overcoming the commodity management challenges in metals & mining

Overcoming the Commodity Management Challenges in Metals & Mining

Simon ReidGlobal Head of Trading & Risk Management Practice, everis

Michael SchwartzEVP & Chief Marketing Officer,

Eka Software

Preeti RameshDirector - Product Marketing,

Eka Software

USA | India | United Kingdom | Australia | Canada | Singapore

Agenda

2

Featured Speaker – Simon Reid

• Challenges in Metals & Mining

• How Can Technology Help?

Eka Background – Michael Schwartz

• About Eka, Customers, Global Presence

• Next-Generation Smart CM Platform

Eka Metals Solution – Preeti Ramesh

• Business Challenges

• Metals & Mining Platform

Join the conversation:@EkaSoftware

#ekawebinar


Featured Speaker

3

Simon ReidGlobal Head of Trading & Risk Management Practice, everis Consulting• 17 years of commodity trading and risk

management experience, including “hands-on” experience as business controller, trader and head of risk management, and management of commodity management software vendors

• Provides advisory services to clients ranging from business operating models and change management to technology strategy in commodity markets

• BSc Banking & International Finance from CASS Business School, London UK

Contents

1. Introduction to everis

2. Challenges in Metals & Mining

3. How can Technology help?

4. Summary

4

• Everis founded in 1996 with a new vision for

consulting, investing in talent, innovation and

excellence.

• Average annual growth of 20%

• Joined the NTT DATA group in 2014,

• Provides a comprehensive range of consulting

and IT services globally

Introduction to everis

history

A great group with great capabilities.

Top 10 Business Risks facing Metals & Mining*

* Source: 2013-2014 EY Report “Business risks facing mining and metals”

Challenges in Metals & Mining

Other Challenges

• Water

• Concerns regarding availability and management of water in many

mining areas

• Increased regulations regarding controls and monitoring

• Regulations & Compliance – time and cost

• Impacts the entire mine “life cycle”

• On-going regulatory requirements regarding safety, water quality,

emissions, environmental, trading etc)

• Decline in Quality

• Increased costs due to remote/extreme mines to access higher

grade deposits, and more complex extraction operations of lower

grade locations

1. Capital allocation & access

2. Margin protection &

productivity improvement

3. Resource Nationalism

4. Social license to operate

5. Skills Shortage

6. Price & Currency volatility

7. Capital project execution

8. Sharing the Benefits

9. Infrastructure Access

10. Threat of Substitution

General global financial and economic volatility. Changes toquantitative easing and monetary policy of producereconomies will increase currency volatility

Overall increased demand from Asia & rapid growtheconomies

Supply chain constraints (e.g. freight, warehousing)

Inequality of supply & demand (over/under-shooting ofsupply as reaction to changes in demand)

Impact of abrupt changes to macroeconomic policies withinemerging markets

Changes to pricing mechanisms within contracts for rawmaterials – trend away from annual pricing to monthly orshorter.

Drivers of Volatility

Price Volatility

Response

• Identify & quantify price and credit risk – requires tools

• Establish a risk policy and actively manage the risk via hedging

program (requires position visibility and risk monitoring)

• Improved mine production sequencing taking into account new

market price data

• Increase flexibility in cost structure to enable rapid response to

price and currency volatility

Impact

• Increased price risk and counterparty credit risk

• Increased pressure on margins – volatility in

energy and raw materials costs in addition to

metals prices and currency

• Increased cost of capital and erosion of investor

confidence

Margins being squeezed by decreasing commodity pricesand increasing costs.

We have seen wide-spread redundancies, closure of minesand companies selling non-core assets.

Mining companies prioritising long-term optimisation ofcosts and capital allocation versus growth

Period of high commodity prices gave rise to inefficienciesthat can no longer be supported

Threats to Margin

Margin Protection

Response

• Optimisation of variable costs and assets

• Establish a risk policy and actively manage price risk via

hedging program (requires position visibility and risk

monitoring)

Impact

• Increased energy and raw materials costs directly

impact margin

• Redundancies and divestiture of assets

• Increased cost of capital and erosion of investor

confidence

On-going regulatory requirements regarding safety, waterquality, emissions, environmental, trading, resourcenationalism, employment and migration, land access,permitting, fraud and corruption, climate change, conflictfree mineral independent verification, and disclosure ofgovernment payments

For example in trading, MIFID II removes exemption forcommodities traders - aimed at preventing uncontrolledspeculation by traders and hedge funds – mandatoryposition limits and real time position and limits monitoring

4 primary streams of trading regulations: Reporting;Clearing; Risk Mitigation; Trade Surveillance

Regulatory Pressure

Regulatory Compliance

Response

• Establish IT tools to easily access all relevant data for

regulatory reporting requirements (e.g. Business

Intelligence)

• Improve internal and external communication regarding

obligations and compliance

Impact

• Increased costs due to regulatory compliance

• Cost and impact on reputation of non-compliance,

leading to reduced access to capital and impaired

government relationships

SMAC – A new Enterprise IT model

• Social media allows people to connect and interact while leaving a trail of data on preferences and relationships with other people.

