Most emerging miners in bulk commodities such as iron ore and coal will agree their projects are predominantly a logistics and infrastructure challenge.
Once the miner has passed the first challenge of discovering a significant resource, the next major challenge is getting the ore to their customers. Unlike base metal or precious metal projects in which mineral processing challenges need to be overcome, the bulk commodities such as iron ore, coal and bauxite require the movement of significant tonnages of ore from the mine to the customer.
A typical bulk commodity project is made up of four primary components comprising the mine, the processing facility, a logistic channel and an export port facility. Of these components, the logistics channel is the most costly expense for many miners in Australia.
From a capital cost perspective, the logistics channel could include new roads and rail infrastructure which generally represent a significant capital investment and creates barriers to entry for many players in the sector.
From an operating cost perspective, the logistic channel could represent upwards of 50% of the total operating cost for a project. In the current market where commodity pricing has come down from record levels, reducing operating costs is an important area of focus for long term business stability.
Project owners are realising that the logistic channel is an important aspect to focus on. By getting this right during the project development phase significant reductions in operational costs can be realised, more than can be realised through the mine, processing or port component of their project.
The major factors influencing the style of the logistic chain most appropriate for a specific project include:
- The operating output level of the project (2Mtpa, 5Mtpa, 10Mtpa or greater)
- The distance between the mine and the port
- Other third party infrastructure available such as public roads, open access railways, third party railways
- Nearby port capacity, access and availability
- Regulatory requirements and constraints
- Community and environmental requirements and constraints
These items are all interrelated and there are feedback loops between these factors. For instance, a particular processing plant output level may work best for the mine and processing components, but may not be optimal for the logistic solution or port facility. As with all projects, trade-off studies are undertaken to achieve the overall best outcome for the project.
Whilst every project has different distances involved for the logistic solution, most of the recent projects in Western Australia that have moved into production, or are being considered for production, are generally in the 100km to 300km range.
To demonstrate some of the influences on the style of logistic solution to be chosen for a project, a typical project that is 200km from the mine to the port will be utilised as an example.
Starting with the concept of a new producer looking to bring 2Mtpa worth of new production into operation, what are their logistic choices available?
The first choice would be to utilise the existing public road networks and commence haulage with road trains that are legal for public roads. Main Roads Western Australia has a classification system for the existing public roads within WA called the RAV Network. This system delineates the type of roads which can be utilised for different levels of road haulage in tonnages. The highest level is the RAV10 Network which allows for 53.5m long triple trailer road trains to operate at either a 147t gross (90t nett) non-concessional, or 170t gross (110 nett) concessional load limit. The concessional loading permits are issued by Main Roads Heavy Vehicle Operations. There is also a ‘haulage usage charge’ which helps to provide maintenance and upkeep funding to the State’s public roads.
For the 2Mtpa project of 200kms, this would mean at a 90t nett load, over 21 triple road trains would be required to undertake and complete the haulage task. Even at this modest and low tonnage operating level, a reasonably significant number of trucks are required.
This style of public road haulage is currently being undertaken by Atlas Iron for their Pardoo (90km) and Wodgina (120km) operations in the Pilbara. It is also being undertaken by Crosslands and SMC in the Midwest Region of WA to the Port of Geraldton.
Should public roads not be available, or a higher output level is required whilst keeping the number of trucks down, then the next choice would be to move to a private haulage road arrangement. By constructing a private haulage road there will be no constraints by Main Roads requirements on the ‘quantity’ of tonnes that can operate on the road as there will be no other users of the road.
This also moves into more specialised road haulage vehicle types where there is a prime mover driving the load and also a powered trailer that assists. These vehicles can carry up to 300t in payload which is a significant increase on the public road rated vehicles. However, there are tighter vertical grade constraints, lower top speed levels and more specialised maintenance requirements for these vehicles.
An example of this style of haulage is Cliffs Natural Resources operation in the Midwest, and BC Iron’s haulage fleet in the Pilbara.
Therefore for a 2Mtpa project with 300t nett and a lower average speed, the required number of trucks drops to about 10 trucks. However a new option presents itself, by sticking to 21 trucks, in the order of 6.5Mtpa could be moved through this logistic solution.
The next development would be looking at reducing the number of vehicles by moving to a railway solution. Like the private road example, a railway requires a dedicated access corridor for the logistic solution.
By placing tighter vertical gradient constraints on the railway embankment, typically in the order of 0.3% loaded direction, it is possible to move the product with a ‘single consist’ (train and wagon configuration) in anything from 10,000t to 30,000t lots. This is dependent upon the number of ore wagons and axle constraints.
A typical Pilbara ore wagon has a total mass of approximately 160t and a nett load of approximately 140t, so in essence each wagon does the job of one triple road train.
Going back to the 2Mtpa example, by utilising a train consist that carries 16,800t per train, the train will only need to do 2.5 trips per week to complete the haulage task. At 6Mtpa it works out to be around 8 train trips per week or approximately 75% utilisation of a single consist. The capacity of a single train consist at 90% utilisation is around 8Mtpa. By adding a second train consist it is pretty easy to get up to 16Mtpa of throughput onto the railway. This demonstrates the logistic advantage that a railway provides for bulk commodity movement.
Determining the Best Solution
Given the different styles of logistics, how do you make a decision on which option is right for your project?
One basis of comparison is to utilise a ‘Life of Project’ cost approach. In applying this approach, the initial capital outlay required for each mode of logistics is added to the appropriate costs over time to see what the total ‘Life of Project’ expenditure is on that logistic solution.
Using some industry benchmark costing numbers, as presented in the above table, we are able to generate the graph below over the hypothetical projects’ 10 year life.
This graph depicts the ‘Life of Project’ costs against the production output level for each of the logistic modes. The area underneath the graph represents the lowest cost logistic solution for the project.
To operate at a 2Mtpa level, with all other factors being equal and possible, a public road solution would be your best choice. In the 2 – 7Mtpa production range, a private haulage road solution would suit best. The rail solution would be the best solution for output levels greater than 7Mtpa.
Bulk commodities are a logistics game. Moving bulk commodities is one of the largest cost drivers within a project and needs to be thought through carefully and strategically.
Whilst this case study has discussed some simplistic comparative analysis of three modes of logistics, it is important to look at the complete supply chain taking into account the constraints of the mine, the port, and any capital outlay.
It is also important to consider that in using someone else’s infrastructure, road or rail, you should be prepared to pay a fair price. This is not what you would consider to be ‘fair’ but what the owner of the asset considers to be ‘fair’.