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MNP3703 ASSIGNMENT 1 SEMESTER 2 2018
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ADDENDUM A: CASE STUDY FOR SEMESTER 2R95 million saved in SA copper mine's energy costs
The mining industry is facing challenges that range from pressures on commodity prices through
to increasing costs of simply getting ore out of the ground. The primary concern for mining
companies is the spiralling costs of energy - and when you have an annual electricity bill that is
around R500 million reducing these costs is key. But, where there is a will and the skills to address
energy costs, innovative ways to economise can always be found, said Ethel Nyembe, head of
Small Enterprise at Standard Bank. She made these comments when reviewing a recent episode
of The Growth Engines, highlighting the Palabora Mining Company’s partnership with local SME,
Ensight Energy Solutions.
“When it comes to an SME supplier selling specialist services to a major mining company, the
level of confidence the supplier has in the capabilities and skills of their people is central to winning
the business. When they are so confident that they work on a contingency basis, with payment
only being due once the desired results are achieved, then there is little to no reason that the SME
supplier won’t secure the contract. For the Palabora Mining Company and Ensight Energy
Solutions, the resulting partnership to reduce energy costs was one created in copper mining
heaven,” said Nyembe.
Kobie Naude, a General Manager at the Palabora Mining Company, said that the mine produces
about 60 000 tonnes of copper per annum for international markets. “Mother earth gives you what
it has to mine. We cannot control the market or the prices. All we can control is costs. With energy
being the second-largest cost in our business, we had little option but to take action on this front,”
said Naude.
The decision to appoint Ensight Energy Solutions has seen the mining company save R95 million
to date. Palabora Mining Company is looking forward to total savings of close to R200 million over
the next three years. A dedicated Ensight team, working with Palabora employees, generated
ideas and projects to save electricity. Instead of just recommending actions, Ensight also became
involved with the task of delivering projects and results. “We work for companies that generally
Page 1 of 8
,have energy costs of around R500 million to R1,5 billion per annum, said Rod Welford, CEO of
Ensight Energy Solutions. “Our objective is not only to save energy, but also to improve the
environmental outcomes of the mining companies concerned.” Ensight does everything in its
power to ensure that the customer only pays a basis of the overall percentage in energy savings
that the customer has achieved.
There is a perfect storm brewing in South Africa when it comes to oil and gas, mining, chemical
production and steel manufacturing. From 2011 to 2015 the cost of energy has trebled for every
tonne of ore mined or produced. It is this perfect storm - associated with increasing energy costs,
deeper mines and the uncertain costs of commodities that created an opportunity for specialist
services designed to intervene in these sectors.
"Making changes does not mean changing technologies midstream", Mr Welford said, “we are
technology neutral. We believe that by using existing technologies better, you can transform the
way you operate to save energy and costs.” This is a people process, which concentrates on
examining and changing the way things are done, before retrofitting new equipment and
technologies. As such, buy-in from management is essential.
A side-benefit is identifying other opportunities for efficiency in transport, logistics and a range of
other ways that can improve the productivity of the companies concerned. “When negative factors
combine to create a difficult operating environment, opportunities are created for those who have
the specialised skills to operate within a niche activity and generate solutions. The lesson for
business is two-fold; firstly, there is always potential in stormy times to improve processes and
outputs; and secondly, selecting the correct partner cannot only improve things in one particular
area, but also offer additional benefits. In the case of Palabora and Ensight, the obvious benefit
is energy savings. Not so obvious, but just as important, is the impact these programmes have
on the company being able to adopt other efficient practices and achieve further savings,” said
Nyembe.
Reference:
Fin24. 2015. R95m saved in SA copper mine's energy costs. [Online] Adapted from:
http://www.fin24.com/Entrepreneurs/News/R95m-saved-in-SA-copper-mines-energy-
costs20150713 [Accessed: 31 July 2015].
Page 2 of 8
, Question 1
The interaction between Palabora Mining Company and Ensight Energy Solutions may be
plotted on the continuum of buyer/supplier relationships. Under which of the principle
classes on this continuum will the interaction between Palabora Mining Company and
Ensight Energy Solutions fall? [11]
In your answer you should address the following:
• Indicate the relationship type. (1)
• Discuss each of the following characteristics on the continuum:
o contributions to new projects
o duration o financial focus o
relations o resources (5)
• Provide quotes from the case study for each of the identified characteristics on the continuum
to substantiate your answer: (5)
Use Figure 1.4, Study Unit 1 to answer the question
Ensight Energy Solutions and Palabora Mining Company fall under the alliance relationships
on the continuum.
Suppliers are involved at an early stage in their contributions to new projects:
"A dedicated Ensight team, working with Palabora employees, generated ideas and projects to
save electricity. Instead of just recommending actions, Ensight also became involved with the
task of delivering projects and results."
The relationship remains for a long duration.
"Palabora Mining Company is looking forward to total savings of close to R200 million over the
next three years."
The financial focus is on total cost.
"The decision to appoint Ensight Energy Solutions has seen the mining company save R95
million to date. Palabora Mining Company is looking forward to total savings of close to R200
million over the next three years."
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