and Russia in soviet-era mines made this future scenario look impossible. Now that Orbite Aluminae has access to this once unobtainable material it expects to produce enough scandium to meet pent-up global demand. Across the planet, alumina is becoming

more difficult to extract as the sources of high quality bauxite are being depleted. Good sources of bauxite are characterised by having a minimum amount of silica present. When dissolved in a caustic solution, silica combines with aluminum and iron, binding solidly to become red mud, a highly toxic waste product of the 125 year old Bayer process. Typically, for every tonne of alumina recovered, two tonnes of red mud is produced during the Bayer process. Increasingly frequent accidents involving

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Orbite Aluminae

Aluminous clay deposit

red mud have blighted be converted into alumina,” many countries, destroying Boudreault enthuses, “it lives and the environment also allows for the recovery in the process. of other materials such as Orbite Aluminae has scandium, gallium and rare Of clay deposit material therefore developed its earths during the recycling turned into a sellable own red mud remediation loop. This recovery process product process using hydrochloric has been so successful that acid. After reacting with the we will soon be in a position acid, rather than bind with to produce the equivalent the aluminum and iron, the silica which is of the world’s total annual production not soluble in hydrochloric acid, falls to the of gallium from just one of our facilities in bottom of the mixture and is filtered out, that same time period.” avoiding the creation of red mud. In this Orbite Aluminae’s red mud remediation unique technology, the acid is recycled at programme follows the same principle over 99.75 percent and reused in the process. that exists throughout the company and “Not only does our process enable that is making the most out of the material virtually all of the aluminum present to in the ground. What it plans to do now is

99.9%

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introduce this concept to the wider world by exporting and licensing its technology outside of Canada. The question this does beg however is, why would Orbite Aluminae want its competitors to gain access to its technologies? The answer is surprisingly simple. “In the very near future,” Boudreault says, “we expect to see the costs associated with transporting alumina to outweigh the

price of alumina itself. When that happens, producing alumina locally will be a much more sensible option.” With the demand for high purity alumina soaring, Orbite Aluminae is already being challenged to increase its anticipated production levels. In order to meet this demand, the company is currently in the process of constructing its first, of what it expects to be several, high purity

“With ten of these SGA plants we would be able to provide 50 percent of the alumina imported into Quebec”

Orbite products

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Orbite Aluminae

Ground breaking ceremony, HPA plant

alumina plants, which is expected to be commissioned by the year’s end. “The HPA plant will bolster our financial resources needed to take the business to the next level, which is the building of our first $500 million smelter-grade alumina (SGA) plant,” Boudreault states. “With ten of these SGA plants we would be able to provide 50 percent of the alumina imported into Quebec. Furthermore, we will make available high quality separated rare earths, rare metals and other strategic materials from a reliable and sustainable source. We expect the first of these plants to be operational in late 2014.” “Apart from producing alumina and high-value by-products, the market is

only now starting to recognise the waves being made by our red mud remediation programme,” Boudreault concludes. “On another front, we have also shown that we can treat fly ash generated at coal-fired power plants in our process to recover the alumina and other high value elements it contains. This is another way in which we are essentially turning garbage into plough share and is just one of many exciting developments we plan to bring to the global market in the near future.” For more information about Orbite Aluminae visit: www.orbitealuminae.com

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A project in its prime

Ron Tremblay, president and chief executive officer, discusses the progress of the Cordero Project in Mexico and the exciting future ahead for this high value asset written by: Will Daynes research by: Daniel Finn 110 | BE americas

Levon Resources Ltd

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lthough gold and silver mining in Mexico predates the conquest of the Spanish, it was the arrival of Hernando Cortez in 1521 that sparked the lucrative exploitation of these precious metals. Today Mexico remains one of the worldâ&#x20AC;&#x2122;s largest producers of these minerals and is recognised as a major

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destination for companies targeting exploration opportunities. With the goal of becoming a mid-tier exploration company with economic mineral resources, Levon Resources can today be found drilling at the Cordero Project. A 20,000 hectare porphyry belt in north-central Mexico, 100 percent owned by the company, Cordero offers the potential for multiple, bulk tonnage open pit deposits.

Levon Resources Ltd

Drill rig working on the Cordero Project

“Having identified the project in January 2009,” explains Ron Tremblay, president and chief executive officer, “we quickly recognised the potential value of the property and set about cutting a deal to spend $1.25 million over four years in order to gain a 51 percent holding.” While a part of this deal meant a $250,000 first year commitment, Levon Resources would in fact spend the full $1.25 million in the

first 12 months, before swiftly buying out its partners in an all-share transaction for the remaining 49 percent. In the time since, the company has advanced the project by leaps and bounds, taking it from nothing to approximately 450 million ounces of silver, 1.2 million ounces of gold, eight billion pounds of zinc and close to 4.5 billion pounds of lead, and counting. “What we have right now,”

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Tremblay continues, “is a property with a net present value of somewhere in the region of $8 billion.” The preliminary economic assessment carried out by the company was at $25 silver, whereas today it is trading at over $35 and probably on its way to $50. “With a published figure of 450 million ounces of silver,” Tremblay highlights, “it means

that for every dollar that the price of silver raises, we are looking at a net present value increase of $450 million. At this rate, every time the price of silver increases it is adding a tremendous amount of value to the project.” At present the company finds itself in the middle of advanced metallurgy and, with $54 million in the bank, in a very healthy

“What we have right now is a property with a net present value of somewhere in the region of $8 billion”

Cordero core shack

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Levon Resources Ltd

The Cordero project geological team

position. “With the market mining sector. In a sign that being relatively weak at other parties recognise what present,” Tremblay says, it has in Cordero, Levon “a number of attractive Resources has already signed confidentiality opportunities are continuing agreements and standstill to fall onto Levon Resources’ plate.” As the company grows agreements with nine major Published ounces it is continuing to negotiate mining companies. of silver several other projects that Meanwhile, the company it feels can become worldis looking at the possibility class opportunities that will of bringing cash flow into add tremendous net present value. the company through other potential assets Making such a major, world-class that would be relatively easy to operate. As discovery, as Levon Resources has in a part of this strategy it has been steadily Cordero, naturally places a company in bringing more operational expertise into the spotlight and consequently draws the the fold. Carlos H. Fernandez Mazzi, for attention of the major players within the example, has recently been brought into

450

million

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â&#x20AC;&#x153;We continue to move forward, advancing the metallurgy to pre-feasibility and exploring other areas of the propertyâ&#x20AC;? the company as its director of project development. One of the men responsible for the building of the San Cristobal silver mine in Bolivia, Mazzi helped oversee the massive infrastructure programme that was required to bring that particular project into production.