• This data trail can be harnessed to provide insight into products, trends and sentiments.

social

• Handheld devices and wireless infrastructure and communication

• The Mobile Web is bringing users closer to businesses and giving businesses the opportunity to interact with their customers in more engaging ways, taking advantage of the user’s context (who, what when, where and how) to delivery robust, context-aware business services.

mobile

• Emerging technologies such as Big Data, Data Science, and advanced visualization are allowing companies to ingest, process, and visualize information beyond the capabilities of conventional BI and BW

• This new level of analytics create business value and innovation through

• improved decision making.

analytics

• Cloud computing provides efficient, elastic computing capacity allowing organisations to pay only for what ‘s needed and efficiently scaling in response to varying demand.

• Cloud computing has given rise to several “XaaS” variations such as Infrastructure as a Service , Platform as a service , Software as a Service and even Mobile Backend as a Service.

cloud

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• IT spend on SMAC technologies expected to reach $360bn by 2016 [Gartner]• The SMAC Stack is driving customer engagement, innovation and business productivity

SMAC Stack – Driving business productivity

SMAC Stack Services - Commodities

• For Public Relations Management• Sentiment Monitoring• Improving perception

• For Internal Collaboration• Improve communication• Encourage collaboration• Improved knowledge management & transfer (e.g. video sharing)

social

• Handheld devices and wireless infrastructure and communication• Significant opportunities for increased efficiency and productivity of “field” resources (smart

devices, wearable technologies, heads-up displays• In physical trading, opportunities for improved real-time data collection of logistics operations.• Sensor Technologies

• Intelligent sensors coupled with mobile technology to capture and transmit physical property data (e.g. load/discharge actuals)

• Access external data, like unstructured data from social media, location data.

mobile


• Today we have access to other external sources of data including social media unstructured data • The ability to manage and analyse Big Data, identifying patterns across multiple inter-related data

sets to predict values• Moving away from tradition BI approach (store limited data-set, analyse, report) to a near real-

time, complex event processing.• Advanced Descriptive Analytics, Predictive Analytics, optimisation, simulation

• Big Data is a set of technologies that enable organisations to store and analyse massive amounts of data with low response times.

analytics


Distributed file system on different machines Independent node-based structure, allowing scalability Fault Tolerance by replicated data structure to support failed nodes

Distributed Storage

Executing processes divided among N nodes operating in paralleland achieving high performance

Greater system processing is simple, adding new nodes This method allows real-time processing

Parallel Processing

Non-relational databases, key-value type

Great write speed and data recovery The database has no scheme, the

tables structure design is not required.

The information is not distributed in tables, it is stored in an integrated way

DB / No SQL

Analytics – Managing Big Data


• Lower adoption of cloud technologies in commodities than other sectors due to security and reliability concerns

• Benefits of cloud include lower TCO and faster deployment, scalability• More appropriate for non-differentiating applications and for functions such as Big Data Analytics

which may require sudden increases in scale/

cloud


SMAC Stack Services – case study

Skybox aims to deploy a fleet of satellites that will be able to map any place in the world with high resolution and high fidelity Imagery (with sub-meter resolution imagery), five to seven times a day.

Maritime Monitoring and Financial Trading Intelligence. Monitor ships entering and exiting ports with HD video to inform supply chain optimization decisions. Access proprietary information to make more informed and competitive investment decisions.

Google acquires satellite eye-in-sky Skybox for $500m (Jun’14)

Consumer watchdog Public Citizen has called on US regulators to conduct a review of Google’s recent acquisition of aerospace startup Skybox Imaging, concerned that Skybox’s satellite technology may aid manipulation of commodity markets. Public Citizen said that access to Skybox’s satellite images of oil, gas and power infrastructure is already helping deep-pocketed firms such as banks and hedge funds “gain a financial trading intelligence advantage” in commodities.

