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JANUARY 2011 www.bus-ex.com www.bus-ex.com

Focus on Business Excellence Online

fit

Is your company fit for its market?

EXCELLENCE BUSINESSEXCELLENCE

Be Business Excellence Online

Editor’s letter

Christmas presents

EDITORIAL

While wishing our readers a merry Christmas and a very happy New Year, let me tell you that Santa has emptied a sack full of goodies into our magazine this month.

Editor In Chief Martin Ashcroft mashcroft@bus-ex.com

We are proud to feature a major article on cash management and forecasting from powerhouse business consultancy Deloitte, and a masterpiece of analysis and insight by George Magnus on the prospects for the global economy and the role that emerging markets might play, depending on how their economies and societies are managed.

Managing Editor Becky Done bdone@bus-ex.com

DESIGN

Production/Creative Director Zachary Smith zsmith@bus-ex.com Production Design studio@bus-ex.com

Emerging markets are covered, in fact, on a macro and micro level, as regular contributor George F. Brown, Jr. talks about how to make the most of your growth opportunities by matching your company’s competencies to the factors that drive your customers’ purchase decisions.

BUSINESS Director of Sales Sean Brett sbrett@bus-ex.com Sales Manager James Martin jmartin@bus-ex.com Assistant Research Directors Vincent Kielty vincent@bus-ex.com Sam Howard showard@bus-ex.com Richard Halfhide rhalfhide@bus-ex.com Robert Hodgson rhodgson@bus-ex.com Administration & Operations Alice Doran adoran@bus-ex.com Chief Executive Andy Turner info@bus-ex.com Subscriptions info@bus-ex.com

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Among the individual companies we cover in this issue are several in the mining sector, from some pretty far flung places. Santa may cover the globe, but so do we, with articles about a diamond mining operation in Quebec, Canada, copper mining and smelting in Spain, and coal mining in Queensland, Australia.

Another company that spreads its talents across the world to the benefit of the mining community is Nordic Mine Technology. Founded in Sweden in the 1960s, NMT now operates from North Bay, Ontario, but has completed projects in Europe, Africa, Australia and Russia, to mention but a few.

NMT is well placed to serve the needs of the flourishing North American mining sector with its innovative continuous loading and unloading rail systems, but business development manager Philip Brown is set on further global expansion. “The Australians and Europeans are very open to suggestions or to brainstorming new ideas,” he said, “so I think from the Nordic standpoint, the future is definitely in the export market.”

So, whether you are spending your Christmas in the Canadian snow, or on a sandy beach in Australia, put your feet up after dinner with a good magazine on your laptop—Business Excellence.

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Contents

6 30 STRATEGY Cash management and forecasting Finance experts from Deloitte share their expertise by describing in detail an effective cash forecasting process.

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OPERATIONS Why companies struggle with staffing Executives from HR knowledge offer ten reasons for current staffing difficulties, and some valuable advice.

Dianor Resources Inc. A sparkling prospect Advancing the Leadbetter diamond project, the first step in a long term plan to become a global player in the diamond market.

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16

Osisko Mining Corp.

Ahead of the game A bold plan to fast-track the development of a gold deposit by purchasing equipment ahead of the feasibility study.

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SUPPLY CHAIN Focus on fit Success depends upon the degree to which you can deliver on the factors that drive purchase decisions, says George F. Brown, Jr.

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Wesfarmers Curragh Pty Ltd Changes at the coal face Implementing cost-effective mining processes to make the most of buoyant market prices for coal.

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SUSTAINABILITY The century of emerging markets?

George Magnus argues that the financial crisis in the West has thrown down the gauntlet of structural reform for emerging markets.

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OceanaGold The art of gold mining Mining operations need to think ahead and have plans in place for when the ore runs out.

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Maher Terminals LLC Terminal value A trusted partner to the world’s major ocean carriers, with its sights set on long-term expansion of capacity.

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Atlantic Copper Advancing chemistry With demand outstripping supply, 2010 has been something of a bonanza for copper mining companies.

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Nordic Mine Technology A mine of new ideas Pushing the boundaries in customised rail haulage systems for the mining sector, with a focus on innovation and growth.

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Cash

manage and

forecasting

By John W. Little, principal, Deloitte Financial Advisory Services LLP Ryan Foughty, senior manager, Deloitte & Touche LLP Sachin Adhikari, senior manager, Deloitte Financial Advisory Services L 6

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Strategy

ement

g LP

Why is cash forecasting so critical?

One would think that since cash is so crucial to the successful operation of a company, every company would already have the process of projecting it down to a science. Our observation, however, is that until liquidity becomes tight, cash forecasting and management are something companies only perform at the 30,000 feet level, not at the nap of the earth height necessary to provide the insight to manage working capital effectively and make the short term business decisions to preserve a company’s ability to operate during tough times.

We are often called into situations where we find that the company has a short term problem that needs to be quickly addressed (eg, burning cash and its loan facility is either fully drawn or expiring soon). This paper addresses one potential solution to such situations.

One of the key reasons companies with an urgent need to forecast short term cash have trouble forecasting is a lack of the most recent information to accurately forecast in a turbulent operating environment. When we arrive at a company, we typically find that cash forecasting is a treasury responsibility with some assistance from finance. Often, each group has pieces of the required information, but not the complete picture. Neither do they typically have the appropriate insights into either what levers can be pulled to address cash needs nor the impacts on customers and suppliers from pulling those levers. As a result, the existing forecast is often inaccurate, and not detailed enough, to allow for appropriate decision making.

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The process outlined as an example below addresses this issue of information (or lack of it) and addresses how a company can work to develop a more accurate cash projection. Typically, this process can succeed only if an appropriate level of importance is placed on it by upper level management. Once that leadership support is in place, a forecasting system can be established that, in our experience, can emerge as a tool to not only monitor cash but more broadly: • Evaluate short-term operational changes • Anticipate liquidity needs, and • Enhance working capital efficiencies.

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One proposed cash forecasting process A sound cash forecasting process provides enhanced visibility into operations and is a very effective control mechanism for the chief financial officer (CFO)/chief executive officer (CEO).

It is an efficient mechanism to evaluate cash inflows and outflows and a company’s ability to meet its commitments. In addition, when used strategically, it can be used as a tool to assist as long-term decisions are contemplated.

This example cash management process can be applied in companies with multimillion dollar to multibillion dollar revenues, regional companies

Strategy

to global Fortune 500 corporations, from retailbased to service-based organizations. Similarly, it can also be applied in healthy companies and in distressed companies. However, we typically see this process applied by distressed companies with one or more underperforming business units.

This process is not a multimillion dollar investment to upgrade a current information system. In fact, the cash forecasting methodology that we describe below is non-system based, relatively simple, and can be modeled using standard spreadsheet software. Though we recognize the benefits of implementing a long-term, system-

based cash planning tool, the situation in which this methodology is preferable is one in which a company has neither the time nor the money to put in place such a system.

CASH MANAGEMENT PROCESS—ASSIGNING RESPONSIBILITY Based on what we have seen, this process can be effective only with C-suite level sponsorship.

The CEO must strongly support the process, and the CFO must not only effectively articulate the reason the company is undertaking what will likely be a new process with larger organizational involvement, but must also repeatedly emphasize

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its importance by remaining intimately involved in it. This sets the tone for the organization regarding the importance of the process to the company. The CFO should also: • Assign a process leader (usually, the treasurer) who will take the lead in collecting the data, publishing the forecast, and day-to-day management of the process. Once the inputs are received, the data is reviewed for completeness and reasonableness by treasury. Typically, the treasurer will perform a final review and provide the cash forecast to the CFO for any additional input or updates before it is finalized. • Identify business owners who have the latest and the greatest information about specific lines in the cash forecast and assign the forecasting duties for those lines to the executive business owner. For instance, the purchasing function probably knows best about most vendor payments and terms. Therefore, purchasing should typically be the business owner for the majority of vendor line items. Similar assignments should be made for other line items in the forecast. Assigning responsibility is how companies address the issue of lack of information mentioned earlier.

Foundation for an effective cash forecasting process An ideal process for cash forecasting would look like this: • Policy development: In order to support the process, policies and procedures should be developed (by process leader and approved by CFO ) that clearly lay out the assignment of responsibility and requirements.

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Strategy

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• Measurement of forecast accuracy: Treasury is typically responsible for measuring the ongoing accuracy of the cash forecast by evaluating the inputs received against actual cash receipt and disbursement activity. Treasury would then be responsible for following up with the input owners when there are discrepancies between what was expected and actual results (commonly referred to as “variances”). The reasons for the variances are documented and provided to the treasurer and CFO for review. Based on the results, a determination is also made to evaluate if changes should be made to the cash forecast process in order to improve its accuracy.

• Periodic review and monitoring of the process:

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In order to determine that the cash forecast has ongoing visibility throughout the company, weekly meetings should be held with senior management to review. It has been our experience that a weekly thorough discussion regarding the cash forecast often brings to light certain items that are only known by senior management and may have been missed during the process of receiving input from the business. In addition, if the company is experiencing cash shortages, this may be an effective forum to discuss potential solutions.

• Forecasting window: The window should be long enough to provide meaningful visibility into the net cash from future operations, but short enough to provide a reasonably accurate cash

Strategy

forecast. We typically see companies employ a rolling 13-week period for such forecasts, though this is not universally used. We often see this short-term forecast used in conjunction with longterm, though less detailed, financial forecasts (discussed later).