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In applying for an updated permit to advance the project further, the company was required to have an environmental assessment of the property carried out. The subsequent review, which took several weeks, came back with no issues recorded whatsoever. â&#x20AC;&#x153;Vic Chevillion, Levon

Levon Resources Ltd

Moving the large water drilling rig onto the property

Resources VP of exploration, possesses nearly 40 years of experience of working for major mining organisations,” Tremblay enthuses, “and as such, he endeavours to run the project in exactly the same way that any one of these major players would. We are a very particular company and with Cordero we run a very clean, neat project, while constantly striving to be responsible neighbours and partners of the environment and the surrounding community.” Despite the incredible strides the company has made with the Cordero Project in less than four years, the underlying message running throughout Levon Resources is that

it needs to walk before it can run. “While the company has brought together a team that is more than capable of operating a major mining project,” Tremblay says, “our goal initially is not to become the operator of a large mine. On the contrary, we feel that a major mining company would be better positioned to operate a large, world-class project like Cordero.” When it comes to the immediate future, the company continues to de-risk the property and add value to make it all the more desirable for a major player in the sector to potentially come in and take it out. “This is not something we plan to

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Drillers preparing to remove a core sample at Cordero

Levon Resources Ltd

$8 billion Net present asset value

sit around and wait to happen mind you,” Tremblay says. “We continue to move forward, advancing the metallurgy to pre-feasibility and exploring other areas of the property.” Away from Cordero, Levon Resources is actively seeking other opportunities to add value to the business, specifically targeting potential projects where it can invest several million dollars in order to create a huge return value. Naturally, this is easier said than done, but the level of experience and vast number of contacts the company’s management team have built up over the years has allowed it to pinpoint such opportunities. “In Cordero, we have spent $25 million to date and have built up an $8 billion net present asset as a result,” Tremblay concludes. “This achievement alone shows that we are in a very good place and now is the time to take advantage of this and leverage our cash position into massive net present value assets that will ultimately be realised by our shareholders.” For more information about Levon Resources Ltd visit: www.levon.com

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Walter Energy

Irreplaceable Dan Cartwright, president of Walter Energyâ&#x20AC;&#x2122;s Canadian operations, talks about developing reserves of a material that society can neither do without, nor replace written by: Alan Swaby research by: Dan Finn

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Walter Energy

Truck being loaded at Brule

rospecting for natural resources is such a hit and miss affair that finding anything must come as a great relief. When new deposits of coal are found to consist of metallurgical rather than thermal grades, however, the champagne really starts to flow. “At the moment, iron and steel can only be made with the coke that comes from metallurgical and pulverized coal injection (PCI) coal, which makes it a very valuable, long term asset,” says Dan Cartwright, president of Walter Energy’s Canadian operations. The three mines in northeast British Columbia, operating under the Walter Energy banner, are located between the towns of Chetwynd and Tumbler Ridge, some 425 miles north of Vancouver. Walter Energy completed the $3.3 billion purchase of Western Coal in 2011 and set about optimizing the mines’ performance. When the sale was made, Western had proven and probable reserves of 140 million tonnes and output in 2010 measured 2.1 million tonnes. In the first year of Walter Energy’s regime, Western’s production doubled to 4.2 million tonnes and since the appointment of Cartwright earlier this year, the mine has even more ambitious production targets. “It’s been something of a roller coaster ride,” he says, “with demand driven largely by China – and also prices.” The talk now, though, is that inflation in China is once again under control and the brakes that had been applied to slow the economy down

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Walter Energy are being released. “This year we will probably see a SMS Equipment is one of Canada’s leading providers of total output of 4.6 million equipment solutions and services for the construction, tonnes which will gradually forestry, mining, and utility industries. To help increase to 6 million over customers meet their needs, SMS has established the coming few years, and alliances with suppliers around the world. SMS we plan to be producing 10 Equipment is a full-line distributor of heavy industrial equipment and offers a variety of services at their million tonnes by 2020.” branches located throughout Canada. The Canadian operations www.smsequip.com are welcomed by customers as a reliable alternative to the world’s major coal supply areas and Walter’s Canadian output has been adopted as a key blend in half of the world’s ten largest steel mills. As well as hard coking coal, Walter also mines ultra-low volatile pulverized injection coal. Pulverized coal injection has been known since the 19th century but only entered commercial production less than 50 years ago when demand caused the cost of coke to jump. It is a technique that allows for cheaper coal to be used and in turn, reduces costs. The three projects in Canada are all relatively new and at various stages of development. The most advanced is the Wolverine mine, which has been in production for five years. Brule is a couple of years behind and Willow Creek is in the latter stages of development.

