Nordgold: Business System of Nordgold Oleg Maksimov, Head of BSN April 2015
Business System of Nordgold (BSN) Description • In 2012, Nordgold took an active decision to make operational efficiency a top priority for the company: • Management has started a bottom-up approach to develop the BSN programme • Efficiency designated as one of the core values of the company • Key target of BSN is transform the workforce and improve operational processes • We created BSN as an “umbrella” brand for all efficiency improvement initiatives in the company • BSN is being implemented by a dedicated group of internal consultants (referred to as Navigators) BSN AIMS TO ESTABLISH BEST-IN-CLASS SUSTAINABLE PROCESSES AT THE COMPANY’S OPERATING ASSETS, ENSURING THEY ARE AS EFFICIENT, LOW COST, SUSTAINABLE AND, ABOVE ALL, AS SAFE AS POSSIBLE Total production Continuous optimisation improvement 1998 2009 2000 2011 Production Business consulting Systems 2 2
BSN Consists of 5 Components 1 2 3 4 5 WORKFORCE OPERATIONAL COSTS SAP HSE SUPPORT MODULES IMPLEMENTATION TRAINING IMPROVEMENT REDUCTION Lean Academy and Turnaround Consumption rates HSE dialogs Implementation of training programmes in mining and milling HSE models, three waves of SAP Idea of the month Overall effectiveness areas project reports, audits SG&A reduction Post implementation 5S concept of equipment (OEE) White boards and programme Headcount reduction control and implementation SOPs development KEY Benchmarking improvement Kaizen teams, TOP-20 materials Exchange of best Debottleneck PROJECTS Visualisation Price reduction practices Standardisation modeling (volume) Outsourcing vs. GTS centers Communication insourcing analysis Management of (dialogues) Investment projects ♦ Change in people’s ♦ ♦ ♦ ♦ Best operational Target TCC & FCF Zero fatalities Process support by mindset, cultural practices/processes SAP system ♦ ♦ Budget effect on Best industry LTI RESULTS transformation ♦ ♦ Budget effect on EBITDA Consolidation and ♦ 2% structural effect ♦ Best practice EBITDA standardisation of on EBITDA sharing information 3 3
BSN Contribution to Nordgold’s EBITDA • In 2012-2014, Nordgold realised more than US$124 million of EBITDA gains via: • Costs reduction (c. 60%) • Productivity improvements through implementation of debottlenecking projects (c. 40%) • Nordgold is targeting a further US$55 million EBITDA gains in 2015 but the focus has now shifted from costs reductions to increasing productivity • 3 mines in West Africa estimated to contribute the largest share, accounting for c.70% of the total BSN Effect on EBITDA, 2012-2015, US$ million BSN Effect on 2015 EBITDA by Source 64 55 7 52 7 8 19 6 43% 25 57% 17 43 39 2 5 19 10 2012A 2013A 2014A 2015E Cost Productivity 4 4 Undeground Russian Open Pits West Africa reduction improvement
Sustainability of BSN is Built on 5 Key Elements Участок горных работ Спонсор А. Надю (A Nadeau) 1 2 3 4 Руководитель МР / АН/ АН, ФЯ/ / Навигатор 1 ИС ТК ФЯ/ИТ ТК Положение на 2- й неделе Efficiency Projects Motivation & KPI Повышение Увеличение Повышение Повышение Общие цели OPS 2 эксплуатационно й готовности коэффициента использования производительно сти производительно сти Контроль техобслуживание Мобильное Оптимизировать график смен дительности произво - буровых работ 4 Инфраструктура Кайзен переходника Поломка Оптимизация методов перфоратора выемочных работ 5С масляная колонка Заправочная / Подготовка и заказ в гараже буровой площадки Поломка Процесс Контроль качества Визуализация переходника перфоратора HSC 3 бурения Поломка Стандартизация переходника перфоратора Временные нормы HSC Расширить объем «банка идей», чтобы включить предложения по улучшению производственных показателей и показателей усовершенствованию Предложения по ОТиПБ Нематериальное поощрение (лучшая идея месяца) Материальное поощрение Generation of efficiency projects is Reward based on performance part of BP / SBP process against KPIs on an annual and Each Department Head is quarterly basis for Department provided with an efficiency plan Heads, linked to gold production, OCF and BSN efficiency target Projects generated by joint teams (10-15%) (BSN + production) Operational Efficiency Communication Setting Targets and Growth BSN achieved US$64 million of Weekly status update at each mine EBITDA gains in 2014 sites Targeting more than US$55 million Monthly dialogue with Dep COOs in 2015 Quarterly review by CEO Dedicated Team Project office and Navigators on- site at each mine Line managers responsible for implementation 5 5
