April 2015
Nordgold: Business System of Nordgold Oleg Maksimov, Head of BSN
2 2
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
1998 2009
2011 2000
Total production
optimisation
Continuous
improvement
Business
Systems
Production
consulting
3 3
MODULES WORKFORCE
TRAINING COSTS
REDUCTION OPERATIONAL IMPROVEMENT
HSE SUPPORT
KEY
PROJECTS
RESULTS
Lean Academy and
training
Idea of the month
5S concept
implementation
Kaizen teams,
Visualisation
Standardisation
Communication
(dialogues)
Turnaround
programmes
Overall effectiveness
of equipment (OEE)
programme
Benchmarking
Debottleneck
modeling (volume)
GTS centers
Management of
Investment projects
Consumption rates
in mining and milling
areas
SG&A reduction
Headcount reduction
TOP-20 materials
Price reduction
Outsourcing vs.
insourcing analysis
HSE dialogs
HSE models,
reports, audits
White boards and
SOPs development
Exchange of best
practices
♦ Change in people’s
mindset, cultural
transformation
♦ 2% structural effect
on EBITDA
♦ Best operational
practices/processes
♦ Budget effect on
EBITDA
♦ Zero fatalities
♦ Best industry LTI
♦ Best practice
sharing
♦ Target TCC & FCF
♦ Budget effect on
EBITDA
BSN Consists of 5 Components
SAP IMPLEMENTATION
Implementation of
three waves of SAP
project
Post implementation
control and
improvement
♦ Process support by
SAP system
♦ Consolidation and
standardisation of
information
1 2 3 4 5
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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$55 million EBITDA gains in 2015 but the focus has now shifted from
costs reductions to increasing productivity
• 3 mines in West Africa estimated to contribute the largest share, accounting for c.70% of the total
19
39 43
25
19 68
10
7
7
2014A
64
2 5
17
2012A 2015E
55
2013A
52
West Africa Undeground Russian Open Pits Productivity
improvement
Cost
reduction
57%
43%
BSN Effect on 2015 EBITDA by Source BSN Effect on EBITDA, 2012-2015, US$ million
5 5
Generation of efficiency projects is
part of BP / SBP process
Each Department Head is
provided with an efficiency plan
Projects generated by joint teams
(BSN + production)
Reward based on performance
against KPIs on an annual and
quarterly basis for Department
Heads, linked to gold production,
OCF and BSN efficiency target
(10-15%)
Efficiency Projects Motivation & KPI
Project office and Navigators on-
site at each mine
Line managers responsible for
implementation
Dedicated Team
BSN achieved US$64 million of
EBITDA gains in 2014
Targeting more than US$55 million
in 2015
Setting Targets Communication
Operational
Efficiency
and Growth
Weekly status update at each mine
sites
Monthly dialogue with Dep COOs
Quarterly review by CEO
Sustainability of BSN is Built on 5 Key Elements
Заправочная /
масляная колонка
в гараже
Мобильное
техобслуживание
Кайзен
5С
Визуализация
Стандартизация
Предложения по
усовершенствованию
Инфраструктура
буровых работ4
Участок горных работ
Поломка
переходника
перфоратора
Поломка
переходника
перфоратора
Поломка
переходника
перфоратора
Подготовка и заказ
буровой площадки
Расширить объем «банка идей», чтобы включить предложения
по улучшению производственных показателей и показателей
ОТиПБ
Нематериальное поощрение (лучшая идея месяца)
Материальное поощрение
А. Надю (A
Nadeau)Спонсор
Руководитель
/ Навигатор1
МР /
ИС
ФЯ/
ТК
Положение на 2-й неделе
1 4
Общие цели OPS2
Повышение
эксплуатационно
й готовности
Оптимизировать
график смен
Процесс
HSC3
Временные
нормы HSC
АН/
ТК
2
Увеличение
коэффициента
использования
Повышение
производительно
сти
Контроль
произво-
дительности
Контроль качества
бурения
АН,
ФЯ/ИТ
3
Повышение
производительно
сти
Оптимизация
методов
выемочных работ
6 6
Jan13 Dec14
Case Study – Lefa Turnaround
Cost dynamics and dore production, 2013-2014
Monthly cost, USD 000’ Monthly production, oz
AVERAGE 2013 - US$19.1 mln
AVERAGE 2014 - US$15.5 mln
Monthly Spending:
AVERAGE 2013 - 13,900 oz
AVERAGE 2014 - 16,899 oz
Monthly Production:
Lefa – Turnaround case
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
of control and processes automatisation
Mine planning, grade control improvement
and mining from new pits – Firifirini, Kankarta
North
Control over SG&A, including travelling costs
Sustainability lower costs of logistics
Training of operators
Accurate planning to reduce overstock
Improvement of overall efficiency of
equipment (OEE)
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Case Study – Tires Costs Decrease
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
Root cause analysis for each tire damage
Development of tire management software for reporting and data capturing
TIRE MANAGEMENT PROGRAM
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%
Dump Trucks, thsd. USD Dump Trucks, Tires Consumption, piece
Nordgold – reduction of tires consumption
new
new
30%
30%
new
new
30%
30%
8 8
Case Study– Fuel Economy
Savings on Fuel / HFO / Oils with Total
8
• 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
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Case Study – Overall Equipment Efficiency (Ongoing)
Nordgold OEE project Downtime analysis
* - first three years
Mining is an important part of our production
chain
We are constantly seeking for mining
efficiency improvement
Detailed productivity analysis for comparable
open pit operations and mining equipment
Recommended opportunities for
incorporation into a business improvement
plan
Estimated potential cost reduction value for
the identified opportunities
UR, act
UR, target
Payload, act
Payload, target
Speed, act
Speed, target
OEE, target
%
%
%
56%
62%
20 / 49 *
20 / 49 *
20,3
21,3
71
13 323
117%
Factor KPI Improvement
+ 11%
+ 0%
+ 5%
Travel empty
285
(19%)
331
(23%)809
(56%)
Loading Travel loaded
154
(11%)
39
(3%)
Utilization time Dump
TA
PA
RK
O
Productive time during the day, min
Productivity per truck
Daily moved, all fleet
km/h
m3/h**
m3
km/h
* Not checked with weight scales
bcm / t
bcm / t
** Productive time included only
OEE calculation