SMS Equipment

$3.3 Billion Purchase of Western Coal in 2011 Warren McDonald at Willow Creek

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The geology is complex and produces another kind of roller coaster ride. In certain places, the coal seam breaks through the surface of the ground only to dive away again to depths of 100 metres in other spots. All along the seam there are faults to be contended with. This part of British Columbia is deep in the Rocky Mountains and of outstanding natural beauty, providing a paradise for the fishing and hunting community. As such there is even more onus on Walter to carry out operations with the utmost environmental sensitivity, making careful mine planning key to both increasing productivity and taking care of the surrounding countryside. “It’s a surface mining operation,” explains Cartwright, “but that doesn’t mean it’s as

Walter Energy

Willow Creek south view

simple as just following the seam. The quality characteristics of the coal vary from point to point and it’s necessary to blend different grades to meet customers’ requirements. It becomes a complex juggling act to keep trucking distances short while making sure that reclamation takes place as swiftly as possible.” Walter Energy is a US company based in and around Birmingham, Alabama. Its other

mining interests tend to be in the tail end of the Appalachian Mountains. As such, Walter had had no dealing with representatives of Canada’s First Nation population, yet seems to have developed good relationships. “We work very closely with the First Nation peoples,” says Cartwright. “Their requests are reasonable and straightforward. They want us to put the land back to what it was before mining began, to provide them

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job opportunities and to give as many opportunities as possible to develop First Nation owned businesses that can be sustained beyond the life of the mines.â&#x20AC;? The local people have been caught before by sharp practices when restoration of the land resulted in grass mountains rather than slopes covered by trees and other native vegetation. So part of the deal at Walter is the development of a greenhouse

business as a joint venture with the First Nation bands where seedlings of native plants are being grown and nurtured ready for replanting. The location of the mines is fortunate in that they are within 20 miles of two established communities. In total, Walter employs around 1400 staff, more or less equally divided between the three sites and of these, about 20 percent are First

â&#x20AC;&#x153;We have introduced new working practices that make the sites safer and new technology to keep a real time eye on how equipment is functioningâ&#x20AC;?

Laura Avery at Willow Creek

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Walter Energy

Truck carrying coal at Brule

Nation people. It’s always difficult on capital intensive projects like mines to be able to purchase very much from local suppliers, but Walter does what it can in this respect to bolster local businesses. With known reserves, the mines have a maximum life of 12 years so Walter is spending heavily to find new reserves. As well as prospecting in its own territory, Walter is in a 50/50 joint venture with Anglo in an adjacent block which could produce five million tonnes a year (Walter’s share) for the next 20 years. In the meantime, the emphasis is on making the current mines more efficient. “This really means working smarter,” says

Cartwright. “We have introduced new working practices that make the sites safer and new technology to keep a real time eye on how equipment is functioning. It’s about taking out unpredictability from the way we work, which in turn means a lower cost structure that will allow us to benefit from the lower portions of the market cycle. This will provide better job security for our employees and work for the benefit of all our stakeholders.” For more information about Walter Energy visit: www.walterenergy.com

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Canadaâ&#x20AC;&#x2122;s coal

Westshore is far and away the largest coal terminal in Ca than the combined capacity of other ports on the North Am

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Westshore Terminals

l cornucopia

anada handling more merican west coast

written by: John Oâ&#x20AC;&#x2122;Hanlon research by: Dan Finn

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f Denis Horgan, VP and general manager of Westshore Terminals, has a few problems, they are mainly high class problems. Westshore stands in a privileged position in the North American coal value chain, which is characterised these days by a slackening in domestic demand balanced by a healthy export market. Coal falls into two main categories – thermal coal burnt to produce energy and the higher spec coking or metallurgical coal needed to produce steel. Both are badly wanted by countries like China, which shifted from being a net exporter to a net importer of coal in 1995, or Korea and Japan, two steel producing countries that have little in the way of domestic resources themselves. Canada, particularly the provinces of British Columbia and Alberta, has enormous coal resources – between them the Peace River and Kootenay coalfields alone are estimated to hold more than two billion tonnes. Westshore’s largest customer Teck has six operating coalmines in the region, and expects these to be producing for 25 years as a minimum. At present rates of use Canada has 200 years of coal reserves. Then there’s the United States. Forced to export more of the coal from its western coalfields in Wyoming and Montana it has no really viable coal ports on its western coastline from which to ship coal to Asia. Westshore, though, is just over the border and easily accessible by rail. Westshore Terminals is 42 years old this year. It is one of a handful of profitable standalone coal terminals in the world – most are owned by shipping groups or

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Three major railways serve Westshore including Canadian National

Westshore Terminals

Seen

vincent@bus-ex.com

Westshore Terminals

Both of Westshore’s deep sea berths will be kept busy in the last quarter

governments. The facility covers 133 acres $49 million equipment upgrade in 2007 on a man-made island at Roberts Bank pushed capacity up from 23.5 to 29 million out in the delta just over 20 miles from tonnes per annum and a $53 million project Vancouver and is linked to the mainland by involving the replacement of the single a road and rail causeway. Six trains a day rotary railcar dumper with a new tandem dump their cargo which is transported by dumper together with other improvements high-speed conveyor to stockpile using one such as equipment automation and new of the four giant stackerredesigned transfer chutes, reclaimers Westshore has will increase the capacity to on site, although these days 33 million tonnes per annum around 30 percent of the by the end of the year. “We incoming coal is directed shipped more than 8 million straight onto ships waiting tonnes of American coal last at one of the terminal’s two year, mostly from Montana. deep water berths. We could easily ship a So what is the problem? further 20 million tonnes if Area of Westshore “We are turning away we had the capacity.” Terminals facility business,” says Horgan. A It is always heartbreaking

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Ships up to 170,000 tonnes can be loaded at Berth 2

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for a business to have to turn away so much potential income, but Westshore is approaching maximum efficiency as an operation, which is cause for congratulation. “Rail car dumping was our bottleneck, but following the installation of a new dumper and ancillary equipment, we are now more or less right-sized.” Some equipment could do with updating and upsizing – one of the older stackerreclaimers is 40 years old, but all four yard machines have been automated and can now be controlled centrally. The automation system followed has been used at Western Europe’s largest bulk terminal, the Rotterdam EMO (Europees Massagoed-Overslagbedrij) for the last eight years, he adds. Operations are driven by a rigorous continuous improvement (CI) philosophy that was an integral part of the debottlenecking operation. Drives, belting and gearboxes were upgraded, and in April this year four of the seven major transfer towers on the site were replaced. With ships booked in daily and the size of these ships having increased over the last five years to a point where 170,000 tonnes is commonplace, the pressure is on to process stocks as efficiently as possible. “Despite the pressure we have managed to operate without any significant delays over recent years,” claims Horgan. This is in contrast to Australian ports, for example, where ship queues are the bane of the bulk shipping companies. Historically Westshore has been primarily a shipper of coking coal, with thermal coal representing only about 10 percent of throughput. However over the

