Summary Cash in the ground is the latest in a series of working capital (WC) management reports based on EY research. With the commodities super-cycle now reaching its conclusion, the Gmj]ph]ja]f[]afl`]eafaf_k][lgj[gfÕjekl`YlY\]\a[Yl]\ mining sector has started to focus more rigorously on cash, cost, ^g[mkgfO;eYfY_]e]floaddj]d]Yk]Y\\alagfYd[Yk`Ögok capital discipline and project delivery as essential components in totaling tens of billions of US dollars across the companies in our improving their productivity levels. As boards and CEOs seek to kmjn]q$_an]fl`Yll`]ajY__j]_Yl]d]n]dkg^_jgkkO;È\]Õf]\Yk improve return on capital and dividends to deliver greater value the sum of trade receivables, inventory and accounts payable — to shareholders on a more sustainable basis, WC management amount to over US$200 billion. is receiving far more attention. Many initiatives have been To capitalize on this opportunity, mining companies will need implemented with regard to lean processing and supply chain, to drive continuous operational and structural improvements, billing and cash collection, spend consolidation, management of addressing “root and branch” aspects of WC policies, processes hYqe]fll]jek$ALYf\eYfY_]e]flkqkl]ek$Yf\kaehdaÕ[Ylagfg^ and metrics. functions and processes. Despite this heightened focus on WC, our analysis of the Key initiatives should include: performance of 80 of the largest mining companies paints a • Change in behaviors within the organization, focused on contrasting picture. Overall progress stalled between 2011 and optimizing returns rather than on increasing production at 2013 (cash to cash (C2C), a measure of the cash conversion any cost cycle, was up 2%) in sharp contrast with the improvement seen • Management of WC as a strategic initiative, including the in the previous four years (C2C was down 24% between 2007 alignment of employee compensation with return on capital and 2011). ]ehdgq]\Yf\^j]][Yk`Ögoh]j^gjeYf[]e]Ykmj]k Results compared between and within commodity groups were • Further streamlining of processing and supply chains, including also far from uniform over the periods under review, with some consolidation of warehouse locations for spares and virtual businesses continuing to improve their performance while warehousing others did not. Only 3 out of 10 commodity groups (and 42% of companies analyzed) reported a lower C2C in 2013 than in 2011, • Improvements in shut down maintenance planning and new while every commodity group but one (and 55% of companies models for the purchase of inventory spares analyzed) posted better results in 2011 than in 2007. • Greater collaboration and process alignment with customers Current WC performance between the commodity groups varies where possible considerably. These gaps can be explained by the way different • Better supply chain planning and effective integration between commodities are mined, processed and sold, as well as by the supply chain partners complex and not always fully understood trade-offs between cash, costs, delivery levels and risks that each company must take and • Better coordination between supply, planning, processing, manage given the need to maximize capacity utilization and offset procurement, logistics and sales functions and processes considerable logistics and supply chain constraints in the business. • Focus on improving billing and cash collections The gaps are also due to fundamental differences in the intensity of management focus on cash and the effectiveness of WC • More effective management of payment terms, partnerships management processes. However, evidence also suggests that the arrangements and milestones on capital projects degree of management attention on cash and WC tends to weaken • Afl]fkaÕ[Ylagfg^kh]f\[gfkgda\YlagfYf\[gfljgd o`]fl`]hjgÕlYZadalqg^gh]jYlagfkjak]k& Cash in the ground: working capital management in the mining sector 2