In comparing the advantages and disadvantages of a long term vs. shorter term forecast, one sees a trade-off between visibility and accuracy. It is understood that a long term forecast will generally be less accurate than a shorter term forecast.

However, it is important for companies to have a long term strategic focus in order to anticipate potential issues with cash flow based on known economic conditions or anticipated changes to

should evaluate the requirements and determine if any changes are required to the established cash forecast in order to meet the requirements. The goal is not to perform additional work to prepare these forecasts, and as new requirements arise from lenders, the current forecast process should be evaluated to determine if changes are required.

CASH FLOW FORECASTING VARIANCES— MAINTAINING ACCOUNTABILITY The process leader and/or the CFO should communicate clear parameters of accountability to the business owners early on at the launch of the process along with timeline and measures of success. The executives in charge of each business function that forecasts a line item (referred to

“When we arrive at a company, we typically find that cash forecasting is a treasury responsibility with some assistance from finance. Often, each group has pieces of the required information, but not the complete picture” the business (such as missing sales forecasts).

This can allow appropriate time to evaluate and implement short term solutions.

A short term forecast should incorporate appropriate seasonal needs of business and working capital fluctuation. On the other hand, a long term forecast should surface capital investments, refinancing or restructuring (assets sales, for instance) needs well in advance and can be an effective tool in the financial planning process.

• Frequency: The frequency of updates depends on the financial situation of the company. Typically, a weekly process is sufficient for most companies.

However, if the company is experiencing financial difficulty, daily updates to the cash forecast may be necessary.

• Internal access to forecast: The cash forecast should be treated confidentially within the company and distributed to only designated members of senior management on a need-toknow basis. However, the distribution must be broad enough to allow for appropriate input from, and feedback to, process participants.

• Third-party reporting: There may be instances when cash forecasts are provided to external parties. Typically, these requirements are established by lender agreements. Management

earlier as business owner) should be accountable for the numbers presented to the process leader.

Of course, the responsibility for gathering the data will likely fall to someone working for the business owner. However, though the gathering process will be delegated, we again emphasize that it remains important for the actual business owners to feel ownership for their numbers.

In the context of cash flow forecasting, there are generally two categories of accountability measures: A. Accuracy of projections: Acceptable variances between actual and projected cash flows should be defined and stated explicitly when the process is rolled out. For example, it may be stipulated that “the business owners for vendor payments (purchasing function) would be expected to achieve a forecasting variance of no higher than 5 percent on a rolling four-week basis.” These variance thresholds are set based on the nature of the individual business, historical accuracies in predictions, and aspirational levels.

In a situation in which cash flow forecasts of the sort addressed here have never before been attempted, the team will likely face a challenge in initially assigning appropriate variances. In such cases, the variances initially established may need to change as data is analyzed and processes

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evolve. Variances should be established to be broad enough to be achievable and small enough to be meaningful. Needless to say, some variances are more critical than others and some businesses are more complex than others.

Acceptable thresholds on forecasting variances should be set on both a weekly (or monthly) and cumulative basis. It is important to have a clear understanding of the types of variances and how they are measured, tracked, and reported.

There are several types of variances: Permanent variance: These variances do not reverse from period to period and result in lower/higher than expected cash position. Examples include: • Inflow: For a given week, in case of a retailer with lower than forecast sales on a holiday weekend, there would be a lower cash position resulting in a “permanent” variance between actual and projected cash flow.

• Outflow: An increase in raw material prices that was not included in the forecast may also lead to lower cash position and a permanent variance between actual and projected cash flow.

Temporary variance: These are typically timing-related variances that will eventually reverse. For example: • Inflow: If a customer makes a payment on receivables in a week following the one in which it was projected to be received, then there would be a temporary variance for that week in receipts. However, when this payment is received in the following week, this variance would reverse itself in that week. This is the reason it is a “temporary” variance.

• Outflow: Late vendor payments (similar logic as above).

Another kind of temporary variance that might occur is when treasury decides to “push” a particular vendor payment. This is a very common instance in a distressed company where the treasurer is constantly looking for cash to bridge temporary low points in liquidity. This results in a variance for that week. It is critical that the business owners are not held accountable for variances that occur due to a treasury push, since this is clearly beyond their control.

Variance tracking and reporting: Constant communication and feedback are vital to the success of the forecasting process. As discussed in the prior section, variances should be measured

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by the process leader and presented to the business owners frequently, typically on a weekly basis. They should then work together to identify the reasons behind the variances—temporary, permanent or push related. The final explanation and tracking report should be reviewed by the CFO on a weekly basis (at least initially when the process is in transition).

As mentioned earlier, since variances are measured on both a weekly and cumulative basis, it is important to understand the distinction between both. From a cash management perspective, both kinds of variances are critical.

In a distressed situation, high weekly variances could be precarious, as the company is usually already in a low cash position.

To measure overall forecasting accuracy, however, cumulative variance is often a sound indicator. The reason is that, many times, weekly variances have components of timing, and cumulative variances (over four or eight weeks) tend to even out the timing issues because of the very nature of their calculation.

Business owners should strongly consider updating forecasts weekly to provide the most accurate possible forecast. However, variances should be measured against the initial forecast (provided 13 weeks prior if the company is using a 13-week forecast period). This should provide the parties with a solid indicator of the quality of its forecasting process (and whether further change may be warranted). Resulting improvements should provide the company with a more accurate 13th week forecast to use for its decision making.

B. Timeline to achieve the desired accuracy: After setting the desired variances, the process leader and the business owners need to be provided a timeline within which they need to understand and streamline the process, seek clarifications, and achieve the variance thresholds. This part of the process cannot be overemphasized. Initially, when the process is rolled out, there are likely to be a lot of questions from the business owners on the process, variances, and deliverables. While it is important that these questions be answered in a manner that is consistent and fair to all parties, the goal of this exercise should be to have a “working” forecast as soon as possible. Especially in distressed situations, the timelines may be critical as there is

Strategy

very likely a strong need for visibility to projected cash position—both, by lenders and the CFO. Given the fact that this is an iterative process, the timelines would be dictated by the complexity and cash needs of various businesses led by the business owners and by CFO’s expectations.

As described earlier, the forecast is evaluated on a periodic basis and readjusted, as required.

Regular measurement and reporting informs the participants (including the CFO) of the effectiveness of the process and the corrections that need to be done in case the variances are not acceptable or if there are specific concerns that business owners might express. In the initial weeks, when the process and the analytics are being fine-tuned, large variances are common.

However, such variances should diminish as participants become familiar with the nuances of cash inflows and outflows in their respective businesses and adjust their forecasts accordingly.

USING THE CASH FORECAST AS A TOOL FOR FINANCIAL MANAGEMENT Providing control and tracking cash This example of a cash forecasting process may provide a very effective financial management tool.

Since the cash forecast is reviewed and refreshed every week, it is a good way to find out if the company is on track to meet its annual budget.

Tight correlation between business plan and cash forecast should be desired. Periodic reconciliation between the cash forecast and the budget would be a good reality check on the financial affairs of the company. In case of cash receipt shortfall, for instance, it is easy to know how this would impact the annual plan, what corrective actions may need to be taken, and who would be responsible for implementing those actions.

True to its intent, this process is an example of an effective way to track cash inflows and outflows. Having said that, it is important that CFO/treasurer should be dogged in measuring, tracking, and investigating line item variances, which serve as key drivers in this process.

Managing the soft side Lastly, to make the cash forecasting a success, as pointed out at the outset of this article, the CFO should explain to all the participants that success of the process is vital to the success of the company and a critical component of financial management. The business owners should buy

into this process either by mandate or volition.

Without such buy-in, the process may fail. The CFO and the senior management team should acknowledge this organizational investment upfront and weigh it against the potential benefit that they perceive this investment would yield. It is of paramount importance for management to let the participants know the implications (initially versus later, perhaps) of missing their business line’s forecast, and making sure they know that the process should improve along the way.

Putting in place an effective short-term cash forecast is a difficult task given it is often a process that is started at a time in which the company’s management team is deeply engaged in the process of turning around the company. However, rather than being viewed as a nuisance that the unforgiving lenders will or are compelling the company to do, it should be viewed as an effective tool to drive the cash management and operational decision making that will be at the heart of the turnaround. Often, an experienced restructuring professional can provide the skill set and perspective needed to help the company see and execute that vision.

About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business.

Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte, its affiliates and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

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Why

comp

struggle

Jeff Garr, CEO and Frank Zych, director of HR Ser HR Knowledge, Inc, suggest ten reasons companie struggling with staffing issues in the current eco

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Operations

panies

withstaffing

e

rvices, es are onomy

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ver the next seven years, total employment in the US is projected to increase 10.1 percent, according to the Bureau of Labor Statistics, US Department of Labor. These projections show growth in service providing industries, which are proposed to add 14.6 million jobs primarily in the professional and business services and healthcare and social assistance sectors.

“Baby boomers” who are heading into retirement will need to be replaced, which will also create a significant number of job openings. It’s projected that these vacancies will account for more than double the number of job openings due to economic growth.