Westshore Terminals

MV Tanya loading at dusk at Berth 2

past couple of years shipments of thermal coal have increased dramatically with the advent of US coal from the Powder River Basin, to the extent that in 2011 thermal coal represented 40 percent of shipments through the terminal. Demand for coking or met coal is still strong and increasing, and in 2011 Westshore signed several long term agreements with its customers. In September 2012 the agreement with the biggest customer of all, Teck, was extended from 2016 to 2021. Under the new agreement Teck will ship between 16 and 19 million

tonnes of coal a year through Westshore, at a fixed rate per tonne and not at variable rates based on the sale price of the coal as in was the case prior to April 2011. Coal from each of Westshore’s customers has different characteristics and cross contamination is totally unacceptable – as Horgan explains. “Any mistake could be a million dollar mistake so we don’t make any! There are a lot of checks and balances in place.” Managing the storage and onward shipment reliably is a vital part of Westshore’s customer relationship and

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Westshoreâ&#x20AC;&#x2122;s fourth and newest monster Stacker-Reclaimer 44

Westshore Terminals is only one part of its good stewardship portfolio. Though it’s on an offshore island the terminal is only three miles from residential communities on the shore and there’s a vigilant environmental lobby ready to draw attention to any pollution Westshore might cause. “We spend a lot of time on dust control. Historically we have relied on rain guns and if it is going to be windy we wet the site down thoroughly.” Rain guns are rather like agricultural irrigation sprayers, mounted on the ground. They are augmented by five 125 foot spray towers within the stockpile area and 38 mast sprayers around the perimeter. Bulk ports the world over are moving toward greater equipment automation, where remotely-operated machines, such as stacker-reclaimers, are becoming the norm. Westshore, says Horgan, will continue to embrace these advances so that it can remain competitive as Canada’s premier coal export terminal and the busiest single coal export facility in all of North America. The company is a member of CETOA, the Coal Exporting Terminals Operators Association, an international body that shares best practices and innovations. At its latest meeting in Norfolk, Virginia in late September Denis Horgan was not short of best practices to share with other operators from America, Australia, South Africa, Indonesia and Colombia. For more information about Westshore Terminals visit: www.westshore.com

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Xstrata Technology

A SLOW

GRIND

Mineral Processing Manager Greg Rasmussen talks about the role of one of the leading exponents in new mining technology in the introduction of new ideas to the industry

written by: Alan Swaby research by: Robert Hodgson

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IsaMill in use at Anglo Platinum mine in Amandelbult, South Africa

Xstrata Technology

alph Waldo Emerson promised that if we built a better mousetrap, the world would beat a path to our door. It’s a common theme, though, within the mining industry, that customers aren’t so easily weaned away from the technology they know and love. Xstrata Technology can trace its roots back for over 30 years and many of the new technologies it has developed have been wrought and tested at Xstrata-owned mining sites. Many of its brand names carry the ‘ISA’ prefix – testimony to their origin at Mt Isa, one of Australia’s most successful mines. It’s now the job of Greg Rasmussen, Mineral Processing Manager for Xstrata Technology Canada to spread the message throughout North and South America from his office in Vancouver. “Xstrata is first and foremost a mining company,” he says. “The 70,000 strong workforce is divided between six operational divisions and 75 mining and smelting plants with interests in base and precious metals and coal. But through Xstrata Technology, we have no problem in marketing our processing advantages to what are essentially competitors. The technology is there to create greater productivity and efficiencies to serve society as a whole. And from a practical point of view, the more feedback and knowledge we can get from as wide a range of applications as possible, the more we are able to continuously improve the technologies.” The Canadian office was opened four years ago at the same time as the office in

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Santiago, Chile. The 25 staff in both centers have years of operational experience and can talk to customers with an insider’s perspective. Discussions about process plant cover both brand new projects and upgrading of existing facilities. They encompass how old machinery can be replaced with newer smaller designs or how a parallel stream can be added to increase output with minimal disruption.

“The unfortunate reality,” says Rasmussen, “is that new mining projects are likely to be linked with lower grade ores that at one time wouldn’t have been considered. But the non-stop demand for minerals means we have to find ways to exploit these deposits which invariably involves ever more complex processes. If this is to be done economically, it calls for more efficient technologies and

“We have no problem in marketing our processing advantages to what are essentially competitors”

IsaMill uses a ceramic medium which wears ten times slower than steel

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Xstrata Technology

Morenci Copper Mine, Arizona

cyclones as a means of techniques to minimize grading and separating environmental impacts.” material. “Cyclones are At the start of all very inefficient,” says processing circuits is the need to crush and mill the Rasmussen, “and often lead Xstrata’s global mined ore. Lower grades to material unnecessarily workforce often need finer grinding re-entering the grinding and it was, in fact, the process. The horizontal need to grind material down to less than design of IsaMill lends itself to a smaller 7 microns which led to the development footprint and less energy usage than of IsaMill. “Conventional mills use alternatives and enabled us to rapidly steel balls as a grinding material,” says scale up to larger 3MW and 8MW mills. Rasmussen. “This can often lead to For the first time we were able to offer complications in the metallurgy. IsaMill the advantages of inert stirred milling to uses a ceramic medium as small as 1mm, high tonnage, mainstream grinding. The which wears ten times slower than steel Xstrata philosophy is to develop easy to and is metallurgically inert.” operate technology and in the case of IsaMill also does away with IsaMill, easy to maintain plant where a

70,000

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team of just two are able to complete a disc and liner change in eight hours.” There are now 113 IsaMills installed worldwide, although the Americas are lagging well behind in this respect. “Four years ago,” recounts Rasmussen, “when we opened the office, we had only four IsaMills in North America. Now there are 22 due to be in operation by 2013 including the seven projects underway at the moment.” In order to simplify the supply chain, only the most critical components are imported from Xstrata’s manufacturing plant in Germany. Ancillary equipment such as motors and gearboxes and as much of the steelwork and electrics as possible are sourced from suppliers close to the project location. Another process originally developed for Xstrata but today widely used throughout the mining industry is the Jameson Cell flotation process, driven by fluid mechanics. In the late 1980s, conventional column cells were failing to meet Xstrata’s needs and metallurgist Professor Jameson was called on to take a fresh look at flotation techniques. The first commercial installation was completed in 1989 and produced fine bubble generation without external equipment or spargers and intensive mixing

without mechanical agitation. With their high throughput in small tanks, the cells provide fast response and easy process control for a wide range of product grades and recoveries. Since then it has been continuously improved and is now on version IV, said to combine the original advantages of small footprint and small bubble size but with more robustness and operator friendly use.