What it is coming in Analytics & Big Data Technologies…

Smart Technologies - Case Study

1. Multi-channel and Reputation in social media Dashboard.

2. Detection of commercial opportunities from the informationavailable in social media and internal systems.

Business Case

Leverage Big Data systems to provide multi-channel customer data and corporate reputation analysis in socialmedia Dashboard.

Result

SMAC Stack Services – case study

SMAC Stack in Commodities Trading

Conclusions

IT Strategy driven by• Need (internally generated)• Opportunity (arising externally)

Embrace the new Normal• Leverage digital technologies to drive business innovation and differentiation, and

address sector challenges

Learn from other sectors - Apply best practices and lessons from other “early adopter” industries

Technology Solutions

• Tools such as BI and CTRM to provide transparency of position data for

accurate identification and quantification of price and credit risk, and

effective management of hedging program

• Leverage SMAC technologies for optimised mine production sequencing

and resource & capital deployment

• Leverage Smart technologies to optimise variable costs and assets,

including supply chain logistics

• Analytic and BI tools to easily access all relevant data for regulatory

reporting requirements

Business Challenges

• Price & Currency Volatility

• Margin Protection &

Productivity Improvement

• Regulations & Compliance

Eka Smart Commodity Management

Eka Metals

Evolution: ETRM to Smart Commodity Management

22

1990 2003

2003

2014

2008

2008 2014

ETRM

Energy Commodities• Oil• Power• Natural Gas

Additional Commodities• Ags• Metals / Ore• Biofuels

Broader Footprint• Supply Chain• Compliance• Manufacturing

Data to Foresight• Predictive Analytics• Visualization• Optimization

CTRM

CM

Smart CM


Eka Software Solutions: Company Profile

Position: Global leader in on premise & cloud served Smart Commodity Management solutions

Founded: 2004

Employees: 315

Global Offices: 7 offices. 3 development & support centers

• Americas: Stamford CT HQ, Calgary AB

• Asia Pacific: Bangalore India, Singapore, Adelaide & Perth AU

• Europe: London UK

Investors: Silver Lake Partners - GP Group - Nexus Venture Partners

Customer Base: >50 leading global enterprises on 4 continents• Cargill, Rio Tinto, Mitsui, Bunge, BMA, EDF Trading, Graincorp, Viterra, Louis Dreyfus, Noble,

CBH, Mitsubishi, Pinnacle Foods, Twin Eagle, Boliden, Tata Steel

Solution: InSight Commodity Management (CM) Platform• End to end financial and physical transaction management• Cross asset trading and position management – Ags, Energy, Metals, and Bulk• State of the art enterprise risk management

Commodity Analytics Cloud• Analytics specific to commodities• Multiple data sources internal and external to Eka• Prebuilt and custom apps

23

Customers

M E TA L S & M I N I N G

E N E R G Y

A G R I C U LT U R E


Intelligent. Integrated. Innovative.


Industry Expert

26

Preeti RameshDirector - Product Marketing, Eka

• 13+ years of experience in banking, finance, and CM domains

• 7 years of product management, product marketing, implementation, and presales experience at Eka

• Master of Computer Applications, National Institute of Technology Tiruchirappalli and BSc, Math, Delhi University


Business Challenges in the Metal Industry Supply Chain

Producers

• Supply Chain visibility

• Risk Management

• Logistic planning

• Operational efficiencies

• Assay management

• Revenue recognition

Smelters

• Visibility over material consumption

• Yield Management and free metal content tracking

• Assay management

• Metal accounts

Traders

• Position tracking

• Risk management

• Analytical and decision making tools

• Margin analysis

Fabricators

• Risk Management: protecting fabrication margins

• Hedge effectiveness measurement

• Operational efficiencies

27


SourceTransport &

StoreProcess Transform Distribute Market & Sell

Eka’s Solution for Metals & Mining

28

A fully integrated platform for managing commercial, supply chain, and risk management needs across the entire metals & mining industry


Eka Platform

29

Best of Breed Market

Standard System

Product Platform,

Workflows & Controls

Business Intelligence,

Visibility, Analytics

Technology Platform

Metals & Mining

Industry Requirements

Supply Chain Operations

Eka’s Competitive Advantage


Product Overview

30

Eka’s integrated product strategy is to offer a range of products and modules to meet specific requirements across the metals and mining supply chain.

