Value Driven Cost Management: A Key to Continuos Improvement of Mining

"The decline of the “super cycle” has placed an end to a decade of production-focused strategies, with operating cost growing at rates higher than production. Today, the sector is placed on a tough ride and forced to shift focus to cash preservation and efficient cost management. However, most cost management systems in the minerals industry are not conceived as value driving tools but to meet financial accounting and reporting needs. This research draws from a the development of an innovative cost management methodology that applies Activity-Based Bottom-Up cost budgeting and continuous improvement tools to develop a value-driven cost management system for sustainable improvement of operational efficiency and cost reduction. The methodology was successfully tested in the Andina underground mine III Panel sector of Corporation del Cobre (CODELCO), in Chile. INTRODUCTION Cost management is fundamental to profitability of any industrial project. Even more essential in mining, an industry that deals with commodities, which prices are dictated by the market and are beyond the management capacity of the company. The end of the mining “super cycle” and the advent in 2008 of the Global Financial Crisis (GFC), placed an end to a decade of production focused strategies, with operating cost growing at rates higher than production. The sector was placed on a tough ride and forced to shift focus to cash preservation and efficient cost management. Many mining companies have seen themselves into the urgent need of cost management systems capable of achieving sustainable productivity gains and consistent profitability. Cost management is composed of three main processes: estimation, budgeting and control [1]. A number of conventional techniques have been used for cost estimation and budgeting for many years. However, most cost control systems in the minerals industry cannot be referred to as “cost management” since they are conceived to fulfil accounting and reporting needs, rather than to improve operational efficiency [2]. In general, conventional cost budgeting and control systems in mining use a “top-down” methodology, which lacks of necessary details, and fail as a management tool leading to undesirable results [3]."