“In our tests we use representative samples and provide accurate scale-up data on both power and product size distribution” 146 | BE americas

Xstrata Technology

Anglo Platinum’s Amandelbult mine, South Africa

Part of the problem coarse grinding, they can all purveyors of new significantly underestimate technology encounter is the grinding needs below 100 understandable concern microns. In our tests we use that however good the story representative samples and IsaMills installed might sound, it could fail to provide accurate scale-up worldwide data on both power and live up to expectation once put into practice. Rasmussen product size distribution.” and his team address this So it seems that Ralph problem with proven one-to-one direct Waldo Emerson was wrong, but inventors scale-up from laboratory test-work. “In ball the world over have always known this. mill laboratory tests, for example,” he says, Innovation always needs to be accompanied “25mm balls in a small laboratory ball mill by patience and persistence. will have different trajectories and interact differently with the shell lifters and ore For more information about particles than in a large production ball mill. Xstrata Technology visit: While techniques such as the Bond Work www.xstratatech.com Index and ‘scale up factors’ are useful for

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SAFER DUST CONTROL Helping mining operators develop ventilation solutions for difficult dust control problems

ust generated by mining process operations at crushing, screening, and conveyor transfer point s is of ten controlled by process ventilation systems. Process ventilation involves capturing and controlling dust emissions using exhaust ventilation hoods and ductwork. Engart Dust Extraction Technology™ is a process ventilation approach used by Joe Finn, President of Finn Equipment Sales Inc., to help mining operators develop solutions for difficult dust control problems such as where moisture or combustible dust conditions exist. “Engart dust

“ Engart dust extractors are operating at surface and underground mining operations worldwide” 148 | BE americas

extractors use water to scrub dust out of the air and discharge it continuously to a secondary disposal point,” Finn explains. “This eliminates a fire and explosion risk as soon as the dust is wetted. Additional advantages include delivering maintained airflow in the ducting so that dust accumulation buildup is eliminated, low maintenance and no internal bags to maintain or to blind up due to moisture.” Working as a contract engineer for Engart, Finn has designed well over 100 process ventilation systems for coal fired power plants, coal and non-coal mining sites and other heavy process industry operations. He explains that designing process ventilation systems is an engineering approach that starts with an evaluation of the mining operation to look at points where dust is generated. This is followed by examining each control point to develop an exhaust hood concept. Equipment

Finn Equipment Sales Inc

and location are selected based on operating conditions. Ducting is then routed from the collection points to the equipment location. Duct velocity, pressure drop, and other system design factors are also used to develop a successful system design. Engart dust extractors are operating at surface and underground mining operations worldwide including coal, limestone, gypsum, potash, silver and gold and at other heavy process industry operations. The photo shows a 50,000 CFM Engart wet dust

extractor installed at a coal reclaim tunnel to eliminate the fire and explosion risk inherent in the original and much larger fabric filter baghouse and centrifugal fan that it replaced. Finn Equipment Sales Inc PO Box 1013 Mauldin SC 29662 USA T 1-864-525-1421 E jcf@finnequipmentsales.com www.finnequipmentsales.com

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The team working on Valeâ&#x20AC;&#x2122;s Long Harbour Project in Newfoundland are demonstrating first-hand how new technologies can be used to find Canadaâ&#x20AC;&#x2122;s mineral rich written by: Will Daynes research by: Jon Bradley

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Vale: Long Harbour Project

n w hes

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lmost by accident, it was in September 1993 that prospectors exploring northern Labrador for diamonds uncovered the vast nickel deposits of Voisey’s Bay. Located on the eastern edge of an expanse of northern wilderness, some 350 kilometres north of Happy Valley-Goose Bay, it was in 1996 that Vale Ltd. acquired the rights to the Voisey’s Bay property. Viewed as one of the most important nickel-copper-cobalt discoveries of recent times, it is estimated that Voisey’s Bay may contain as much as 60 million tonnes of resources contained in near surface and underground deposits. Processing up to 6800 tonnes of ore a day, Vale is currently working to a mining plan based on the near surface reserves that has a working life of approximately 15 years. The copper concentrate is sold into the market, while the nickel concentrate is shipped to Vale’s operations in Sudbury, Ontario and Thompson, Manitoba for further processing. Vale ships the nickel concentrate on a purpose built Arctic-class bulk carrier especially strengthened to break through the sea ice that builds up in the waters around Voisey’s Bay. Vale’s processing of first ore officially began in August 2005, an event that was followed two months later with the completed construction of a hydromet demonstration plant. The final phase of its research and development programme was completed in June 2008, giving way to the construction of a processing

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Construction of main processing plant at Long Harbour, Newfoundland