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“Job seekers often reply to advertisements for jobs they do not want or are not qualified for, hoping the employer may have other opportunities” How are companies going to handle the increased demand for qualified candidates when so many companies are struggling with staffing now? Why are these companies struggling? We’ve outlined the top ten reasons: Feast: With the economic downturn, employers have been faced with a deluge of job applicants and the vast majority are not suited to those positions.

Job seekers often reply to advertisements for jobs they do not want or are not qualified for, hoping the employer may have other opportunities.

One of our clients received 348 replies to an advertisement for an administrative assistant within the first 24 hours of the ad’s publication, which completely overwhelmed their ability to properly screen candidates.

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Famine: Skilled people are still hard to find, even in this economy. Many positions go unfilled simply for a lack of qualified candidates, particularly in many skilled trades.

Fewer job changers: When economic times are good, people will more readily resign from one position to take another with a different employer for the chance of getting ahead. Many people are much more risk averse in today’s economy, and would rather play it safe and stay with a current employer than risk a job move.

Benefits costs are soaring: Benefits costs, specifically health insurance, increase by double digits annually. With the new federal health initiatives, there is even greater uncertainty for employers. An increasing number of employers

Operations

are deciding to put off hiring or rely on temporary workers to avoid such uncertainty.

Increase in litigation by the unemployed: When faced with the loss of employment and income, people are much more apt to seek legal redress than when jobs are plentiful. Across the nation, there has been a rise in class action lawsuits and other lawsuits filed by the unemployed for everything from age discrimination and sexual harassment to worker’s compensation claims for questionable injuries.

Unemployment benefits are becoming easier to get and last longer: We are seeing anecdotal evidence that state unemployment claims are being approved at a much higher rate than before.

It appears that the state does not want people in society with no means of income, so they are making it easier to collect unemployment benefits.

We are also seeing these benefits extended for longer periods. This will inevitably result in an increase in employer unemployment taxes, at the state and federal level.

Reluctance to fill vacant positions causing increased employee stress: With companies reluctant to hire, the workload of existing employees, with regard to the scope of responsibilities and total number of hours worked, is increasing noticeably. Stressed out employees make more errors; have increased health issues and can negatively affect overall employee morale.

The Internet at work: While the Internet is overall a highly useful productivity tool, it is also causing new and unexpected problems in the workplace.

Employers report that internet abuse by employees is constantly on the rise. Such abuse includes social networking and online chatting while at work; Internet gaming on company time; accessing pornography and contributing anonymously to blogs with negative comments about the company or worse.

Low levels of employee commitment and productivity: Studies suggest that employee loyalty is at an all time low. This is due in large part to the prevalence of downsizing during the recession.

The most common employee perception is that the company will discard employees when things get difficult, so there is no reason to remain loyal to the company. Such feelings generally result in decreased productivity; reduced attention to the quality of work and increased risk for customer dissatisfaction.

Shrinkage: This is the retail euphemism for the

loss of goods. Indications are that shoplifting and employee pilfering are rising sharply. Employee theft is an ever increasing problem for a wide variety of employers across many industries.

Both shrinkage and Internet abuse have created a whole new set of staffing issues with regard to discipline, termination and job replacement.

Is there any good news? Yes. College enrollment is trending up. According to data released by the US Bureau of Labor Statistics in April of 2010, 73.8 percent of women and 66.0 percent of men graduating in 2009 were enrolled for college. So, there should be an upswing in the number of educated, qualified candidates for the growing number of jobs that will be open.

The answer to the staffing challenges of feast or famine may lie in retained searches. These days, retained searches are typically conducted for only the highest levels of staff, namely the CEO, CIO and CTO. There seems to be a reluctance to use retained searches for non-senior staff, the argument being that qualified applicants may be found by employee referral or via Craigslist and similar media.

Or, maybe less technology, more “hands on” is the answer. Could it be that the candidate selection process depends too much on technology and companies are inadvertently eliminating qualified candidates solely on the basis of not having enough “key terms” listed in their electronically submitted resumés?

Thankfully, a few of the staffing problems we mentioned should resolve on their own in time. As the economy recovers, we should start to see an improvement in employee productivity and loyalty; people who are more willing to change jobs and a decrease in employee stress as vacancies are filled and the workload is redistributed.

Author credit: Jeff Garr, CEO, and Frank Zych, director of HR Services, lead the HR Knowledge, Inc. team in providing best-in-class integrated HR services at an affordable cost to clients. HR Knowledge, Inc. is a leading business process outsourcer (BPO) for human resource management, group benefits brokerage, payroll processing & managed services, financial services and recruiting and hiring process management (HPM). The company serves emerging to mid-sized companies in New England. For more information, visit www.hrknowledge.com

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Focu

fi

Where do you fit in are you to meet th of your target cust will emerge from company’s compete drive competitive

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Supply chain

on

us

fit

n your supply chain? How fit he purchase decision drivers omers? The success stories m the firms that match their encies with the factors that e success in those markets, says George F. Brown, Jr.

I

n 1967, many of us heard the same advice given Dustin Hoffman in The Graduate: “Plastics”. The 2011 equivalent of that might be “China”. Plastics was good career advice in 1967 and China is undoubtedly good market advice in 2011. But is such advice all that is needed for your firm’s 2011 growth plan?

One executive summarized his problems with that advice as follows: “Everything I read tells me that China is growing faster than anywhere else on the planet, and that we haven’t seen anything yet. But I’m not the only one reading those articles and web site postings. If we all go charging off to China, how are any of us going to make any money?”

It’s undoubtedly correct that most firms will be better off if their 2011 plans involve paying increased attention to China, but it’s also true that strategies like “plastics” and “China” are not particularly actionable. This executive’s comment provides focus on what’s needed to translate “China” into a growth plan. The missing ingredient is the definition of what each firm can do to create value, better than its competitors, and translate that value creation into rewards for its shareholders.

I have used China as the example of a growth target in the above discussion, but you can substitute any other focal point and reach the same conclusion—the challenge is that of moving from a potential opportunity to an action plan that delivers results and rewards your company’s shareholders.

This is not to diminish the importance of identifying growth markets. Advice like “plastics” or “China” or “alternative energy” or “nanotechnology” or “4G phones”—or whatever is the equivalent in your industry—is a great starting point. It defines where there are great opportunities. Great market opportunities involve multiple dimensions; significant scale, fast growth, customers willing to pay premium prices, etc. Every business plan should begin with a focus on great market opportunities. After all, what executive wants to tell his board of directors that the 2011 plan emphasizes markets that are small, shrinking, and under price pressures?

But from among the great market opportunities that are available to every firm, the success stories will emerge from the firms that focus on “Fit”—the match between their company’s competencies and the factors that drive competitive success in those markets.

It is the quality of Fit that determines whether a strategy succeeds in creating value for customers and capturing value for shareholders. A focus on Fit is the way a firm can determine if “China”, “alternative energy”, or some other great market opportunity is right for their firm. And it’s the way they can answer the executive’s challenge and explain how their firm is going to achieve a business success in a great market that is well known to all of its competitors.

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When we look at Fit, we focus on three dimensions. In the paragraphs that follow, several examples are provided to assess the dimensions of Fit. The relevant factors change from firm to firm and from market to market, but the three dimensions of Fit described here are ones that should be examined in all of the “great opportunities” that are being assessed as part of your firm’s 2011 planning.

First are the purchase decision drivers that customers in the target market use to choose among competing suppliers. The question to ask is whether your firm scores well on those factors. If so, it’s a

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positive signal about your firm’s potential for success.

We worked with two firms that were both market leaders in their product lines, which were sold into the telecommunications industry in North America. One of these firms had built its reputation and success on the basis of how its products contributed to worker productivity, saving time on various tasks. This contribution was a sure-fire winner in the high labor cost environment of North America, but it failed to translate into China, where labor was plentiful and labor costs were low.

The second firm built its reputation on the basis of faster project completion, basically taking time

Supply chain

off project plans. In China, the “build it and they will come” environment applauded fast project completion, with the firms first to market the ones that would gain market share. Each of these two firms had a competency that had enabled it to win in the North American market. Only one of the two competencies “Fit” the China market.

A second consideration is short term position.

Any growth strategy has a short term as well as a long term, and it’s usually to a firm’s advantage to get out of the gate quickly. Those firms that are positioned for a fast start score well on this second dimension of Fit. Two firms that served the petrochemicals industry had roughly equal market shares in the US. Each had its strong advocates among its customer base, and third party evaluations suggested pros and cons of each of their technologies. When a customer of one of these two suppliers won a major award to build a large petrochemical facility in the Middle East, the supplier that was entrenched with this firm had a huge advantage in terms of its short term position.

In this case, the advantage was due to a relationship. In other instances, short-term advantages can be due to numerous other factors.

For example, in the construction industry, we saw a firm with a two-year head start on its competitors because it had passed the hurdles of China’s design institutes and had its products approved for major construction projects. Its competitors were just beginning that process. They would eventually be successful, but they were quite a bit behind due to the head start achieved by the firm whose products had already gained approval.

The third component of Fit involves the underlying business drivers, the factors that motivate interest and decisions on the part of customers along the customer chain. Like purchase decision drivers and short term position, business drivers likely differ from one planning environment to the next; but it is always important to know whether they match up well with your firm’s strengths and that they are likely to remain a positive factor over time.

One case example recently involved a firm that saw a surge in demand driven by capacity shortfalls in its industry. For a variety of reasons, there had been a disruption in some of the supply chains from overseas factories that had been relied upon prior to the recent recession.

