Quarrying & Mining Magazine

Quarry managers’ training Why return on investment is so important

By Andy Loader, First Rock
Let me be blunt: The prime objective of the Quarry Manager is to ensure that the operation makes money!

Yes, I know there will be many of you out there that will be howling for my blood at this statement, but you just have to take a breath and consider this: If the Quarry does not make money the manager has just managed his way out of a job along with all of his staff!

In saying a manager’s first priority is obviously operational profit, ‘how’ they make that return is an equally important role. This involves both using the best and safest extractive practices, in managing their staff and contractors.

Over the years that I have been in the quarrying industry I have seen a number of different types of Quarry Managers. There are those who manage in a certain way, because “that is how it has always been done here” and were taught that approach by their last boss, who must have been right otherwise the operation wouldn’t be a success. And there are those prepared, or even keen, to look at different methods and find ways to improve processes and achieve better results.

The first type of manager is typically not going to be overly self-motivated and unlikely to introduce new or innovative processes unless they have to. Although they may be good at doing what they have always done, they are often not very good leaders and so not ideal managers.

Over the years I have not found any quarry sites that share or feature the exact same sets of financial, physical, geological and market criteria. Even sites that are relatively close to each other, and have the same type of resource, usually require different operating methods. 

The manager that I personally would want to employ is one that is able to make the best use of the existing equipment while taking the time to look at what has been done in the past and evaluate new ideas and concepts that could improve the operation. That is someone who is a combination of the two-manager types mentioned above.

In the current skill shortage quarry owners are obviously looking for managers who have a proven performance record and these are managers who they expect will turn the owner’s ideas, hopes and budgets into a profitable reality. They should be able to show a well-documented record of cost efficient, profitable and safe management performance in their recent history to provide an attractive proposition for hiring at a good level of remuneration.  

We often hear the saying that if we look after the pennies the pounds will look after themselves but in relation to the production in the quarry it doesn’t always prove to be right.

When we are trying to ensure maximum productivity this is not always the right formula to follow, as high volumes of production, when its market value is measured against the cost of production, can end in financial loss.

The competent quarry manager measures production results in dollar terms (product costs and sale returns) not volumes. And the total running costs for a crushing plant do not vary greatly whether we are making a subbase product or an NRB basecourse, but the revenue generated from that production varies considerably for equal volumes of each product when the product quality is low you need to achieve higher production volumes to get the same financial returns.

A manager can spend a lot of time making small savings of a few cents/cubic metre on areas such as blasting; R&M; winning; power; fuel etc, but it is more important financially to ensure that the budgeted production targets are met. An example of not reaching production targets is shown below: 

If a quarry operation is budgeted to produce 600 cubic metres a day of basecourse at a cost of $4710 per day and you divide the cost of the production per day by the cubic metres produced ($4710/600 cubic metres) you get a cost per cubic metre of $7.85 per cubic metre. But if production drops below budget then the cost per cubic metre rises.

Say, if production drops to 500 cubic metres a day and you divide the total cost by 500 ($4710/500m³) you get a cost of $9.42 per cubic metre. If production drops to 450m³/day and you divide the total cost by 450 ($4710/450m³) you get a cost of $10.47 per cubic metre 

If production rises above budget then the cost per cubic metre drops. Say, if production rises to 650 cubic metres a day and you divide the total cost by 650 ($4710/650m³) you get a cost of $7.24 per cubic metre. If production rises to 700 m³/day and you divide the total cost by 700 ($4710/700m³) and you get a cost of $6.73 a cubic metre.

This shows the effect a change in production rate can have on the daily production costs per cubic metre, which in turn can have a huge effect on the total overall financial returns across a budget year if it is ongoing.

In the examples above it shows that if the sale price was $10 a cubic metre at the budgeted level of production (600m³ per day) you would be making approximately 25 percent profit per cubic metre. Yet, with a drop in production of 100 cubic metres  per day you are struggling to even make a profit, and at a drop of 150 cubic metres  per day will cost more to make the product than it is selling for, so you are making a loss on each cubic metre.

On the other hand, if production is increased by 100 cubic metres per day you have increased the profit to approximately 32 percent.

This illustrates the need for a quarry manager to have a good grounding in the basic skills and being able to manage the operation to meet with the PCBU’s budgeted financial targets, in addition to keeping the operation and staff safe and adhering to industry regulations. Because even the safest extraction site hasn’t a got a future if it is not making a return on its investment.   Q&M

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