Bulk Handling

• 3D Stockpile modeling

• Mining and port site task management

• Anti-collision software

Concentrates

• Contracts• Pricing• Penalties• TC/RC• Umpire rules• Assaying• Settlement• Physical and Pricing

Optionality• Receive Material

from mines

Tolling

• Metal balance• Internal tolling• External tolling• Metal Accounts• In Process Stock• Free Metals• Metal Balance

Valuation• Pledging

Mine Marketing

Smelting Trading & RiskAdvanced

Supply Chain

CTRM

• Trading• Logistics• Inventory• Position • MtM & PNL• Settlement• Risk• Hedging• Analytics


Product Portfolio

31

• Metals Solutions:

• Concentrates

• Base Metals

• Bulk Handling Solutions:

• Site Automation

• Commodity Site Manager

• 3D Stockpile Manager

• Anti Collision


Eka Metals High Level Solution Map

32

Contract Capture Product setup Discrete Stock Back To BackProvisional & Final Invoice

Exchange support

Real timePhysical +Financial

Counterparty Limits

User Views

Approval Workflow

Flexible Pricing:QP, event any day

Consolidated stock

Inventory To Sale

Prepayment invoices

Instrument support

Physicals + Financial

Advanced Physical M2M

Trader LimitsStandardreports

Calls offs: delivery, quality & Pricing

TC/RCPile

managementDomestic &

ExportCredit & Debit

NotesTrade capture FX Realized P&L Credit Limits

Drag n drop reporting

Multiple pricing types

Payables & penalties

Stock matching Multi-modal

TransportPayments &

ReceiptsTrade

managementOpen &

InventoryCOGS VaR Dashboard

Template & Drafts Umpire rulesWarehouse

Transfers Documents

Day & Month End process

Allocation To Physicals

DerivativesAccrual

managementStress

TestingAnalytics

Amendments &Cancellation

Splitting limitsWeight

AdjustmentsWeight

ManagementService Invoices

Broker Management

Priced Vs

Un-priced

Metal Balance Valuation User Access

AllocationsAssay

managementInbound & outbound

Internal tolling A/R & A/P MarginsHedged

Vs Un-hedged

Open, inventory & realized

Audit Trails

Contract confirms Blending External tolling VAT handling SettlementPosition Change

RevenueRecognition

Release ordersOptions

ValuationMetal

accounting PNL change

Physical Contracts

Concentrates InventoryLogistics &

TollingSettlement Derivatives Position

COGS & P&L

Risk Reporting


Trading & Risk Management

33

Base Metal, Concentrate, and Contracts:

• Contract Management

• Flexible pricing

• TC/RC definition

• Configurable payable rules

• Assay exchange rule

• Optionality

• Call off process


Trading & Risk Management (cont’d)

34

Position, P&L and Risk Management:

• Position by Concentrates

• Exposure by elements

• Projected Fx exposures

• Unrealized, Inventory and realized P&L for Physicals, Derivatives and FX Trades

• Metal Balance Valuation

• P&L attribution and P&L change analytics

• Hedge Correction on Assay Finalization

• Cash Flow Management

• Stress Analysis


Hedging

35

Derivatives and Currency Hedges:

• Supports for multiple exchanges and instruments with configurable settlement rules

• Derivative trades lifecycle management

• Currency hedging –Forwards and options

• Hedge allocation to physicals

• Capture comprehensive market quotes

• Trader’s Card Report

• Clearer statement

• Broker margins


Assaying, Operations, & Accounting

36

Assaying• Record and import multiple assays • Economic value calculation • Assay Finalization based on Umpire Rule or

override Umpire Rule• Integration with Assay Inspection

laboratories

Operations & Inventory Management• Multimodal Transportation• Internal Stock Transfer• COG calculation• Inventory valuation

Settlement• Advances and Adjustments• Auto calculation TC/RC and Penalty • Final Invoices, VAT Invoice handling• Cost Management and Service Invoices


Tolling

37

Tolling• Internal & External• Stock Pile Management• Stock Blending• Metal Accounts –Debts by

Counterparty• Smelting Yield Capture and

Free Metal Content Tracking• Pledging of elements• Warrant Management• Sale of intermediate and

finished goods


Analytics

38

Management Dashboard

• Summary of position and p&l

• Position and Exposure Dashboards

• P&L Attribution

• Detailed P&L reports

• Mobile and tablet enabled

USATwo Harbor Point Square100 Washington Boulevard,Stamford, Connecticut 06902United States of AmericaT: +1.203.810.4250

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AUSTRALIALevel 5 185 Victoria SquareAdelaide 5000 SA AustraliaT: +61.0.4479.77831

SINGAPORE17 Phillip StreetGrand Building 05-01Singapore 048695Tel No: +65.8363.2635

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CANADASuite 730, 734 - 7th Avenue SWCalgary, AB , T2P 3P8T: +1.403.237.7740

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