It was hard to envision that this situation would be permanent, and in fact within six months, the supply constraints had been alleviated and this firm was again experiencing the pricing pressures that it recalled from prior years. The dominant business driver in this situation was not one which suggested a solid Fit for this firm, one that would allow it to enjoy continued success in that market.

A contrasting example involved a firm that enhanced a component to improve its energy efficiency. With almost every industry recognizing the importance of energy cost reductions to their bottom line, this business driver appeared to be one that would persist and perhaps even intensify in the future. This is especially true in market segments which are highly energy intensive, with energy costs a significant portion of the cost structure.

The product enhancement that delivered energy cost savings played quite well to this important business driver, a positive factor in terms of the assessment of the Fit in market segments where energy cost issues were significant.

In summary, planning for growth in your supply chain requires much more than spotlighting market segments in which opportunities are strong due to some combination of scale, growth, and profit potential. Within any attractive market segment, it is important to determine whether your firm is positioned for success, whether there is a strong “Fit” between your firm and the determinants of success in those market segments.

Looking at three elements of Fit—the degree to which your firm can deliver upon the factors that drive purchase decisions, the quality of your firm’s short-term position, and the relevance of key business drivers to your firm’s value proposition— can help you to sort out those market opportunities in which you can be successful, from those where disappointment is likely.

Author credit: George F. Brown, Jr., along with Atlee Valentine Pope, is the author of CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs, published by Greenleaf Book Group Press of Austin, Texas. He is also CEO and cofounder of Blue Canyon Partners, Inc., a strategy consulting firm working with leading business suppliers on growth strategy. See www. CoDestinyBook.comfor more details

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George Magnus argues that the fina thrown down the gauntlet of stru markets. The prospects for the global not so much on mechanical extrapola politics and robust 24

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Sustainability

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ancial crisis in the West has uctural reform for emerging l economy, he says, depend ations of GDP, than on good legal and social institutions

he West’s financial crisis has both caused and amplified a growing schism between the economic plight of richer industrial countries, and the economic power of major emerging nations. The Federal Reserve’s resumption of quantitative easing, for example, has unintentionally sharpened the trend towards greater currency and capital account protectionism in several major emerging nations, and given them new cause to complain, rightly or wrongly, that US economic policies are aggravating rising inflation and potential instability.

Yet the optimism about emerging markets among companies and investors is undiminished. The new economic kids on the block are already home to the production of $3000 cars, $300 computers and $30 mobile phones. They headquarter many firms that are climbing rapidly up the value chain, and are leaders in low carbon and alternative energy technologies, telecommunications, energy exploration, and aerospace. And not to forget, they will bring to market the world’s next one billion consumers.

Emerging markets are viewed as dynamic growth markets and effective competitors and rivals, not just as vast reservoirs of cheap labour and low cost brains. Is it any wonder that people assert, with enthusiasm or angst, that this is the emerging markets’, in particular Chinese, century? The answer to this rhetorical question, though, is not as straightforward as you might think.

The crisis has sent the world system into a spin, and it is not possible to determine with confidence what its contours will look like.

So far, it is Western indebted nations that have been shocked into an economic and social reboot, but the dynamic of the crisis means that emerging nations will have to do likewise. Put simply, if households, banks and governments in the West are going to have to save and export more, someone else has to do less of both if the system is to function smoothly without tearing the fabric of globalisation.

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The boot, then, is firmly on the foot of the emerging world, and nowhere more so than China, the world’s aspiring geopolitical power, its biggest exporter and creditor nation, and second biggest economy in terms of GDP. Even if we can check all the boxes over the longer term about why China and emerging markets should out-grow us and catch us up over the next few decades, the path to the future, and especially in the coming decade, is now something of a minefield. As the proverb goes, there’s many a slip ‘twixt cup and lip.

With a leadership changeover scheduled in 2012, caution is likely to remain the order of the day, when a bit more boldness would be preferable. In the coming year, we should watch carefully how China addresses the problem of rising inflation for example, and how, if at all, it seeks to address the rising trend in the external surplus.

This isn’t just a Western rant. If China’s policies do not change significantly and soon, the

“Emerging markets are viewed as dynamic growth markets and effective competitors and rivals, not just as vast reservoirs of cheap labour and low cost brains” The most immediate problem is the unsuitability of China’s economic development model of the last 20 years to the postcrisis world. There is an obsessive focus on the repressed yuan exchange rate as the problem that needs fixing. But a higher yuan exchange rate, per se, would not narrow the US-China trade imbalance much, or address the economic imbalances in either the US or Chinese economies. Instead, the real issue is the development model itself, specifically its strong mercantilist emphasis on capital investment and exports, and its tendency to extraordinarily high levels of savings and investment. In relation to GDP, these amount to about 53 percent and 46 percent respectively, the difference equating to the country’s external surplus, now rising strongly again since the decline induced by the crisis and the government’s stimulus programme.

Rebooting in China, or what is commonly called ‘rebalancing’ in China, is official government policy, and again highlighted in the new (12th) Five Year Plan draft. The gist is a redirection of the economy towards consumption and services, while targeting further investment in new industries, green projects, and alternative energy. But what this amounts to is a radical economic transformation that would shift economic and political power from companies to consumers, from cities to the countryside, and from coastal provinces to those further west. It would entail big economic reforms, including to the yuan and to exceptionally low interest rates, but also social and political reforms that could threaten the raison d’être of the Communist Party, and that are barely feasible in view of the government’s reaction to the Nobel award to dissident, Liu Xiaobo. It would most likely entail some period of higher unemployment, at least in a transition period, with the attendant risk of aggravating social instability, already characterised by about 90,000 incidents annually in each of the last four years.

government may well tread further down a path which Japan also followed in the 1980s, sustaining and then feeding an inflation, investment and asset bubble that will eventually burst when the People’s Bank of China is instructed to bring matters to order. We may be about to find out if China’s economy has just two speeds, full ahead and stop, and if so, whether the political capacity to generate 9-10 percent economic growth is able to deal with the consequences.

Longer term, China and other major emerging markets have undoubted demographic strengths.

But important caveats pervade this assertion too. Most emerging nations are still in the ‘sweet spot’ when child dependency on the working age population is falling or low, rising old age dependency won’t become a problem until the 2030s, and meanwhile the productive labour force will continue to expand. This so-called demographic dividend is associated normally with rising levels of savings, consumption, equity market valuations and other boom-type conditions.

China is an exception. It is the fastest ageing country on Earth. Today it has 10 workers to support each citizen aged over 60, but this is going become 2.5 by 2050, lower than the US. In 30 years, China will be older than the US on every important measure. Along with rapid ageing and rising wages, China will also have to contend with the dysfunctional economic and social implications of extreme gender imbalance.

India, by contrast, where a third of the population is aged under 14, can look forward over the next

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decade alone to an increase in its labour force that is bigger than the entire working age population of Western Europe today. India could sustain 10 percent economic growth as China’s rate of expansion tails off. But if India’s unemployment—officially measured at 7 percent but more likely closer to 27 percent—doesn’t decline because of insufficient job creation, India’s demographic dividend might only pay in terms of social problems and stagnating growth instead. India, and countries such as Indonesia, Nigeria, Egypt and Mexico will have to reform to exploit this dividend.

Concluding, nothing said here or in my book Uprising, suggests that emerging nations won’t continue to become more prosperous, or that there is an economic flaw in their widely acknowledged attributes.

But the crisis has thrown down the gauntlet of structural reform for them too. The prospects and business outlook for emerging markets, then, depend not so much on mechanical extrapolations of GDP, than on good politics and robust legal and social institutions. There is far less conviction about this than about the emerging markets’ century.

Author credit: George Magnus is senior economic adviser at UBS, and author of Uprising: will emerging markets shape or shake the world economy? (John Wiley, December 2010),

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Already a trusted partner to the world’s major ocean carriers, Mahe sights set on growth, using the economic slowdown to further imp prepare for a longer-term phased expansion of capacity as necess 30

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Maher Terminals LLC

minal value T

r Terminals has kept its prove its operations and sary, Keith Regan learns

he port terminal operations that Maher Terminals LLC run at the Port of New York and New Jersey may well be more than 2,000 miles from the Panama Canal, but the fortunes of the cargo handling business and many others in ports up and down both US seacoasts will undoubtedly be impacted by the construction work now taking place to expand the century-old canal across Central America.

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“Completion of the Panama Canal expansion will allow much larger vesse Port of New York and New Jersey, which repres 32

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els to transit via ‘all water’ routes to the sents a significant growth opportunity”

Maher Terminals LLC

Just how closely linked those two locations are became apparent recently when Panama’s president, Ricardo Martinelli Berrocal, visited the Maher Terminal facilities.

“It was very significant for us, of course, as it underscored Panama’s commitment to completing the expansion of the Canal by 2014,” says Frans van Riemsdyk, executive vice president of corporate development and strategy for Maher Terminals. “The president made it clear that completing the Canal expansion by 2014 on what will be the 100th anniversary of its original opening in 1914 is an important milestone for Panama.”

