The Mining Business Model
How does the mining industry create value? The answer to that question is provided by the mining business model. But what is a business model?
Here is one definition:
The term “business model” is used to describe how systems and people are organized to create, capture, and deliver value.
Shown below is an illustration of the current business model of Mine Co. Government owns the mineral rights and gives Mine Co a permit to develop and operate a mine. In return royalties and taxes are paid by Mine Co to Government. Mine Co sells products from the mine to buyers. A network of local and international companies supplies Mine Co with the equipment and materials needed to operate the mine. Benefits may arise if there is engagement between Mine Co, Government, and Community. The community determines whether the mining project is granted a “social licence” to operate.
This model has worked well, but has given rise to some notable non-technical risks that suggest some changes are necessary. For example, there could be disagreement between Mine Co and Government about taxes and royalties and unless the disagreement is resolved Government could expropriate the operation. Also, the engagement between Government, Community, and Mine Co should provide benefits to Community resulting from a combination of redistribution of royalties and taxes from Government and initiatives developed by Mine Co. However, there is no guarantee that any part of this combination will happen. A failure to deliver benefits to Community can lead to anti-mining sentiment and disruptions to operations. The common result is that Mine Co becomes subject to high expectations trying to satisfy Government and Community as well as provide value to shareholders.
An alternative model is illustrated below. In this new model, a service company, MaaS Co (Mining as a Service), enters into a contract with a Mineral Rights Owner (MRO) to extract and process minerals which are sold to buyers. The proceeds of the sales are subject to a revenue-sharing agreement between MaaS Co and MRO. Maas Co builds a supply network by means of contracts with both local and remote suppliers. To deliver benefits, MaaS Co and the MRO work with Community to form a local supply chain.
MaaS Co would be in competition with similar companies to be the provider for the MRO. MaaS would achieve competitive advantage through superior application of technology. Further advantage can be achieved by development of innovative engagement schemes with Community and local suppliers, which governments would likely look upon favourably.
This model replaces the non-technical problems with market-based structures. For the model to function over the long-term, the relationship between the MRO and MaaS Co must be a partnership. It cannot be a form of contract mining.
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Coal Mining Business Business Model Canvas
- 1. Key Partnerships
- 2. Key Activities
- 3. Key Resources
- 4. Value Propositions
- 5. Customer Relationships
- 6. Channels
- 7. Customer Segments
- 8. Cost Structure
- 9. Revenue Streams
Introduction
Coal mining is an industry that has been part of the world economy since the early 18th century. The coal industry is currently one of the most powerful and important economic sectors in many countries around the world. It accounts for nearly 7% of total global energy consumption, and it is estimated that approximately 1.5 billion tons of coal are mined annually. In the United States alone, coal production in 2018 accounted for 4.7% of total energy generation and employed 52,018 people.
The growth of the coal mining industry has been driven by both domestic and international demand, with demand from developing countries continuing to grow as their economic growth increases. With the popularity of renewable energy increasing over the past few years, the viability of coal has become increasingly more uncertain. Despite some countries transitioning away from the industry, it remains an important part of the global economy and shows no signs of dying out anytime soon.
Key Partnerships
Coal mining is a complex industry, requiring multiple skill areas and resources. Partnering with key stakeholders can have a positive impact on the success of a coal mining business. Key partnerships may include:
- Governmental agencies - to obtain permits and ensure compliance with local and federal regulations
- Transportation companies - to obtain needed materials, equipment and personnel
- Safety and compliance organizations - to provide expertise and resources for safety standards and regulations
- Consulting firms - to bring in expertise and provide business insights
- Training organizations - to provide specialized training in mining, safety and technology
Key Activities
The key activities of a coal mining business include the following:
- Designing and developing mining plans: Analyzing geological conditions, extracting coal with optimized efficiency, and ensuring conformance to legal regulations.
- Extracting coal: Uncovering and extracting coal as per best practices and safety regulations.
- Transporting extracted material: Moving extracted coal to its destination following protocols.
- Providing safety and compliance services: Ensuring that operations adhere to health and safety protocols, as well as conform with legal regulations.
- Adhering to legal regulations: Following permit requirements, activity reporting, and training procedures in order to maintain legal compliance.
- Consulting and training: Supporting customers during planning processes, as well as providing training to staff to ensure continued safe operation.
Key Resources
The key resources required to successfully run a coal mining business includes:
- Labor - Skilled miners and industry experts
- Heavy machinery and tools - To carry out the mining operation
- Transportation - To facilitate material extraction
- Safety and Compliance - Equipment and materials
- Consulting and Training - Materials to ensure safe and compliant operations
Value Propositions
We provide a comprehensive range of coal mining services which are cost-effective, safe and compliant, and high-quality. Our services also boast a quick turnaround time, and we also offer specialized consulting and training services for those in the industry.