Case Study – Lefa Turnaround Lefa – Turnaround case Cost dynamics and dore production, 2013-2014 When we started Lefa turnaround programme, the mine generated negative FCF and had AISC well above US$1,000/oz During 2 years management team with BSN support were working under efficiency improvement With the increased level of monthly production total cash cost spends decreased by US$3.5-4 million across the whole value chain (mining, processing, SG&A) Key success factors of the turnaround program: Headcount reduction from 2,300 to 1,500 employees, as well as overtimes reduction Lower reagent consumption by improvement Monthly production, oz Monthly cost, USD 000’ of control and processes automatisation Mine planning, grade control improvement Jan13 Dec14 and mining from new pits – Firifirini, Kankarta North Monthly Production: Control over SG&A, including travelling costs Monthly Spending: Sustainability lower costs of logistics AVERAGE 2013 - US$19.1 mln AVERAGE 2013 - 13,900 oz Training of operators Accurate planning to reduce overstock AVERAGE 2014 - 16,899 oz AVERAGE 2014 - US$15.5 mln Improvement of overall efficiency of equipment (OEE) 6 6
Case Study – Tires Costs Decrease Nordgold – reduction of tires consumption Dump Trucks, thsd. USD Dump Trucks, Tires Consumption, piece Mine Act 2013 Act 2014 Diff. Mine Act 2013 Act 2014 Diff. Aprelkovo 462,000 369,009 -20% Aprelkovo 160 115 -28% Berezitovy 827,000 374,969 -55% Berezitovy 128 108 -16% Neryungri 767,000 508,662 -34% Neryungri 99 42 -58% Lefa 5,362,000 2,034,636 -62% Lefa 269 121 -55% Bissa 663,000 1,279,310 93% Bissa 36 71 97% Taparko 1,682,000 694,599 -59% Taparko 229 94 -59% Total 9,763,000 5,261,185 -46% Total 921 551 -40% TIRE MANAGEMENT PROGRAM Total spending on tires was decreased by almost 50% YoY in 2014 Volumes of tire consumed were reduced by 44% YoY The significant improvement was achieved due to the implementation of tire GTS program (started in early-2013) Key elements of the program includes: Launch of repair workshops to extend the life of damaged tires Regular pressure check, development of tire rotation procedure Road management with regular grading and sheeting, especially during the rain season. Use of crushed material to maintain the roads n n n n 3 3 3 3 Root cause analysis for each tire damage e e e e 0 0 0 0 w w % % w w % % Development of tire management software for reporting and data capturing 7 7
Case Study – Fuel Economy Savings on Fuel / HFO / Oils with Total • Lefa has longstanding relationships with its Fuel/HFO/Oils suppliers with the largest supplier accounting for c.US$71 million of annual spending • Last year BSN together with Lefa team tested the quality of supplied products and identified the following issues: - HFO shortfall in calorific density of HFO - LFO low grade of color and lub oils contamination - Decline of quality of oil supplies • The procurement team conducted a further market review comparing the prices among other potential alternative suppliers, which revealed scope for material price reduction from the largest supplier Results: • Total annualized savings of US$6.4 million • Annualised savings on HFO of US$2.0 million driven by: - Change in pricing mechanism to be based on Platts FOB MED HFO Cargoes 3.5% - Improvement in transportation costs • Annualised savings on LFO of US$0.3 million due to additional discount of 100 GNF/l • Annualised savings on Lubs of US$4.1 million 8 8
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