Additionally, New Jersey governor Chris Christie has committed to “fix” a height clearance problem with the Bayonne Bridge to ensure that the much larger vessels transiting the Panama Canal upon completion of its expansion will not be restricted in accessing marine terminals in the Port of NYNJ. The completion of that project is likely to be good news for Maher, which currently also operates a terminal at the Port of Prince Rupert in British Columbia, Canada, and is expanding into Nova Scotia through a commitment it made to a project known as the Maher Melford Terminal.

Maher is well positioned to enjoy the benefits of increasingly larger vessels moving its cargoes from Asia to the Port of NYNJ via an expanded Panama Canal. “It’s all about capacity, and we have the capacity to handle that growth now, having recently completed a major expansion and modernization of our NYNJ terminal,” says van Riemsdyk, who has been with Maher for 30 years.

“The major ocean carriers have committed to an enormous expansion of their container ship fleets by building increasingly larger vessels. When the global economy went into its dramatic downturn, the world’s container vessel fleet suffered through significant idling of capacity, with harbors such as Hong Kong and Singapore littered with vessels at anchor. The ocean carriers are eager to redeploy their larger vessels in order to benefit from their improved economies of scale. Many of these vessels currently exceed the capacity of the Canal. Completion of the Panama Canal expansion will allow these much larger vessels to transit via ‘all water’ routes to the Port of NYNJ, which represents a significant growth opportunity.”

That opportunity may extend to Maher in particular.

“In the Port of NYNJ we have what is arguably North America’s largest marine container terminal,” he adds. “Just before the economic downturn, we

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had completed an extensive modernization and expansion of our facilities there, so we’re ready to accommodate significant volume increases immediately and can quickly implement plans for further capacity expansion when necessary.”

Maher’s terminal in the Port of Prince Rupert can handle 750,000 TEUs (each TEU represents the equivalent of a 20-foot cargo container), a capacity that Maher has grown by 50 percent since it acquired the operations. Prince Rupert is the deepest harbor in North America and is strategically located on the Great Circle Route, which provides the quickest ocean transit times between the Far East and the West Coast of North America. With direct rail access, Maher’s customers are shipping goods from Asia to major

another major boost with the State of New Jersey and the Port Authority of NYNJ announcing a commitment of $1billion to fix the air draft (the distance between the waterline and the highest point of a ship) restrictions on the Bayonne Bridge by 2014, which will allow the much larger vessels to enter the Port without restriction and significantly enhance the Port’s competitive position.

The Maher Melford (Nova Scotia) facility will be well positioned to handle cargo heading to and from Southeast Asia, India and the Indian subcontinent. Container shipments moving via the Suez Canal and the Maher Melford terminal will benefit from the quickest transit times between Southeast Asia and the East Coast of North America. “Melford is in some respects a

“When you go through difficult economic periods, the plus side is that it gives you an opportunity to re-evaluate the way you’re handling your business and puts you in a position to prepare yourself for recovery” North American cities, helping to reduce the time it takes to reach those markets. Although the Prince Rupert terminal currently has ample capacity for future growth, Maher is already working on plans to further increase capacity at Prince Rupert as conditions may require.

Maher services ocean carriers who in turn are providing service to the likes of major retailers such as Walmart and Target. Maher is responsible for the loading and discharging of container vessels and handling such container shipments between vessel and either truck or railcar for ultimate distribution to the beneficial cargo owners.

Meanwhile, coming out of the economic slowdown Maher is ready to capitalize on work it has done to reorganize and refocus its operations on providing absolute satisfaction to the clients it serves, van Riemsdyk points out.

“When you go through these difficult economic periods, there’s good news and bad news. The bad news is obvious, but the plus side is that it gives you an opportunity to re-evaluate the way you’re handling your business, and it puts you in a position to redesign and prepare yourself for recovery. We are very well positioned to handle substantial container volume increases.”

Maher’s New Jersey operations recently received

North American East Coast ‘sister port’ to Prince Rupert, as it is also strategically located on the Great Circle Route with the potential to provide industry-best transit times to and from key inland markets,” van Riemsdyk says.

Maher Melford is being developed on a 14,000acre industrial reserve in the Strait of Canso, a port that features water depths of more than 90 feet and no air restrictions, and it remains icefree year-round. Like Prince Rupert on the West Coast, the port is designed to be an intermodal facility, with direct, on-dock access to the CN Rail network. Initially, the operation will have a capacity of more than 1.5 million TEUs. That new facility, scheduled to begin operations in 2014, in turn helps make the company’s overall portfolio of terminal operations all the more powerful.

“It’s quite strategic,” van Riemsdyk says.

“Vessels from Asia can come across the Pacific to the West Coast and call on our facility in Prince Rupert. If they decide to come through the Panama Canal, they can come to our terminal in the Port of NYNJ. Vessels that go through the Suez Canal can be handled very competitively via both NYNJ and Melford. We think we’re positioning the business well regardless of which shipping routes our customers choose.” www.maherterminals.com

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Nordic Mine Technology

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Nordic Mine Technology is pushing the boundaries in customised rail haulage systems for the mining sector. Philip Brown talks to Gay Sutton about innovation and growth

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hen innovator and entrepreneur Eric Nylund formed Nordic Mine Technology (NMT) in 1987 and began to take his unique concept in rail haulage systems to the global mining industry, he was actually building on a programme of development that goes a lot further back. In 1968, while working as head of the design team for the Swedish mining and minerals company LKAB, Nylund had an idea that he developed into a completely new system for LKAB’s Kiruna iron ore mine in Sweden.

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Nordic Mine Technology

“The concept behind Nordic Mine Technology is continuous loading and unloading, and this markedly increases the efficiency of the overall operation,” explained NMT business development manager, Philip Brown. “In a typical rail haulage system, the train pulls up beneath the loading facility, the car is loaded and the train moves forward to allow the next car to be loaded, and so on. So it’s a one by one process of stop/start. And exactly the same happens for unloading. With our system, the train slows but does not stop during loading or unloading.” The increased efficiency of this system can enable mines to produce a higher tonnage of ore each day and of course the profits from this go straight to the bottom line.

After developing and proving this concept at the Kiruna mine, Nylund went to Canada to set up an LKAB office to market the new product to the rapidly expanding Canadian mining sector. But it wasn’t until Nylund acquired the rights to his designs and launched NMT in 1987 that he was able to take the new product worldwide.

With engineering flare mixed with shrewd business acumen he won contracts to design and install his revolutionary system for a number of high profile companies as well as for many smaller ones.

Among the most prestigious projects that were completed during those early years was a rail system for BHP Billiton at the Olympic Dam—a massive copper, uranium and silver mine near Adelaide, Australia—and another for Ashanti Goldfields at the Obuasi mine in Ghana. And interestingly, Nylund also installed the first ever highspeed efficient tramming system in Russia.

Today, NMT is owned by Minesteel Fabricators of North Bay, Ontario, a company that for many years had been the licensed manufacturer for Nylund. There were many synergies between the two companies, with both being focused on quality. Minesteel dealt with the vertical movement of ore and Nordic with the horizontal movement. It therefore seemed a natural move that, on his semi retirement in 2006, Nylund should sell the company to his previous manufacturing partner.

Innovation continues to be a key element in Nordic’s success.

The basic concept of continuous loading and unloading may have remained unchanged over the years, but the delivery of that concept has continuously developed. Today, the rail systems— which include the delivery chutes, dump stations and rail cars— are highly engineered and customised to meet the individual needs and characteristics of the mine. “One of the most common customisations we are asked to perform is to adapt the size and inclination of the chute to handle different types of ore, which can come in the form of large or small rocks and have various consistencies from wet and sticky to dusty and dry,” said Brown.

“But we may also be asked to make allowances for wear, or to individually design the platforms for maintenance purposes.”

In addition to the increased efficiency of its products, the company has built its reputation on designing and delivering systems that are of high quality, very durable, and capable of running for many years with only the minimum of maintenance.

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Nordic Mine Technology

Gowlings Gowlings understands the challenges businesses face. The firm has been a trusted business partner to many of Canada’s largest organizations for over a century, and has built a solid reputation on delivering creative, effective and valued solutions for both simple and complex matters. With a comprehensive and integrated service offering, featuring crossfunctional client teams, Gowlings helps companies achieve their business objectives.

The company has also been investing in new technology and facilities. One of the biggest investments over the past three years, and indeed one which has a significant impact on the engineering and procurement elements of the business, has been the introduction of 3D modelling. Costing around C$40,000 for software and C$50,000 for hardware, the modelling package also includes finite element analysis, and full motion analysis. “Our engineers can therefore run a ‘virtual’ train through the system, applying real-time gravity and so on, and can evaluate the advantages and disadvantages of a variety of engineering options,” he said. “That’s raised our engineering capability to a whole new level.

“The concept behind Nordic Mine Technology is continuous loading and unloading, and this markedly increases the efficiency of the overall operation” All of this adds significantly to the value to the product. “We’re not the least expensive in the market,” said Brown, “but capital outlay is only one component of overall cost. We have some systems in place that have been running for more than 20 years requiring only typical consumable maintenance—things like replacing worn bearings and cylinders. Therefore, if a mine was to install a cheaper system that lasts just five to eight years, that system could potentially need replacing two or three times during the 20 year span of one of ours.”

Since becoming part of Minesteel, NMT has continued Nylund’s strategy of investing in R&D, adding new products and technologies to its portfolio, an example of which is the re-railing device, sold to its first customer in 2008. “Derailments can often happen underground. In the past you would have seen guys trying to put the cars back on the track by pure brute force. Our hydraulically operated rerailing device enables the cars to be lifted, levelled, and placed back on the track safely.”

