By: Martin Creamer
27th October 2006
Against the background of the Sasol group imperative of pooling together what belongs together, Sasol Mining and Sasol Synfuels have taken a joint decision to establish the new shared services business unit in which the services that they both share will reside.
“I have only two aims for the new unit and those are that it must improve theservice and do so at lower cost,” Rademan says, addingthat he is anticipating the first cost benefits to be experienced in the next 6 to 12 months.
The unit is preparing to come into autonomous service from January next year.
It is expected that other Sasol companies, includingSasol Polymers, Sasol Oil and Sasol Technology, will also make use of the Secunda shared services business unit.
Meanwhile, Sasol Mining andSasol Synfuels have pooled togethertheir common functions and createda stand-alone shared services organi-sation referred to as Secunda Shared Services.
Large portions of procurement and supply, information management, properties management, corporate affairs, equipment refurbish-ment, human resources, finances as well as site-related fire, medical and laboratory services, have become the preserve of the new business unit MD Marius Brand.
Without any retrenchment, this will result in Sasol Mining employ-ing 500 fewer people and Sasol Synfuels 1 700 fewer by the end of February 2007 and freeing the two companies to channel their unincumbered efforts into coreoperations.
This will take Sasol Mining’s employee complement to the 6 900 mark and the Sasol Synfuels’ complement to 4 800 Only eight years ago, in 1998, Sasol Mining employed 10 500 people and mined 52-million tons of coal a year, a production rate that has now declined to 43-million tons a year.
This lower tonnage has been the consequence of the Sasol group deciding to use natural gas piped from Mozambique and to give Anglo Coal a market inexchange for coal reserves in the Kriel-Syferfontein transaction.
In producing nine-milliontons fewer a year, Sasol Mining has had to deal with the challenge of higher unit costs.
In the year to June 30, 2006, it managed to keep costs 2% below the producer price index of 5%, for which it was praised in the results presentation to analysts.
“Once a certain wave of improvements has been achieved, a newinitiative has to be presented, which we intend introducing.
“The secret of success of cost containment is sustainability and we will be continue to work at it,” Rademan promises.
Despite its decrease in production volume, Sasol Mining remains a steady contributor to the Sasol group’s overall operating profitperformance.
The operating profit of Sasol Mining in the 12 months to June 30, 2006, was R59 million, 4,8% down on the R1,239-billion in the previousperiod.
Moreover, during the last financial year,machine productivity increased 7% and the cost of sales increases were contained to 5% a ton of product sold.
There has been an improvement in the tons mined per person a year from just over4 000 t per person a year to around 6 000 tper person a year.
Sasol Mining will be spending approxi-mately R900-million on sustenance and brownfields capital projects in the financial year to June 30, 2007, following the R600-million spent in the last financial year, which made provision for the Irenedale and iThemba Lethu shafts, the R229-million Sigma-Mooikraal mine in Sasolburg and the R320-million project for the ‘reserve-for-market’ Kriel South transaction with Anglo Operations. “For the foreseeable future, our capex will invariably be approximately R800-million a year,” Rademan forecasts.
There are no new greenfields operations planned at this stage.
Both vertical and horizontal drilling con-tinues to be carried out, however, in order to learn more about the reserves and to use that knowledge to mine more efficiently.
On average, coal quality has been decliningmarginally, with a slight increase in the ashcontent and a slight lowering of the dry ash-free content. Moreover, coal seams in some reserve areas have become thinner.
“But what we have in situ, we can still gasify very efficiently,”Rademan explains.
The basic equipment needed in a conventional mining section includes a continuous miner (CM), roof-bolters, shuttle cars and feeder breakers, along with the electrical reticulation needed to power that equipment.
Since 1997, Sasol Mining has been focusing heavily on the performance of in-section equipment.
New 20-t electric shuttle cars have been introduced and, for both productivity and safety reasons, more twin-boom roof boltershave been deployed.
An acitivity targeted for improvement is insection sweeping.
A two-person Sasol Mining team, made upof Pierre Jordaan and Bongani Mabaso, has returned from the US with many interesting ideas, Jordaan having been tasked with studying mining production and Mabaso with bringing in new ideas around engineering excellence.
The US was chosen because of the high level of productivity that takes place there and the tons per person a year in the US mines being far higher than in South Africa.
Rademan reports that the tons perperson a year inthe US is anything between 15 000 and20 000, whereas in South Africa it isbetween 6 000 and 8 000.
While it is notpossible to make adirect comparisonbetween mining inthe two countries, however, because the shaft systems in the US are considerably different to those in South Africa, the team was sent was to pick up tips on howproductivity can be improved in Secunda.
Interestingly, Sasol Mining’s in situ production using the tons per CM per shift yardstick, was not that different from Secunda’s – “and, in someinstances, we are even better,” says Rademan.
