Diesel is one of the inputs that has the greatest impact on the cost structure of copper production. Therefore, it is essential to manage it properly.
The price of copper is determined on the London Metal Exchange (LME) as a result of global supply and demand, which is why we speak of copper as a commodity. Given that the price of the product is determined exogenously, companies need to implement a generic cost leadership strategy to maintain their competitiveness. This is increasingly difficult considering the current reality of the mining industry, which in recent years has been affected by the following challenges:
- Grade reduction: Increased hauling and processing
- Deeper mines: Longer haulage cycles
- Change of operating model of open pit an underground (Chuquicamata case)
- Appearance of primary rock of higher tenacity: Increased use of explosives, increased use of comminution energy.
- Change of use from inland water resources to ocean water resources.
- Delays in the logistics of imported goods such as equipment, spare parts and consumables.
This generates a higher intensity of use of various equipment and supplies, including diesel, explosives, flotation reagents, sulfuric acid, grinding media, wear elements, tires, electric power and a long list, which translate into higher costs, diesel being one of the most important in the copper production cost structure.
The price of diesel is strongly indexed to the price of the commodity crude oil. For the European markets the Brent crude oil value is used and for the US market the WTI (Western Texas Intermediate) crude oil is used as a reference.
Today, as a result of the pandemic and the war, we have observed very complex and unprecedented situations, which generates uncertainty:
- Almost a month after the official start of the pandemic by the WHO, diesel oil saw a negative spot price, a situation never seen before.
- On the other hand, and derived from the Russia-Ukraine war, crude oil entered a very complex upward trend that will be amplified by the sanctions against Russia, which will probably have a different effect than originally planned and will generate a probable price escalation.
The commodities normally vary in price due to many factors such as variations in demand and supply, the futures markets (contango, backwardation), the emergence of substitute products, speculation, inventory changes, international regulations, environmental standards, raw material quality, logistics, among others.
With the addition of the pandemic and the war, price volatility and uncertainty will continue for some time, so it is key to control diesel usage by managing the main root causes of its increased consumption.
The table below summarizes the main causes of higher fuel costs.
| Causes of higher fuel costs | Short description |
| Uncompetitive contracts | The contract may be uncompetitive, without back to back and have overpriced escalation clauses. |
| Operating practices to improve | Excessive use of brakes, unnecessary accelerations, lack of operational training. |
| Truck overloading | The higher the weight over rated load, the higher the fuel consumption required. |
| Low tire inflation pressure | Underinflated tires generate higher rolling force and tire heating. |
| Unauthorized fuel theft | It is usually caused by weaknesses in cross-checking. |
| Spills | Losses at the time of refueling of the mining equipment due to damage to the quick connect and venting systems. |
To eliminate or mitigate the root causes of inefficient diesel consumption we can use:
- Predictive models
- Operational discipline including integrated logistics control
Although this is valid for conventionally operated mining equipment, in the case of autonomous equipment some aspects are maintained and others appear derived from the associated safety controls. Although pilots are being developed with more environmentally friendly technologies, diesel will accompany mining processes for some time and a great contribution to the environmental agenda will be to use it more efficiently.
In Vantaz Group we have been developing and co-creating projects with our mining clients for 22 years, aligned with the growing challenges of mining. Today, being faithful to our hallmark, there is a new challenge in optimizing the use of strategic resources, such as diesel, through digital solutions / predictive models.