There are a number of current products under development, but Brown was understandably loath to share the details. “The rail haulage industry is very competitive,” he said, “and it doesn’t take long for the knowledge to get around. Once we launch a new product we’re lucky if we have a year or two before our competitors are offering the same thing, so we tend to keep pretty tight lipped about it.”

“We are also in the midst of a plant expansion,” he continued. “The expansion totals 1050m2 and will include increased manufacturing stations and crane capacity. In 2008 we constructed a 1 kilometer long rail haulage test track which includes provisions for loading and unloading of mine cars and trucks.

This enables us to test our clients’ equipment prior to shipment, if so required, and also to test new technologies that we are developing.”

The current mining boom is presenting NMT with many opportunities. Just recently, the company won a major contract to design and test the rail system for the new expansion at the LKAB iron ore mine, a technically advanced installation and one of the most productive underground iron ore mines in the world. The new system, which includes six trains of 1200 tons and some 40 loading points, is scheduled to begin operating by the end of 2012.

Because of its location in North Bay, NMT is well placed to continue serving the needs of the flourishing North American mining sector, but Brown sees more potential growth elsewhere.

“The Australians and Europeans, for example, have a different mindset and are very open to suggestions or to brainstorming new ideas,” he said, which fits very well with NMT’s focus on custom engineering and innovation. “So I think from the Nordic standpoint, the future is definitely in the export market.” www.nordicmine.com

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Dianor Resources is advancing project, the first step towa become a global player in t Keith Regan learns from preside

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Dianor Resources Inc.

rkling prospect

its Leadbetter diamond ard a long-term plan to the diamond market, as ent and CEO John Ryder

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aving divested numerous gold and base metal assets, Dianor Resources is now squarely focused on the opportunities it sees in diamonds, opportunities it believes will make both it and Canada major players in the changing diamond market.

According to John Ryder, president and chief executive officer of the Val D’Or, Quebec company, resources are now being marshaled to enable a large-scale bulk sampling on the Leadbetter property in northern, Ontario near the town of Wawa, an easy two hour drive north of Sault Ste. Marie, Michigan. Dianor acquired the property in late 2004 and was in the process of seeking financial backing for its advanced exploration bulk sample when the economy took a nosedive.

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Dianor Resources Inc.

Foramex Foramex is an emergent company in the field of diamond drilling. Its main focus is to work and collaborate with junior and major exploration companies. Since its creation in 2005, Foramex has conducted numerous important diamond drilling programs, especially in Quebec and Ontario in Canada. One of these major drilling programs has been the one executed for Dianor Resources on its flagship property, the Leadbetter diamond project. Foramex has been working on this project in collaboration with Dianor Resources since the first drilling program and hopes to contribute to the success of this major and unique diamond deposit.

“We got caught at the wrong time,� Ryder says.

With a bulk sample program of 50,000 tons of rock planned, the company requires approximately $35 million to complete this important sampling stage that will allow it to obtain diamond pricing and grade for this unique world class diamond deposit.

Even though the recession posed additional hurdles, Dianor continued to move the project forward, working on a number of fronts to obtain the necessary permits and lay the groundwork for future exploration and development. Permitting has been made easier by the fact that the area was for much of the past century an active ironore mining area, with the iron being forged into steel that made its way into General Motors vehicles just over the US border in Detroit.

Diamond exploration is inherently more expensive than searching for deposits of other minerals, Ryder notes, but Leadbetter has many advantages over rival diamond properties in more

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“The rock we’re going to bulk sample and process is exposed on the surface, not burie

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Dianor Resources Inc.

remote areas. Mines in the Northwest Territories may have costs of $70 to $120 per ton for mining and processing the ore that contains the gems, while Leadbetter may have costs in the range of $10 to $14 per ton.

“In the Northwest Territories, equipment has to be shipped in on ice roads, which means everything has to be moved during two months of the year,” Ryder says. “That’s an extremely expensive way to supply the mines with fuel and equipment. Year round workers have to be flown in and out of these remote, inhospitable areas.”

By contrast, he adds, “you can literally drive from the United States right to our site to work 24/7.”

The town of Wawa is less than 10 kilometers from the diamond property, and has modern amenities

ed under a great thickness of gravel or sand”

including a hospital and airport. “It all reduces costs, as does the fact that the rock we’re going to bulk sample and process is exposed on the surface, not buried under a great thickness of gravel or sand.”

Ultimately, removing enough rock for the bulk sampling will require two underground mining operations of 25,000 tons each as well as extensive blasting. The entire process is expected to take about two years, including the time needed to build site infrastructure such as settling ponds, sampling, crushing plants and to acquire, install and commission the machinery needed to complete the testing.

In addition to diamonds, the property contains unknown quantities of rubies, sapphires and gold.

“The bulk samples will give us a good indication of the economic potential of these non-diamond byproducts in addition to the diamonds,” Ryder says. “The rock here is 2.7 billion years old and we have recovered gem quality rubies and sapphires from mini-bulk rock samples of up to 70 tons. Detectable gold has also been reported

in over 40 percent of the drill core samples. The presence of all these minerals occurring in one rock type, in one location has the potential to affect the economics in a major way. For example is it possible for the rubies alone to pay for the mining and processing of the rock? These are the answers we need from the bulk sampling.”

Just to the north of Leadbetter—which bears the name of the man who first laid claim to the property after discovering a sizeable diamond in a nearby river—lies another Dianor property that sits along the same geological formation as Leadbetter and has also been found through early sampling to contain a large number of colored diamonds, which are extremely rare and fetch higher prices in the marketplace.

Another six properties in Quebec are in the company’s portfolio, many exhibiting the same geological traits as Leadbetter, and also bearing colored diamonds in early testing. “We found that 46 percent of the surface rock samples contained diamonds and what’s unusual is that one 100 pound sample yielded 93 microscopic purple diamonds. We’re unsure what it means at this stage, but we are excited to explore it in further detail in the future,” Ryder says.

Looking ahead, once the bulk sampling is completed or well underway at Wawa, Dianor will face a decision about how to capture the value of the resource. Because the dynamics of the diamond market are changing rapidly, major existing companies may want to help Dianor move the project forward. Or it could seek to capitalize itself to the point where it could become a major producer on its own.

“Major companies will want to get in pretty fast because there’s only 12 to 17 years of world reserves of diamonds left,” Ryder says. “Unlike oil, diamonds have already reached peak production in 2007. By 2015, based on current valuations, we’re looking at over a $4 to $6 billion shortfall in diamond supply compared to demand.”

Global economic changes are driving the trend, with China recently replacing Japan as the secondlargest consumer of diamonds in the world. “All of Asia is increasing diamond purchases, which is helping to drive demand higher just as supply starts to decline,” Ryder adds. www.dianor.com

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Osisko Mining Corp.

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game Gay Sutton talks to Osisko Mining Corporation’s general manager, Denis Cimon, about the company’s plan to fast-track the development of the Malartic gold deposit in northern Quebec and take the risk out of the project by beginning town relocation work and purchasing equipment ahead of the feasibility study

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he Malartic gold mine in the highly productive Abitibi Gold Belt of northwest Quebec is very different from those around it. Most mines are deep, exploiting high-grade gold deposits.

However, the Osisko Mining Corporation, a junior mining company, is in the process of developing an open-pit mine to exploit what it believes will become a truly world-class gold resource.

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Osisko Mining Corp.

Fournier Industries Inc. As a leader in the mining industry in Quebec, Canada, we had the opportunity to work on the Canadian Malartic project from the beginning. We worked in collaboration with Osisko Mining Corp. and with the consultants on the prefeasibility study, the feasibility study and on the final project to make sure that the construction would conform to the latest technologies on the market.

We are proud to be associated with Osisko and to be part of a successful project built on time and within budget.

population, we started a program of drilling to define the area of the deposit,” explains general manager Denis Cimon. The drilling covered the entire area in a grid pattern every 25 meters. “In the town, people had drills in their backyards and in their driveways.”

This yielded more precise data on the size and value of the deposit. Based on these encouraging calculations, the company embarked on the prefeasibility, environmental and feasibility studies. At the same time, however, confident that the discoveries would yield a highly lucrative mine, the company began to ramp up its operations. Staff members were appointed to run the operation, one of whom was Cimon. A construction company and mining contractors were brought on board,

“We made a commitment that once we started the relocation we would complete it, regardless of the results of the feasibility study” The 230-square-kilometer property, 100 percent owned by Osisko, has been worked in the past.

Between 1935 and 1983, deep mining of the highgrade Malartic and Barnat veins yielded over 5 million ounces of gold. But subsequent exploration efforts continued to search—fruitlessly—for further deep high-grade gold resources.

Convinced that there was another way to do things, Osisko acquired the property and began looking for lower-grade deposits close to the surface. Combining its own exploration data with that of previous explorations, the company found what it was looking for: a large area with the potential to become an extensive and highly profitable surface mine.

Part of the gold resource, however, was believed to stretch under the town of Malartic (population 3,600), about 550 kilometers northwest of Montreal.

So the first thing the company did was to initiate an outreach to the local community, communicating with the town council and the citizens, building relationships, exchanging information and forming a community consulting group.