But it is in the use of labour outside of theproduction areas and the manner in which the US organises the logistics of getting spares underground that were far more efficient.
For instance, suppliers are made to deliver far closer to the production face, which minimises double handling and red tape.
Coal under the ground knows no boundary, although ownership of that coal has, over the years, been determined largely by farm fences on surface, which have become the underground boundaries.
“We are always keen to study all synergistic opportunities. We have the Isibonelo model and it has proved very successful. That model can be migrated to other opportunities as they arise,” Rademan confides, but he cautions that different opportunities generally have their own unique aspects and these have to be carefully studied.
Three years ago Sasol Mining launched the strategically themed Project 2010. The six parts of this strategy are: • mining-charter compliance; • continuous improvement; • safety, health and environment; • business and reserve optimisation; • product, market and logistics; and • winning with people, which Rademan regards as the most important of the six.
Sasol Mining identified those six themes, each of which embracesseveral specific initiatives.
When Rademan took over as Sasol Mining MD from Jannie van der Westhuizen four years ago, there was a significant change in South African mining’s regulatory environment.
The country was just entering the era of the new Minerals Act, which was enacted in May 2004, and with it came the Mining Charter.
Sasol Mining then aligned its strategy to the changed regulatoryenvironment, against the background of Van der Westhuizenhaving overseen a highly successful turnaround.
This was brought about through a project known as Renewal, which brought the company down the cost curve dramatically and won for it a global award for miningexcellence.
The second major change for Sasol Mining was the Kriel-Syferfontein reserve-for-market transaction, which was concludedwith Anglo Coal. This has had asignificant impact on Sasol Mining and led to the establishment of the Isibonelo colliery, the first outside source of coal for the Sasol Synfuels factory.
The third major change was the conversion of Sasol’s Infrachem chemicals operation in Sasolburg to natural gas from Mozambique instead of coal mined nearby.
The first aspect of the Mining Charter that Sasol Mining tackledwas the aspect of equity ownership.
In order to achieve black economically empowered (BEE)equity ownership, Sasol Mining entered into a transaction with the black-controlled Eyesizwe Coal, headed by Sipho Nkosi.
This culminated in the creationof the BEE company, Igoda, through which Sasol Mining is meeting its BEE equity obligations while still awaiting the final Department of Minerals and Energy (DME) conversion of old-order rights to new-order rights.
Igoda will also assist the com-pany in qualifying for increased coal export allocation through the Richards Bay Coal Terminal, which is being expanded.
The empowered Igoda is owned 35% by Eyesizwe and 65% by Sasol Mining, which, Rademanreports, is in the process of concluding a second BEE transaction, for which an announcement isexpected before the end of this financial year to June 30, 2007.
Though Sasol Mining needs to have 15% BEE ownership onlyby 2009, it hopes to go the fullempowerment distance beforethen and secure 26% BEE ownership ahead of the statutory requirement.
“We fully support the ideals,philosophies and the strategies ofthe Mining Charter. We believe that the Mining Charter is the right thing for South Africa and for Sasol Mining and that it has a higherpurpose and we also intend complying with all other elements of the charter,” Rademan assures.
With regard to employee diversity, he reports that the approach of Sasol Mining is not merely to comply with legislation, but to leverage the full potential ofdiversity.
Currently, more than 38% of the employees at supervisory level are historically disadvantaged and the target is to increase this to 50%, which is 10% above what the charterdemands.
“We believe that there is power in diversity and we believe in going beyond the numbers,” says Rademan.
Since the appointment of Pat Davies as Sasol CEO, Sasol Mining has been driving Project Enterprise, which is to take part wholeheartedlyin the new South Africa, and, in planning terms, Sasol Mining has achieved its charter objectives.
Rademan views the second Project 2010 theme of continuous improvement as being of extreme ongoingimportance, emphasising thatfuture cash flows come fromcurrent improvements.
Sasol Mining’s focus has beenon lowering costs and increasing productivity, using the tons percontinuous miner (CM) per shift as the main yardstick.
Year-on-year Sasol Mining had an improvement of 6% on the tons per CM per shift.
Since the Renewal project was launched in 1998, Sasol Mining has achieved a tons-per-CM-per-shift productivity improvement of 108%.
“We had one small setback inthe 2005 financial year, but we are back on track,” Rademan assures.
The company has the declared aim of wanting to achieve 2 000 tper CM per shift and expects to get very close to a rate of 1 800 t perCM per shift during this financialyear.
Rademan is confident that Sasol Mining can continue to meet its fixed-cost challenges, brought about by having to mine lower volumes as a consequence of Sasol Synfuels’ opting to supplement its coal feedstock with natural gas and also the buy-in of coal from Anglo Coal.
“Volumes have decreased by 12%, and, if costs are allowed to remain the same, unit costs will rise. So we are continuing to work relentlessly on lowering costs,” Rademanreiterates.
