Analysing operational cost performance in selected gold mines in South Africa

Abstract

Gold mines are essential for the economic well-being of South Africa. It is a job creator and contributes billions of Rands in taxes. South Africa has always been the leader in gold production, but performance has lacked in the past fifteen years. The studies goal was to determine the benefits of using Earned Value Management (EVM) as a tool to track progress and cost on operation cost and to demonstrate its potential benefits. This study was conducted on ongoing-capital-development and stoping parameters with data over the past three years. Further to the physical tracking of the progress, this study demonstrates how effectively EVM can forecast both the Estimated Cost at Completion (EAC) and Schedule at Completion (SAC) when financial budgets and production targets are planned over a longer duration. The EVM methodology gives the manager an understanding of where the progress may end if the current performance regarding cost and production is maintained. During my involvement in capital projects over the past 25 years, I could never understand the need for managing operational costs and capital costs differently. The operating cost planning is done in much more detail but only executed over a year. This funding is called "working cost" and is approved annually. Capital planning is in minor detail, but the budget is approved for longer durations. The project team must complete all deliverables within the extended time frame with approved funding over an extended period. When comparing these two costs, the working cost on a production mine is much higher than the capital, and should these costs be ill-managed, it is likely to have more significant consequences. This study demonstrates the benefit of Earned Value Management (EVM) on operational cost. If any deviations are noted early, the potential impact that may be caused is reflected in the cost and production management. No previous research on this management methodology on working costs was found.