“When we realized that we had the acceptance of the town council and over 85 percent of the

and a $110 million relocation project got under way to move around 13 percent of the town to a new location on the northern side of town.

“One of the big local concerns was that we would start the relocation process, find the project was not as strong as we believed, and stop it. And they would end up with half the population relocated,” Cimon says. “We therefore made a commitment that once we started the relocation we would complete it, regardless of the results of the feasibility study.”

The project entailed moving 205 homes and five institutions. In all, 140 new houses were built and more than 60 purchased. The southern boundary of the town is to be shielded from the open-cast mining operation by what the company calls a green wall: a wall of earth planted with trees and flowers, not only cutting out much of the noise and dust but also providing a leisure facility. “We’re working with the town’s mining museum to build a viewing center so that people can come to the pit and see the operations,” Cimon says.

In parallel with the relocation work, the company began procurement of the heavy equipment it would need. “For us, it was a way of de-risking the project,” Cimon points out. By June 2009,

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Osisko Mining Corp.

Hewitt Caterpillar and Hewitt provide the majority of the site’s heavy equipment and state-of-theart mining technologies, as well as support, maintenance and operator training. Osisko will be operating a fleet of up to 26 Cat 793F mining trucks. The 793F is powered by the 16-cylinder Cat 175-16 diesel engine, which meets EPA Tier 2 emission requirements, and comes with an optional quiet pack to reduce external noise.

Osisko is also the first to purchase the extended high lift option for the Cat 994F wheel loader, which enables the machine to load the 793 more efficiently. The Canadian Malartic mine will also leverage Cat MineStar™ technology to determine where trucks should be going and how much material they should be loading. Fleets can be managed remotely as data is transmitted back to a main control room.

most of the equipment had been purchased and 75 percent of it had been delivered to the site, while the parts that needed special warehouse conditions, such as the motors, were stored in Toronto and Montreal.

Since beginning the relocation work and procurement, the company has successfully completed the feasibility studies and public hearings. “The process was very informative,” he admits. “Sometimes they were rough on us. But it’s a good democratic process, and it has been beneficial to both parties.”

The construction permits were received in August 2009, and work immediately began preparing the foundations for the mine buildings. These include an administration building and truck shop that would accommodate twelve 240-ton trucks, a warehouse, and a massive $400 million mill that will house a 55,000-ton SAG (semi-autogenous grinding) mill with a 26,000-horsepower motor and three further 16,000-hp ball mills.

The town of Malartic has benefited in many ways.

The mine has created a large number of jobs and will continue to do so. Most of the contractors

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“When we realized we had the council and over 85 percent of the p program of drilling to define t

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Osisko Mining Corp.

acceptance of the town population, we started a the area of the deposit� currently on site are local, and this has helped to cement good relationships, ensure quality and speed up the construction work.

If everything continues to go according to schedule, milling should commence in the first quarter of 2011. www.osisko.com

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Changes

f

Rod Bridges tells Andrew Pelis about the changes he has implemen the Curragh mine and how these have resulted in big s

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Wesfarmers Curragh Pty Ltd

at the

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nted at savings

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lobal demand for coal continues apace, with mining companies across Australia enjoying something of a boom period. For a business like Wesfarmers Curragh, the key has been to implement cost-effective mining processes to make the most of buoyant market prices.

Wesfarmers Curragh is owned by Wesfarmers Limited, a publicly-listed company on the Australian Stock Exchange. Wesfarmers Curragh is a significant Australian open-cut miner that has grown into one of the leading metallurgical coal producers in the country.

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Wesfarmers Curragh Pty Ltd

The Curragh mine was originally established 27 years ago by North American mining company Arco, but was purchased by Wesfarmers back in 2000. At the time, the company felt there existed a strong possibility of coal price increases and the asset was well-valued.

The Curragh mine covers an area of approximately 12,600 hectares in the coal-rich Bowen Basin of central Queensland 14 kilometres north-west of the town of Blackwater and 200 kilometres west of Rockhampton. Wesfarmers also owns and operates the Premier Coal mine in Western Australia and has a 40 per cent interest in the Bengalla coal mining joint venture in the Hunter valley of New South Wales. Having sufficient reserves of coal that are relatively easy to mine, however, is not enough on its own, so executive general manager Rod Bridges has brought in some major changes.

“We currently supply around 6.5 million tonnes of metallurgical coal to major global steel manufacturers and produce a further three million tonnes of steaming coal for the domestic energy market,” says Bridges. “We operate an open cut mine and remove the overburden, mine the coal, wash it through a preparation plant (onsite) and transport it 300 kilometres by rail to the Port of Gladstone, where it is shipped to our overseas customers.”

Bridges, a fully qualified civil engineer, joined Wesfarmers Curragh three and a half years ago, but had worked in a variety of mining situations for ores that were hard rock or soft rock and in varying conditions, both onshore and offshore. With his enormous experience (including time working abroad), Bridges took the opportunity to return to Australia and to further develop the Curragh mine “I came in from an overseas mining operation where we had expanded a mine and I set about putting in place some changes that took about A$128 million out of our bottom line in roughly 18 months.

“The programme we introduced was called ‘Beyond 09’ and saw us become much more automated and introduce modular mining. This required the workforce to embrace what we were doing and we took many good ideas from our staff; the management environment hadn’t been in place to listen to workers before. There were many cultural issues to overcome and it wasn’t easy, but we had to put innovation and change on the agenda. In the three and a half years I’ve been here, we have seen significant change. There are roughly three of the original management team still here and we have aimed to promote from within and give people clear career paths.”

Part of that process is the company’s extensive training programme, which encompasses all areas of the business. “Training is ongoing for all operators whether they are involved in drilling, the wash plant or operating equipment,” Bridges explains. “We also provide training for all supervisors and management to help define clear career paths, while we run an ongoing junior engineer and process engineer scheme for graduates and usually have around 60 apprentices with the company at any time.”

Bridges feels that a happy workforce is imperative and the company has gone to great lengths to ensure that the workers enjoy a good quality of life away from the mine; “We have 1,100 workers here, with approximately 500 employed

by Curragh and a further 600 contractors and we do our best to hire locally, although with the mining boom, it is a challenge to find the right skilled labour.

“In the town of Blackwater we have around 400 homes and accommodation for up to an additional 800 people. Blackwater has existed for roughly the last forty years and is home to miners at other

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“We operate an open cut mine and remove the overburden, mine t kilometres by ra

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Wesfarmers Curragh Pty Ltd

sites in the Bowen Basin too. We have worked closely with the Queensland Government to support local schools and a hospital and we support the Blackwater International Coal Centre (a not-for-profit organisation) that provides community services such as education, a movie theatre and coffee shops.”

At present Bridges is busy working on an ambitious expansion project to take the operation from 6.5 to 7.0 million tonnes per annum (mtpa) to 8.0 to 8.5 mtpa of export coal. Due for completion in late 2011, the project has seen Wesfarmers invest heavily in new equipment, including the US$35 million purchase of a Bucyrus 495 face shovel from the United States: “This is due to arrive next April and will help to remove the overburden; we’ve also invested in new trucks that can move 25 million cubic metres of overburden and expect to write off these costs over the next ten years,” he comments.

Overall this project will cost in the region of A$286 million and Bridges stresses that while funding is never easy to acquire, particularly in the current economy, the company’s corporate owners have been hugely supportive.

At present the Curragh mine has a project life up to 2025 but could be extended further. Bridges says that significant exploration has already taken place on the leased land—and continues. “I can also say that we have received approval to spend funds on a feasibility study over the next twelve to eighteen months, to look at increasing production to 10 mtpa of export coal. We will know the outcomes of that study in late 2011 and if it is approved it would make Curragh one of the largest open cut mines in the Bowen Basin.” www.curragh.com.au

he coal, wash it through a preparation plant (onsite) and transport it 300 ail to the Port of Gladstone, where it is shipped to our overseas customers”

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art gold Â

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td

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OceanaGold

Mining operations need to think ahead and have plans in place for when the ore runs out, as Jeff Daniels discovers

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n many aspects of life, New Zealand has to struggle not to be overshadowed by its larger neighbour. Think Antipodean gold mining and naturally the first thing to spring to mind is Australia. But following the Victorian gold rush in the 1850s, New Zealand had something similar a decade later when gold was discovered in the Otago region, at the bottom of the South Island.

Today, Macraes Gold Mine is New Zealand’s largest gold producing operation, with over two million ounces of gold extracted since current mining operations began in 1990. The bulk of the operation consists of a large scale open cut mine but in January 2008, Frasers Underground pit was commissioned with an adjacent processing plant serving the two mines located in the historic Macraes Goldfield, approximately 100 km by road, north of Dunedin.

Macraes is run by OceanaGold. It’s a company that evolved out of the gold assets of GRD Limited, an engineering and development firm with a diverse portfolio of operating, development and exploration assets in the South Island of New Zealand and a strategy to grow not only organically but through acquisition. Following a merger with Climax Mining in 2006 it acquired a 20 percent interest in the Australian Junction Reefs Joint Venture which has a number of exploration and mining licenses adjacent to the world-class Cadia Valley copper and gold mining operations in central New South Wales, but its actual mining operations are confined to New Zealand and the Philippines.