In terms of cost reduction, Sasol Mining has a declared action with its unions to cease using hired labour and to avoid retrenchment through redeployment and retraining.
The target is to reduce the number of people by 700 “and we are very close to achieving that”.
Because of the need to maintain coal-production volumes, Sasol Mining secured a short-term contract to supply 150 000 t of coal a month to Eskom for power gener-ation until December 2007.
Eskom is receiving the annual 1,8-million tons of run-of-mine coal from Sasol Mining’s Brandspruit colliery.
But it is unlikely that Sasol Mining will sell more to Eskom once the current contract expires, because Sasol Mining would like to see Secunda coal dedicated to the synfuels plant. If there areopportunities in the Free State, then more transactions with Eskom may arise, Rademan discloses.
Recordable case ratereduced
Within the health, safety andenvironment theme, Sasol Mining has managed to reduce its safetyrecordable case rate (RCR) from 1,51 injuries per 200 000 hours worked in June 2005 to 0,61 in September 2006.
This reduction came about as a result of colossal corporate focus, for which Davies must get credit, says Rademan.
By referring to himself as Sasol’s chief safety officer, he placedsafety at the pinnacle of everyagenda and the improvement has been dramatic.
The second Du Pont audit has been undertaken and the second safety-improvement plan is now being implemented.
When Sasol began with thesafety-improvement exercise as a group, there was a request thatallowance should be made for mines being more complex operations than petrochemicals operations.
Moreover, the operational area of Sasol Mining measures 40 km by 40 km compared to the operational area of Sasol Synfuels being 3 km by 3 km.
But the request was refused and mining was given the same target as that imposed on the rest of the group’s operations.
What was gained was a commitment to provide what was neededfor Sasol Mining to attain that target, but it also had to achieve the 0,5 RCR that had been imposed on all other group operations.
In health and environment, Sasol Mining supports the dust suppression, noise abatement and water treatment requirements laid down for all members of the Chamber of Mines, of which Sasol Mining is a member.
“We believe the requirements laid down are attainable and we are taking steps to comply,” Rademan says.
Sasol Mining is also entering the second phase of its HIV/Aidsprogramme, the Sasol HIV/Aidsresponse programme (Sharp).
“We have had tremendoussuccess with phase one and we began the voluntary counselling process from top management level. That was where the example was set and the process was then taken through the rest of the organi-sation.
“With new recruits into the company, we are now ready for phase two and we see this as a continuous process.”
Business, reserve optimisation
Sasol Mining has two new shaftsystems. The first is the R140-million iThemba Lethu, a split person-and-materials and ventilation shaft. Zulu for ‘our hope’, iThemba Lethu is an extension of the Middelbult mine in Secunda and has been in operation for several months.
The second is the R270-million Irenedale coal mine in Secunda, on which shaft-sinking has been under way for three months and at which work is scheduled to be completed in August 2007. Irenedale is the effective relocationof Bosjesspruit into the Irenedale South reserves.
“These two developments arose out of Project 2010’s strategicbusiness and reserve optimisation theme,” Rademan points out.
Sasol Mining has advanced into the Block Eight reserves and the reserves that were acquired from Anglo Coal as part of the optimisa-tion exercise.
Sasol Mining is sharing expertise on the proposed new coal-to-liquids(CTL) projects in China and is also involved in CTL possibilities in India and the US.
“Coal size is an issue,” says Rademan.
To best suit the synfuels production process, coal must ideally be mined cleanly without generating an excessive volume of fines for value to be added. Thereafter, more value is added in the crushing and the screening of the coal. Finally, the manner in which it is blendedfor entry into the gasifier addsfurther value. The past financial year to June 30, 2006, was also the year in which Sasol Mining successfully bought in 3,7-million tons from Anglo Coal for use by Sasol Synfuels in the manufacture of petrol, diesel and chemicals.
“The coal was of high quality and the delivery reliable,” Rademan says.
Besides its Secunda mining lease area, Sasol Mining also has coal reserves in the Free State, in the Sasolburg area, as well as exploration rights in the Waterberg.
Product, market and logistics
Optimisation models are being built for coal supply to Sasol Synfuels. Following a long period of study, Sasol Mining is now able to predictthe volumes of gas that particular coal packages are able to yield and quantify the correlation between the quality of coal and the gas that can be made from it.
Although gas is no longer made from coal in Sasolburg, which now uses natural gas as a feedstock, methods have also been developed to optimise the Sasolburg coalsupplies, which are used to rise steam for power generation.
Winning with people
Competition for existing personnel is intense and a determined ongoing effort is made to develop existing talent and to retain all talent.
“Love them and never lose them,” is a slogan Rademan expounds on the issue of talent retention.
Edited by: Martin Creamer