This document discusses ways for natural resource companies to sustain profits in a flat commodity market. It suggests focusing on the four drivers of return on capital: revenue, costs, asset utilization, and organizational effectiveness. Specific areas mentioned to improve include production quality to avoid penalties, providing higher value-added services, improving productivity, renegotiating supply contracts, optimizing maintenance practices, and implementing an effective management operating system. The consulting firm, BDO, offers an operational improvement methodology to identify sustainable ways to increase profitability through working with clients.

1. CONSULTING
INFOCUS
SECTOR
Natural Resources
SUSTAINING PROFITS IN A FLAT MARKET
SO YOU’VE REDUCED THE CORPORATE OFFICE HEADCOUNT –
THOSE BUSINESS IMPROVEMENT AND FEASIBILITY STUDY GUYS
NEVER ADDED ANYVALUE ANYWAY!
You’ve cut site staff and exploration teams and stopped discretionary spend – especially those
consultants! And you’ve taken a pay cut and reduced the board size. What next? Will these
cuts keep the business afloat if metal prices stay subdued for another six months? What if the
market improves – can you respond?
While eliminating staff and cutting one-off costs helps the bottom line temporarily, the real
question is: how can we maintain profits in a sustainable way in a flat market?
Let’s start by considering what the business owner or shareholders want – Return on Capital
(ROC). ROC is Profit divided by the Capital Base. Profit is Revenue less Costs and the Capital
Base is made up of our Assets and People. So how can we improve revenue, costs, asset
utilisation and organisation effectiveness? By looking at each of these four drivers we can
identify areas where operational improvement can occur that will deliver sustainable profits.
KEY CONTACTS
CRAIG HOOK
Partner
D: +61 8 6382 4776
M: +61 421 040 863
craig.hook@bdo.com.au
MAURICE ARGENTO
Partner
D: +61 8 6382 4805
M: +61 409 992 376
maurice.argento@bdo.com.au
Revenue
Efficiency
Business Development
Operations
Plant
Planning and Reporting
Estimating / Tendering
Procurement
Asset Leasing
Structure
Contract Management
Logistics
Working Capital
Culture
Cost
Efficiency
Operational
Performance
Improvement Asset/
Capital
Efficiency
Management
and
Organisation

2. This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The
publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information
contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these
matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/
or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not
taken by anyone in reliance on the information in this publication or for any decision based on it.
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member firm in Australia is a separate legal entity and has no liability for another entity’s acts and omissions. Liability limited by a
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www.bdo.com.au
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Despite commodity prices being weak there are still ways to improve Revenue. Are you
producing a quality product that doesn’t incur impurity penalties? If you are a mining services
company, are there higher value add services you can provide that will also improve your
customers bottom line?
Cost Efficiency is about Productivity – both Labour and Equipment. Can you produce the same
amount of ore but with less people and equipment? Increase the availability of equipment,
reliability and change rosters. Can you keep the workforce and equipment fleet the same but
mine more ore? Increase the working time to produce ore while people are rostered on and
engine on.
Can you roster maintenance and operating crews better to reduce travel time, inspection times,
five day roster to eliminate a crew, etc?
One area that is often overlooked is Procurement. Many supply contracts may have been put
in place when you were constructing but are not designed to reduce costs whilst in operation.
Maybe you had little choice a few years ago and had to sole source – now there is more
competition so re-tender. Can you eliminate stores now there are fewer market shortages of
key materials?
A big temptation for many mine owners is to defer maintenance – after all, that process plant
is new so shouldn’t need much maintenance anyway? Look at ways to reduce maintenance
costs yet maintain equipment reliability. What simple preventative checks can be put in place?
Is it better to service on fixed time or condition based – what suits the mine schedule the best?
Look at ways to have suppliers help – can they hold critical spares? Can they see better ways
to increase equipment availability?
The last area but often overlooked is people. Improvement comes from accurate and timely
information so correct and timely decisions can be made. Do you have a Management
Operating System (MOS) that ensures plans are up to date, roles are clear and operational
variances are dealt with promptly?
BDO Consulting has a methodology to identify operational improvement areas where you
can sustainably increase profitability. Our consultants are experienced in working with your
operational teams to identify operational improvements backed by rigorous analysis and
measurement of financial benefits to the bottom line.
So now you’ve made the hard calls on headcount reduction how will you go about
implementing Operational Improvement to deliver sustainable profits?