Macraes Goldfield went into production in 1990 and since then it has produced over three million ounces of gold. When the total output of Frasers Underground is added to the open cast operation, the mine averages approximately 210,000 - 220,000 ounces of gold a year.

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OceanaGold

STRACON STRACON is proud to partner with and support OceanaGold Corporation, providing mining and construction services to the Globe Progress and Macraes operations. The values of OceanaGold and STRACON are closely aligned, with the two organisations possessing a strong sense of operational efficiency and corporate social responsibility.

Perhaps the key challenge the Macraes mine faces is whether is can continue to extend its life of mine. They have been operating Macraes for 20 years and currently have reserves sufficient to support a current mine life of at least five years at a production rate of approximately 200,000 ounces of gold per annum. But as defined mineralisation at Macraes extends over a strike length of 40

kilometres, of which only 20 km have been explored to date, OceanaGold has high hopes for further discoveries on land where it owns mining and exploration permits over the entire length and freehold title to the majority of tenements.

In the meantime, at the other end of the South Island, we find OceanaGold’s second operating mine at Reefton, which was commissioned in 2007. Reefton is another historical gold mining area on the west coast. In the 19th and early 20th centuries, more than two million ounces were mined from hard rock operations. Now, though, the mine is open cut and consists of four imperially named pits; Globe Progress, General Gordon, Empress and Souvenir, developed along the Oriental mineral trend.

The plant which has a design capacity of 1 mtpa, majestically exceeded that capacity by 19 percent in 2008. It produces a concentrate that is then rail shipped 800 kilometres south to Palmerston before being trucked another 50 km or so to the

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OceanaGold

Macraes operation for final processing through the autoclave. Reefton is only a third of the size of Macraes but in 2008 it contributed over 75,000 ounces of gold.

But at the same time as Reefton was getting off the ground, the Didipio Gold and Copper Project in the Philippines was going into mothballs. The business, which is located approximately 270 km north of Manila in Luzon Island and 100 km east of the country’s largest gold-copper mining operations in the Baguio area, was acquired through the Climax Mining merger in 2006. In December 2008 the project became a victim of the financial crisis and was put on care and maintenance pending an improvement in the credit markets. The project had been given the goahead to proceed to construction and operation by the Department of Environment and Natural Resources in 2005. The proposed development comprised four years of open cut mining, followed by at least 11 years of subsequent underground sub-level caving operations, totalling an expected minimum 15 years of processing operations.

OceanaGold has recently completed an internal economic and technical re-optimization study for the project and put financing in place to complete development. The latest estimation is that construction will be resumed in the near future with a view to having the first full year of production in 2013.

As responsible business managers, the policy at OceanaGold is to be an industry leader in terms of mitigating environmental impact and achieving

a net environmental gain. As well as rehabilitating the mine sites to a stable landscape which poses no unacceptable risk to the environment, it promises to develop an end-of-mine-life land use that will leave a positive legacy.

In keeping with this policy, the Macraes Heritage & Art Park located on the goldfield is an innovative example of post mining land use.

Developed around what were previously waste rock stacks, the area has become home to large scale artworks by some of New Zealand’s most well regarded artists. Gavin Hipkins has installed a series of nine 6m x 3m billboards depicting mining life while John Reynolds has created a couple of pieces out of the native vegetation on the site.

To increase the tourist potential of the 356 hectares that have already been rehabilitated, adjacent to the artworks are interpreted historical mining and farm relics and artefacts, with all attractions linked by walkways which join the various facets of the park.

The South Island is sparse at the best of times and not necessarily the most ideal job location for single men and women. But at least OceanaGold doesn’t compete with Australia for the harshness of the living conditions. In comparison it has fewer creatures that can kill you and no problems with drought! Once staff members get over the first couple of years, OceanaGold finds they tend to stay, particularly family men and women looking for a peaceful, clean environment in which to bring up children. www.oceanagold.com

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T

his year has been something of a bonanza for copper mining companies, with price increases of up to 21 percent, the result of demand outstripping supply. A recent report by Trafigura Beheer BV suggests that supplies will lag demand for at least the next two years, which in turn will further increase the value of copper.

This represents very good news for companies trying to meet the demand for base metals and Spain’s Atlantic Copper received a further boost in October, when King Juan Carlos I visited its copper smelter. The Royal visit was made as part of the company’s 40th anniversary celebrations and saw the King unveil a commemorative plaque, shortly after Atlantic Copper had been nominated “Company of the Year” by local business publication Ejecutivos.

The history of copper production in Andalusia pre-dates that 40-year landmark by almost a century, however. In 1873 a group of British bankers and businessmen formed The Rio Tinto Company when they purchased the Rio Tinto mines from the Spanish Government. It was during this period that copper and pyrite ore production became big business, with up to 14,000 workers helping not only to produce these commodities, but also to build 150 kilometers of railway track and a pier in the port of Huelva.

The current site was commissioned in 1970 and has not only focused on copper production; the company has another plant that produces 240 tons per day of artificial gypsum, used in construction, cement plants and for the reinforcement and sealing of waste dumps.

Another secondary business is the production of precious metals, which separate during the copper purification process at the company’s electrolyte refiner, while the purification of liquid effluents has produced saleable zinc oxide.

Although the company has its corporate headquarters in Madrid, the Huelva site plays a significant role in the economy of Andalusia. The plant’s proximity to the port gives Atlantic Copper a commercial advantage, with the Western European market (accounting for nearly 20 percent of global copper consumption) on its doorstep.

Atlantic Copper has consequently become one of the world’s biggest copper producers and is the leading exporter in its domestic region, with €1.343 million revenues last year. The company employs 500 workers in Andalusia, with an estimated 3,500 people working indirectly with the business.

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Ad ch

The soaring pr New Year. And producers of c

Atlantic Copper

dvancing hemistry

rice of copper looks set to continue well into the drew Pelis looks at how one of the world’s largest copper has equipped itself to cope with rising demand

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“The plant’s proximity to the port of Huelva gives Atlantic Coppe commercial advantage, with the Western European market on its doorst

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er a tep”

Atlantic Copper

In 1993, Freeport-McMoRan Copper & Gold (the world’s largest publicly-traded copper company), acquired Rio Tinto Minera, SA in a move that would prove hugely significant for Huelva.

The following year the company decided to focus on its metallurgy business, investing more than €200 million to double Huelva’s smelting and refining capacity and ensure the company’s compliance with environmental requirements.

Huelva remains the company’s core production site, where the mineral concentrate is smelted and copper is produced in the form of anodes and cathodes. The process begins with raw material copper concentrates and recycled copper delivered from the nearby Port of Huelva to the foundry warehouses where they are mixed.

The facility uses three industrial dryers to reduce humidity and aid the smelting process in a flash furnace, where an intermediate product called matte is created, which increases the average copper content from 30 percent to 62 percent. A series of converters then separate the copper from other chemicals such as sulfur and iron, with sulfuric acid another of the by-products that Atlantic Copper produces and sells, alongside copper slag.

The anode produced at Atlantic Copper has a minimum copper content of 99.5 percent and the production process has been ISO 9002 certified. The company produces 310,000 MT of anodes annually, to create the copper cathodes which are used to make high performance copper wire rod.

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With strong financial support from its parent group, the company has made a series of major infrastructure investments and the procurement process embraces Atlantic Copper’s commitment to safety and the environment. Its Quality System stipulates that potential vendors must attain preapproval and undergo monthly evaluations.

The company uses quality control technology that has been certified by AENOR (Asociación Española de Normalización y Certificación – the organization responsible for Spanish quality standards), and its “FMS Cathode” is registered as Grade A on the London Metals Exchange (LME) and Grade 1 on the New York Commodities Exchange (COMEX).

AENOR has also played its part in helping Atlantic Copper to carry out its environmental action plan. The company devised an Environmental Code of Conduct outlining its commitment and

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then introduced a Comprehensive Environmental Management System (SIGMA), certified by AENOR according to ISO 14001 and Public Environmental Declarations audited and registered with EMAS. The company has invested over €100 million into environmental initiatives since 1994 and has pledged to the Department of the Environment that it will reduce emission and liquid dumping levels. Atlantic Copper works closely with the companies that develop the latest innovations in copper production and regards itself as a pioneer (in the copper industry) for its use of Best Available Technologies (BATs), which complement both the quality and environmental goals of the business.

One of the main technologies Atlantic Copper has implemented has been the Outokumpu Flash Smelting Process, which provides an environmentally-sound technique for the production of copper and also nickel—another

Atlantic Copper

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The expertise and services offered by RHI are based on state-of-the-art refractory technologies, integrated raw-material supplies, a worldwide network of manufacturing plants continuously supported by RHI’s research and development center. Our highly motivated and competent experts are cooperating with acknowledged R&D facilities on a global platform in order to continuously spawn technological innovation.

by-product from Huelva.

The company’s investment drive shows no signs of slowing, with the announcement in December 2010 that it has invested over €20 million in transport infrastructure improvements which will present new market opportunities for its acid products.

A new facility will provide greater storage space and improved connection lines between the site and the port, while work at the port will allow Atlantic Copper the scope to load bigger vessels, paving the way for export to expanding markets such as mining group Freeport facilities in the United States and South America.

The combination of rising commodity prices, a well-developed infrastructure and a supportive parent group, means that Atlantic Copper can look ahead to a busy future, with one of the world’s most advanced chemistry sets. www.atlantic-copper.es

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