Vale: Long Harbour Project

Seen

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Vale: Long Harbour Project facility at Long Harbour, Provincial airlines Newfoundland, which will Provincial Airlines is the largest regional airline in ultimately produce the Eastern Canada, a major provider of charter, cargo and air finished nickel product. ambulance services and the operator of two of the leading Under the terms of the fixed base operations (FBOs) in the region. Proudly serving company’s arrangement 18 destinations across Newfoundland & Labrador, Quebec w ith the provincial and Nova Scotia, Provincial Airlines is renowned for its superior in-flight service, comfortable and refurbished government it is obliged aircraft and frequent flights throughout its growing route to have a processing plant network. Provincial Airlines is a proud supporter of Vale, in operation by 2013 and providing dedicated scheduled daily charter service to it is well on track to meet Voisey’s Bay for over six years. that deadline. The entire www.provincialairlines.ca site comprises two distinct parts: the port facilities where nickel concentrate from Voisey’s Bay will be received and three kilometres inland, the processing plant itself, which has a footprint of one kilometre by 750 metres. At the height of its construction, Vale has had a workforce of 3500 individuals either working on the site or preparing material at other locations. As Newfoundland is an island on the edge of the Atlantic and at the mouth of the Gulf of St Lawrence, everything for the project has to arrive by sea. Modules measuring as much as 30 metres by 20 metres, and weighing up to 350 tonnes, are being preassembled at offsite module fabrication yards and shipped to Long Harbour by sea. Workers installing temporary power

“Voisey’s Bay is viewed as one of the most important nickel-copper-cobalt discoveries of recent times” BE americas | 155

Such is the importance of the project and its on-time delivery that Vale’s logistics teams have also established an aggressive schedule. In April 2012 alone, 12 separate module deliveries were made. Although the site seems large, it will in fact be completely filled by 16 different buildings and miles of connecting piping, so there is precious little spare space available there for storing material. Fortunately, within a short distance there is a former naval base which is being used as a transhipment and storage centre. Although the individual processing steps used in the technology are proven, the flow sheet on the whole is novel, highly complex and involves around 5,000 key components. Therefore, the planning and logistics and the systems employed to control the flow of information and materials have to be faultless. Just as critical is the selection and relationship Vale has with contractors. The development of Vale’s Newfoundland processing facility is one of a number of largescale projects currently being undertaken by mining and oil and gas companies operating in Canada. The biggest challenge that this creates is that demand in almost every area is running some way ahead of supply. With so much work available

contractors have become increasingly picky about the projects that they bid for. In response to this the company has taken to bundling large blocks of work together, rather than breaking it down into small packages. By adopting this approach the company has been able to better capture the attention of contractors. Another challenge that Vale has had

“Although the individual processing steps used in the technology are proven, the flow sheet on the whole is novel and highly complex” 156 | BE americas

Vale: Long Harbour Project

Concrete pour, neutralization building

to combat is its ability to find suitable, local, qualified tradesmen and engineers. Supporting a population of no more than 500,000 people, Newfoundland resides within a province that has been without a major project for a considerable amount of time. Consequently, the skills base has shrunk through retirement and migration. At the same time, Vale has had to compete with many other mega construction projects in less inhospitable parts of Canada (and the world for that matter) for what talent remains. Nevertheless, as far back as 2002 Vale identified a group of key R&D individuals whom it employed to stay with the project from start to finish. They were involved with the process design, helped run the mini-pilot

plant, and demonstration plant, and later were embedded into its engineering team. As such, all the R&D knowledge has been incorporated into the nuts and bolts design and will continue to stay with the project well into the production proper. Construction is due to finish in mid-2013 and commissioning will begin towards the end of the year. By summer 2013, the plant is expected to be ramping up as Vale and its Newfoundland team take a massive step into new, unchartered territory. For more information about Vale: Long Harbour Project visit: www.vale.com

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For ambitious mining companies it is necessary to be continually planning ahead, as is demonstrated by the operations of Aurizon Mines in northern Canada written by: Alan Swaby research by: Dan Finn

158 | BE americas

Aurizon Mines

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Aurizon Mines

Aurizon has interests in seven exploration ventures

urizon Mines is a Canadian mining company operating in one of the worldâ&#x20AC;&#x2122;s most favorable mining jurisdictions and prolific gold and base metal regions. The Abitibi area of Quebec is in the north-west of the province, close to the Ontario border and around 400km south of Hudson Bay. Throughout the region, Aurizon has a mix of ten properties, both gold producing and in various stages of exploration. The main focus for the business is the Casa Berardi mine, taken out of retirement and currently back in its sixth year of commercial operations. Last year, the best year so far, saw the 100 percent owned mine produce a total of 163,845 ounces by processing 698,123 tonnes of ore, giving an average grade of 8.0 grams of gold per tonne. This year, though, expectations have been lowered marginally to 150,000 ounces. Casa Berardiâ&#x20AC;&#x2122;s gold is found deep underground and there are developments taking place to take it even deeper. The shaft at the western side was excavated a further 106 metres in the first half of this year from the previous 760 metre level down to 866 metres. The second phase of the deepening, by using a sinking hoist at the 795 metre level, should be completed and in operation by this time next year. From a depth of 1,010 m, a drift will provide access to three more zones and the whole development has involved capital expenditure of $40 million. When the mine went into production in 2006, it had a life expectancy of just six

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Aurizon Mines years. But this year, instead Jennmar Canada of closing things down, Jennmar Canada is proud to be a vendor partner of Mine the operation is looking Aurizon. Our relationship has allowed us collectively to forward to another nine come up with innovative solutions to their unique ground years of production with control challenges at the Casa Berardi Mine. Jennmar is every possibility of further excited by the continued investment and growth in the extensions should the $10 Abitibi region and is looking forward to continuing our strong relationship and supporting their new and million dollars the company upcoming projects. is spending per annum on www.jennmar.com exploration find further useful deposits. Whatever the date is that Casa Berardi does wind down, Aurizon is hoping that one or more of its exploration leases will be ready to take over. The most advanced of these is the Joanna gold project conveniently served by the nearby Rouyn-Noranda airport. Joanna is an 8km x 3km area split into five sectors and although Aurizon has a 100 percent interest, all sectors are based on different ownership agreements. This year, Aurizon completed a feasibility study in the Hosco sector. The assay results from 89 holes showed that 60 of them had between one and five mineralization intersections down to a depth of 200 metres and another 19 showed positive indications down to 400 metres. Aurizon is sufficiently encouraged by these results to commission 2011 was the best year at Casa Berardi

