The Pilbara’s productivity push: drilling down to the small stuff

Drones surveying iron ore mine

[Editor’s Note: Drones are being used to survey the Pilbara’s newest iron ore mine.]

This post originally appeared on http://www.afr.com/business/mining/the-pilbaras-productivity-push-drilling-down-to-the-small-stuff-20160912-greo6p.

After a tumultuous four years at the helm of Roy Hill Holdings, chief executive Barry Fitzgerald says the real adventure is only just beginning.

Mr Fitzgerald has overseen the $10 billion Roy Hill iron ore project’s development since 2012, steering it through a challenging construction phase, securing a massive $US7.2 billion finance deal and seeing off its first shipment of ore in December, a little over two months behind schedule.

Now in the process of scaling up to its nameplate capacity, Mr Fitzgerald says Roy Hill is preparing for its “next phase”.

“I want to operate this now,” he told reporters touring the project last week. “We still have things to do and wars to win.”

An ore train at the Roy Hill iron ore mine in the Pilbara.
An ore train at the Roy Hill iron ore mine in the Pilbara. Tess Ingram

The project, 70 per cent owned by Gina Rinehart’s Hancock Prospecting, is the new kid on the block in the Pilbara, a more than 60-year-old iron ore mining region characterised as much by its red dirt as the fierce competition between long-standing majors BHP Billiton and Rio Tinto, and Australia’s “third force” in iron ore Andrew Forrest’s Fortescue Metals Group.

Roy Hill’s development has been watched closely by its neighbours and the broader market, keen to anticipate the impact its increasing supply will have on a fluctuating iron ore price, now hovering around $US55 a tonne.

Mr Fitzgerald conceded Roy Hill’s ramp-up to its full 55 million tonne a year capacity was unlikely to meet an “aggressive” end-of-year target, but he did not appear too concerned.

Reliability

More important than a quick ramp-up has been ensuring Roy Hill will be a reliable, low-cost, innovation-focused iron ore project. And it is the latter Roy Hill’s neighbours have been the most curious about.

A Rio Tinto autonomous mining truck. Roy Hill CEO Barry Fitzgerald says he doesn't see the value in them.
A Rio Tinto autonomous mining truck. Roy Hill CEO Barry Fitzgerald says he doesn’t see the value in them.

After more than two years of stripping costs out of their businesses in step with the plummeting iron ore price, analysts have questioned how much more the Pilbara’s big three can do.

Rio said earlier this year it had saved more than $1 billion across its iron ore operations since 2012, while BHP has said $US400 million in controllable costs were squeezed from its Pilbara mines over the course of the 2015 financial year.

Fortescue beat market expectations with its rapid reduction in operating costs to as low as $US13.10 per tonne at the end of June, achieved through a mix of mining improvements, roster changes,  productivity measures and the help of external tailwinds, such as a lower diesel price.

Given how often the miners declare the success of “productivity programs” or “efficiency initiatives”, it is easy to write it off as rhetoric. But according to Deloitte, the collective drive to lift efficiency as the sector’s volumes increase means productivity in the West Australian resources sector is forecast to increase 40 per cent between 2014 and 2017.

A LNG tanker loading at North West Shelf venture's Karratha plant.
A LNG tanker loading at North West Shelf venture’s Karratha plant. Supplied

Driverless trucks

From the ground it is clearly evident a raft of smaller, incremental changes and new technologies are making a difference to the companies’ bottom lines.

“My view about autonomy and robotics is that it is a fact of the way of the future,” Mr Fitzgerald said.

The Pilbara’s newest iron ore mine utilises drones for surveying, has integrated communication and data systems across its mine, rail and port, its rail is autonomous-ready and it is trialling a robotic refuelling device.

“The truck drives up to the device and a robot opens the door of the sea container,” Mr Fitzgerald said.

“It then undoes the fuel cap, connects the fuel hose and fills the truck. We see some timing benefits in the sense it can fuel trucks at about a third of the time, also occupational health and safety issues in not handling the hoses, and it gives us greater flexibility to move it around the pit.”

However, the driverless trucks its rivals are trialling are not in use at the project. Mr Fitzgerald said the company could not see the value in them, perhaps because its labour rates were “considerably lower than some of our competitors”.

“When we started six years ago we had the ambition to go straight to autonomy but we didn’t believe it was advanced enough at that time,” he said.

“Now we think it is probably advanced enough we just don’t see the cost benefits. Obviously our competitors do and we question ourselves all the time about what they know that we don’t.”

Growing fleet

About 140 kilometres south-east of Roy Hill at BHP Billiton’s Jimblebar project 15 autonomous trucks trundle around the 45 million tonne a year mine, with plans to increase the fleet to 18 by the end of December, out of a total of more than 40 trucks.

After a trial at the company’s nearby Yandi mine, autonomous drills will also be rolled out at Jimblebar from April.

Rio Tinto has an autonomous truck fleet and drills at work in the Pilbara but said earlier this year it would trim guidance for 2017 due to teething issues with the rollout of its automated rail system, called Autohaul.

BHP Jimblebar general manager Andrew Buckley said it was inevitable new technology would present “teething problems” for the industry, but the rewards, in respect to both safety and productivity outcomes, made it worth persisting with.

“It takes time to iron some of those technology issues out but they are not insurmountable it is just working through them,” Mr Buckley said.

While rolling out new technology, BHP is also working to trim costs any way it can, with a focus on proximity.

“Essentially the closer we can get anything to the mine or the ore then it is obviously far more efficient,” Mr Buckley said.

It has on-bench loading units for blasting, boarding ramps to reduce the change-over time for truck drivers and mobile crib rooms and refuelling stations.

Travel savings

The mobile crib rooms – where workers go for two meal breaks each 12-hour shift – save as much as 80 minutes each shift in travel time, a significant improvement during a point in the market cycle when every tonne of ore sold counts.

Looking out over the sparkling turquoise waters off Rio Tinto’s Dampier port there is another obvious change.

Twelve months ago, as many as 10 vessels waiting to take on their precious cargo would have been visible. Now, in an attempt to reduce the fees it pays ship owners for the time their vessels are anchored, Rio has overhauled its booking system to ensure there are no more than two ships waiting on the port’s fringes.

It is understood this has resulted in about a 60 per cent saving in demurrage fees this year, worth tens of millions to the company.

Similarly, the operator of the North West Shelf oil and gas joint venture, Woodside Petroleum, has improved its port performance and can now load a vessel every 24 hours.

By using “race car” best practices at the port, Woodside has been able to decrease the time it takes to prepare a vessel for loading and departure, creating time for about another three vessels to be loaded each year, with each vessel holding roughly $45 million worth of gas.

The Pilbara’s next steps towards lower costs will be smaller and comparatively arduous. But the minor initiatives have the ability to make a meaningful difference and Mr Fitzgerald expects the region’s players will continue keeping a close eye on each others’ cost-cutting progress.

“We look at what everyone has done,” he said. “We all need to be very conscious of what everyone is doing.”

The reporter travelled to the Pilbara as a guest of the Chamber of Minerals and Energy WA.

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