By Victor Kunda Mwaba, MBA, CSSBB-ASQ
It is professional dishonesty of the highest order, for Mopani Copper Mines management to prematurely conclude that job losses are ‘inevitable’ in the current business climate in Zambia. For starters, the fundamentals underpinning growth in copper mining, increasing demand for electric vehicles and batteries for energy storage, are very strong. What Mopani Copper Mines needs to do given the current copper market conditions, is produce more copper with the current resources they have, not cut them. Job losses are the easiest cost cutting measure management defaults to, usually just to send a political message to shareholders that management can make tough decisions, and that they are serious about long term business sustainability. Such an easy measure, a low hanging fruit we call in business improvement, is hardly sustainable. Usually, when you cut labor, morale and production go down with it. The business can cannibalize itself if management is not thoughtful in turning around an operation.
The demand for copper, and pricing strength are projected to continue rising in the US and China, not just because of real estate construction, but most importantly, the explosive demand for electric vehicles and battery power storage systems. That is why, in 2017 profits for Glencore, Mopani’s parent company, grew 400%, from $1.38 billion in 2016 to $5.78 billion in 2017. Such explosive growth in profits does not seem like a struggling company. Glencore paid $2.9 billion in dividends to shareholders. (Glencore Annual Report – 2017). Clearly, shareholders are feasting, Zambians are in famine, in addition to facing job losses. According to Glencore’s website, every Mopani Copper Mines employee has 8 dependents. So, for every 100 employees laid off, Mopani would essentially condemn 900 local citizens into poverty, while paying record breaking dividends to shareholders; A tale of two Mopanis, the best of times for shareholders, the worst for local citizens. Not to condone crime, but does anyone wonder why we have an increase in crime, particularly gang activities in Kitwe and other copper mining towns? The lack of commitment to poverty alleviation, and lack of ethical leadership from the current PF government does not help the cause either. We will discuss that issue at a later date.
That is why, in 2017 profits for Glencore, Mopani’s parent company, grew 400%, from $1.38 billion in 2016 to $5.78 billion in 2017. Such explosive growth in profits does not seem like a struggling company.
I get it, I’m a business man and entrepreneurial in the way I run mine operations. The business has to grow the pie, before sharing bigger portions for all stakeholders. At the same time, the social license, the privilege to conduct business in someone else’s backyard, has to be maintained. The rules of business engagement that get deployed in mature economies such as the US, with unemployment rates below 5%, coupled with a robust social welfare system, have to be different from those that get deployed in environments such as Zambia, with unemployment rates over 70% (Estimated by the Afrobarometer.com), with no social welfare system to speak off. If Mopani management did not learn this situational awareness in business school, they need to demand for refunds from their respective universities. On a serious note, leaders at multi national mines need to shift their modus operandi, from a cookie cutter approach of cutting and pasting business improvement methodologies that work well in developed economies, to truly customizing solutions to local conditions. They truly need to think global (Shareholder value), but act local (Maintain the social license)! It need not be a winner take all dichotomy between shareholders and local communities, but a duality of aligned values, interests and dreams.
The best way to lower unit cost ($$/ton) may not necessarily be cutting the divisor ($), but improving the denominator (tons). You can never go wrong with this approach; get more production with the resources you have. Planning is key to getting this done. No doubt, the price of copper will fluctuate from year to year, decade to decade, but that should never be our default excuse where poor planning may exist. In mine planning and execution, there exists a temptation called high grading. In theory, a well planned mine will extract an ‘average’ grade of ore over the life of the mine. The focus on quarterly profits and frequent changes in management brings in the temptation of going after the highest grade in the short term, and leave future leaders with the burden of accessing what is left of the deposit, usually lower grade ore. A well planned mine takes away the shock waves of ups and down in the ore grade, and spread it over the life of the mine. Employees should not suffer lay offs when the ore grade dips, because the planners did not plan well.
Labor is by no means an inconsequential cost component of mining. However, low wages in developing nations and higher grades of ore make up for the underutilization of labor. In a mine setting, or any business setting for that matter, labor has to be controlled, among other cost variables. First, you cut down the use of overtime, secondly, you place employees on reduced work hours, such as from 40 hours a week to 32 hours a week, if possible. If push comes to shove, you lay people off. Also, expatriate labor, which could cost several hundred multiples compared to local labor, must be controlled. Miners must train locals to be able to fill all jobs at the mine site from executive to laborer and everything in between. Relying on expatriate labor is unsustainable in the long run.
Outside of cutting labor, a plethora of canned business improvement methodologies exist, from Six Sigma, Lean, TPM, Toyota Production Methodologies, just to name a few. What is most critical to business improvement is improving the culture of ownership, morale and aligning goals all through the value chain – Inclusive mining. It is in the absolute long term best interest of shareholders for Mopani management to maintain their social license, for sustained return on equity. Do not forget the sweat equity component; labor.
A product of Mpelembe Secondary School, Engineer Victor Kunda Mwaba, MBA is a seasoned operations and business improvement expert based in the USA. He spent decades in mine operations leadership and mine planning in copper, industrial minerals and construction materials. His academic qualifications include, but not limited to BSc – Engineering, MBA in General Management, Certified Six Sigma Black Belt practitioner. Certificate in Business Analytics from The University of Pennsylvania Wharton School of Business. Certificate of completion from Duke University in Oil and Gas Exploration and Production, among other conference attendance and training.
Mr. Mwaba is the Head of Mining and Mineral Resources of Zambia’s newest political party; Movement for Economic Emancipation (MEE)