â&#x20AC;&#x153;Casa Berardi is looking forward to another nine years of production with every possibility of further extensionsâ&#x20AC;? BE americas | 163

deeper holes and follow the mineralization down to 600 metres. However, Hosco might have to wait to be developed until some of the surrounding sectors have been explored. Early drilling at the adjacent Heva sector, for example, is indicating higher grade ore potential than at Hosco and initial metallurgy has returned very good gold recoveries using conventional cyanidation. The feasibility study was prepared as an open pit mining project relating solely to the mineral reserves located on the Hosco deposit. The in-pit mineral reserves were estimated at a cut-off grade of 0.5 g/t for a total diluted proven and probable reserve estimate of 41.1 million tonnes at 1.26 grams/tonne, representing 1.66 million ounces of gold. The mine plan was designed for an 8,500 tonnes per day operation, with an average stripping ratio of 4.49 to 1 which should give the mine a life of mine of 13 years. The pre-production capital costs and sustaining costs for the Hosco deposit have been estimated at $422 million and $97 million respectively. At an average operating cash cost estimated at US$716 per ounce of gold and $25.32 per tonne milled and based on a gold price of US$1,350 per

ounce, the pre-tax internal rate of return would be 8.7 percent and the project would have a payback period of 8.2 years. In the meantime, Aurizon has interests in seven exploration ventures in and around Abitibi totaling more than 2800 claims over an area of 70,000 hectares. Either in conjunction with other mining exploration companies, where it has at least a 50 percent interest, or in certain

â&#x20AC;&#x153;Early drilling at the adjacent Heva sector is indicating higher grade ore potential than at Hoscoâ&#x20AC;? 164 | BE americas

Aurizon Mines

Higher gold prices helped push up profits

exploration work it has cases where Aurizon has committed to. Unaudited 100 percent ownership of the rights, it can earn its financial results for the first options upon fulfilling its quarter of 2012, prepared investment commitments. from available information If all of them are followed up to May this year, indicate through it will involve a 238 percent improvement 2011 gold production at in net profit compared with Aurizon in expenditure in Casa Berardi the order of $50 million the previous year. Higher within the next four years. realized gold prices helped In the first quarter of 2012, $6.7 million push up the operating profit margin by 31 was spent on exploration mainly at the percent, leaving the company with cash Marban and Fayolle projects in addition balances of $199 million and no debt. to continued exploration and feasibility work at Joanna. For more information about Aurizon will therefore be looking for Aurizon Mines visit: continued good performance at Casa www.aurizon.com Berardi to help finance the further

163,845 ounces

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Management to match 166 | BE americas

Saxon Energy Services Inc.

Supply chain director Shaun Anderson talks about implementing the Saxon Management System, lean and six sigma, and a new Oracle ERP platform written by: Gay Sutton research by: Jeff Abbott BE americas | 167

Australia catwalk

Saxon Energy Services Inc.

he oil and gas industry is renowned for going through intensive periods of growth; and it’s all too easy for small companies to overextend and destabilise as they struggle to manage a growing portfolio of projects, staff and capital equipment with processes designed for a much smaller footprint. With a period of significant growth under its belt, Calgarybased Saxon Energy Services is now embarking upon a two-year strategy to build a corporate infrastructure not only capable of supporting the current international enterprise, but creating a stable base for expansion in the future. Launched in 2005 as a small contract drilling and well services business with nine rigs in Ecuador, the company has grown both organically and through acquisition, and now owns and operates 98 rigs in 13 countries with a workforce of some 2,700 people. The most rapid period of growth has taken place over the past year during which time the workforce has grown by 58 percent and the rig fleet by 38 percent. “In December last year we completed the acquisition of Schlumberger’s Rig Management Group (RMG) through which we acquired 1,000 new employees and 14 additional rigs, operating on contracts in Oman, Venezuela and Pakistan,” explains supply chain director Shaun Anderson. “We have also significantly expanded our Australian operations, and have invested in 13 additional rigs to operate in the Queensland area for QGC and Santos.” With growth of this order, the company’s

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Saxon focus for the next few years Tesco Corporation is to continue growing Tesco Corporation is a global leader in the design, organically, and to build commercialization, and service of technology based a corporate management solutions for the upstream oil and gas industry. We create framework to support the value by reducing drilling costs and non-productive time company going forward. (NPT) by changing the way people drill wells and install / “The idea is to create a global cement casing. Our top drive systems and tubular services span the globe with the industry’s largest fleet of both structure that will enable rental top drives and automated casing running tools. us to manage our growing TESCO’s commitment to engineering and service excellence international organisation enables drilling contractors the ability to increase as one team, and run it both operational efficiency and safety. efficiently and effectively— www.tescocorp.com not just now but 10 or more years into the future,” Anderson says. From a high level perspective, Saxon is currently developing what it calls the Saxon Management System (SMS), which will define business standards and processes and roll them out across the entire enterprise. Utilising the latest SharePoint technology from Microsoft, SMS will enable the entire organisation to share information and communicate effectively around the globe, and it is being structured around eight integrated elements. These are: commitment, leadership and accountability; policies and objectives; organisation and resources; contractor and supplier management; risk management; business processes;

98 rigs Operated by Saxon in 13 countries Topdrive system

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ENERGY Saxon EnergySAXON Services Inc. operational efficiency and tempor incididunt ut labore Saxon Energy feature performance monitoring to dolore eliminate unnecessary text....Lorem ipsum dolor and improvement; and et magna aliqua. Ut activities waste. Select sit amet, consectetur enim ad and minim veniam, audits and reviews. individuals each adipisicing sed the do quis nostrud from exercitation Saxon haselit, taken ullamcowithin laboris nisi ut already proven highly eiusmod temporand incididunt function the company aliquip ea commodo successful ut labore et Schlumberger dolore magna will be ex trained to green consequat. Duis auteduring irure ma nagement aliqua. Ut enim adsystem minim belt certification dolor in reprehenderit in as a benchmark, and is veniam, quis nostrud November and December voluptate velitwill esse cillum â&#x20AC;&#x2DC;Saxonizingâ&#x20AC;&#x2122;ullamco it: identifying exercitation laboris this year, and then lead dolore eu fugiat the lean effort, rolling nulla it out nisi ut aliquip ex ea commodo and developing policies and pariatur.theExcepteur through company. sint consequat. that Duis will aute drive irure standards non dolorofinthereprehenderit in This is a caption this is a caption occaecat each eight integrated Leading cupidatat up to this, proident, sunt in qui voluptateIfvelit esse cillum the company is culpa running elements. all goes according profitability enhancement dolore fugiat nulla pariatur. Excepteur deserunt mollit anim id est program laborum. to plan,euimplementation of the system will aofficia eachsitfunctional group is sint occaecat cupidatat non proident, Lorem whereby ipsum dolor amet, consectetur begin during the first quarter of 2013. sunt (PEP), adipisicing areas elit, sed do eiusmod tempor in Alongside culpa qui officia deserunt anim id identifying this high levelmollit management outside the normal dayframework, company planning to to-day est laborum. the Lorem ipsum is dolor sit amet, incididunt ut labore et of dolore magna aliqua. responsibilities the business where implement six sigma and to eiusmod increase company consectetur adipisicing elit,lean sed do Ut enim ad minim veniam, quis nostrud performance can be improved.

DP-MASTER DP-Master, a privately owned company founded in 2004, has emerged as a global player in the manufacture of drilling products. The strategic vision of the management has enabled the company to become a global brand which is recognised in all segments of the drilling products market. Our focus on R&D to develop products suited to the more extreme environments, the creation of the international sales, marketing & technical support group and our unflinching commitment to quality are the drivers for the success of DP-Master. Our products are performing the job they were meant to do, successfully, across all continents. With international offices in Singapore and Dubai offering sales, logistics, technical support

and licensee support, DP-Master will ensure that customer service is always a priority. R&D investment in recent years has resulted in DPMaster being able to offer a range of products capable of meeting the most challenging drilling conditions. These include DPM-DS connections, DPM-MT connections, DPM-140 grade, DPM150 grade, sour service grades and customised large bore drill strings. DP-Master recognises that it must remain very competitive and yet deliver top quality products. DP-Master has an excellent supply chain for raw materials; combined with our own ongoing process improvement, we ensure we will maintain our competitive edge.

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2012| 173 |2 BEOCTOBER americas

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B. HANSEN, INC.

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Saxon Energy Services Inc. Some of the projects can then be used to launch six B. Hansen Inc. was established in 1986 during the worst sigma and lean. oilfield industry downturn in history. The risk to expand into The third pillar of other service related markets was borne of the realization the Saxon improvement that the oilfield supply industry was faltering. Boots Hansen, programme is another major world renowned for his service in fighting oil related fires, undertaking. As Saxon has responded to this need through the formation of B. Hansen Inc. The company was to adopt the same dedication, reached its current size commitment, and timely response as the founder but focus through a combination of on the supply of equipment, spare parts and service. acquisition and organic www.bhansen.com growth, it operates with a variety of ERP platforms at different locations. To bring the entire organisation together under one operating system, the company is in the process of rolling out Oracle Enterprise Business Suite across the business. Currently all operations in Canada, the US, Mexico, Australia and Colombia have migrated to the new platform and during 2012 operations in Oman, Pakistan and Venezuela will begin to follow suit. These three major initiatives each have their challenges, but the rewards are likely to mark Saxon out from its competitors, enabling it to continue responding quickly and flexibly to its customers’ needs even as the size of the organisation grows. The supply chain element of the company The workforce has grown 58 percent in the last year is playing a key role in each of these

b. hansen, inc.

“I want to make Saxon’s supply chain best-in-class, an operation that others in the oil and gas industry will measure themselves by” BE americas | 175

Saxon now owns and operates 98 rigs in 13 countries

176 | BE americas

initiatives, defining supply chain standards and processes and rolling them out across the enterprise, as well as defining areas for improvement. Anderson has a very clear ambition for the future. “I want to make Saxon’s supply chain best-in-class, an operation that others in the oil and gas industry will measure themselves by.” To achieve this aim he has set clearly defined targets for the next two years. “This year we are working to make sure that we have key strategic supply chain partnerships and the right system functionality in place to support growth. We have also realigned our supply chain organisation to better support operations regionally.” One key partnership, for example, is with top drive supplier of choice Tesco Corporation, with whom Saxon has had a strong relationship for many years. TESCO helped support Saxon’s entry into new markets such as Australia and has been influential in improving performance in existing markets. Saxon Supply Chain Management is organised into three operational regions each with a regional manager. North America (NAM) comprises Canada, the US and Mexico, while South America (SAM) includes Colombia, Ecuador, Peru and Venezuela. The Eastern hemisphere includes Oman, Pakistan and Australia. The company is managed as a matrix organisation: the global supply chain support team comprises over 50 people spread across the regions, tasked with both tactical and strategic responsibilities. They have direct reporting lines through their country managers as well as functional

Saxon Energy Services Inc.

Saxon employs some 2,700 people

reporting lines stretching back to Anderson at corporate headquarters. “Next year,” he continues, “as we continue rolling out our new Oracle ERP platform we will begin putting cost modelling processes in place using data collected globally from all sites, and we will begin centralizing procurement. This will then enable us to achieve much better internal efficiency and improve our leveraged position with our suppliers.” Another big project for Anderson’s team, which is part of SMS and scheduled for 2013, is to introduce the concepts of risk management into supply chain management. Anderson describes this as moving away from reacting to and managing issues that have arisen, and focusing instead on proactively identifying and analysing potential supply chain risks. By identifying risks that could

have a high impact and high probability of occurrence, and developing containment and mitigation plans, business continuity can be much more reliably assured. These programmes represent a considerable amount of change for Saxon, but change that will transform the company into a strong, flexible and responsive global player. It is perhaps appropriate that the company’s core values are articulated in the acronym STRIVE. Standing for safety, teamwork, respect, integrity, value and empowerment, they are all about creating a high value organisation that is striving to do better. For more information about Saxon Energy Services Inc. visit: www.saxonservices.com

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