- Cost-effective coal mining services
- Safe and compliant services
- High-quality extracted materials
- Quick turnaround time
- Specialized consulting and training services
Customer Relationships
Developing strong customer relationships is essential in success of any business, and coal mining organizations must prioritize establishing a good rapport with its customers. Many customer relationship strategies can be seen as part of the coal mining business model canvas, such as:
- One-on-one customer relationships: Coal mining organizations should aim to foster individual relationships with their clients in order to get a better sense of their needs and offer more tailored services.
- Online customer service center: Establishing an online platform for customers to reach out with their queries and receive prompt responses can be greatly beneficial in maintaining customer loyalty.
- Regular survey and feedback sessions: Setting up feedback and survey mechanisms to gauge customer satisfaction allows for timely modification of services and products offered.
The Coal Mining Business Model Canvas identifies three main channels to enable growth and acquire customers: Promotion through social media, conferences and tradeshows; Business-to-business sales; and Website and online store.
- Promotion through social media, conferences and tradeshows - promotional activities targeting potential customers, such as creating content, attending conferences and tradeshow, advertising through Instagram and other social media platforms.
- Business-to-business sales - activities targeting major businesses brining coal mining services, such as providing bids, quotations and custom services to businesses.
- Website and online store - a website where businesses can view services, get in touch with sales representative, learn about pricing and complete transactions.
Customer Segments
Customer segments are the people or organisations who will use the business’s products or services. In the case of a coal mining business, these could include:
- Companies in the coal mining industry : These could include mining firms and suppliers of equipment, machinery, and other resources used in the extraction of coal.
- Governmental agencies : These could include agencies responsible for the regulations and responsibilities related to the industry.
- Individuals in need of minerals extracted from coal deposits : These could include individuals who rely on coal and other minerals that can be extracted from coal deposits for their livelihood, such as in the construction or manufacturing industry.
Cost Structure
Cost structure is an essential part of a coal mining business model canvas, as it represents all the associated costs for the operation of such a business. The following are some of the cost components that must be taken into consideration:
- Equipment and machinery - The initial investment in equipment and machinery used in coal mining operations can be substantial. This includes investments in bulldozers, trucks, tunneling machinery, and other specialized equipment.
- Labor costs - Coal mining involves a significant amount of labor, and the associated costs of labor are another major component of the cost structure. This can include wages, payroll taxes, and other related costs for specialized personnel.
- Transportation network costs - This involves the cost of establishing and maintaining a network of transportation for the coal mining operations. This can include plane, truck, and rail transport.
- Safety and compliance costs - Coal mining is a dangerous industry, and it is essential that safety and compliance protocols are strictly maintained. This includes costs related to safety equipment, training, and audits.
- Consulting and training costs - Coal mining processes can be complex and ever-evolving, and it is important to ensure that all personnel involved understand the process and protocols. This can involve consulting and training fees.
Revenue Streams
- Coal mining services – Providing coal mining services involves extracting coal from the ground or otherwise utilizing the materials found in coal mines. These services may also include transportation of the extracted coal.
- Transportation of extracted material – To ensure that the mined coal is transferred safely and properly, a coal mining business will offer transportation services to customers who need to move the mined material.
- Safety and compliance services – Providing safety and compliance services for operating coal mines requires expertise in policies and regulations. These services can include audits, inspections, training, and consulting.
- Consulting services – A coal mining business can offer consulting services to customers who need help with operations, management, compliance, and safety. These services require experienced professionals with extensive knowledge in the coal mining industry.
- Training services – Coal mining businesses can provide training services to their customers to ensure their staff is properly trained on safety procedures and compliance regulations.
The coal mining business, although quite a challenging and competitive industry, is still able to make a substantial profit. The Business Model Canvas, created for this coal mining business, provides a snapshot of the company's operations and their potential for success. It shows the interconnectivity between all the elements that make up the business and how they impact the profitability. In addition, it will serve as a useful guide for making decisions about investments, marketing, customer service and other aspects of the business.
The coal mining business requires significant investment and strong management and financial systems to ensure success. Power dynamics between government regulations, weather, and changes in commodity prices all affect the profitability of the business, so it is important to be prepared to adjust the business model accordingly. By using the Business Model Canvas outlined above, the coal mining business can plan and prepare effectively to respond to changing conditions in order to maximize their profitability.
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Business Model Canvas Template
The executive summary of a business
What is the Business Model Canvas?
The business model canvas is a strategic planning tool used by managers to illustrate and develop their business model. The business model canvas template clearly identifies the key elements that make up a business. Additionally, it simplifies a business plan into a condensed form. In this way, the business model canvas template acts like an executive summary for the business plan.
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History of the Business Model Canvas
The business model canvas template was originally introduced by Alexander Osterwalder in his 2004 thesis, “The Business Model Ontology – A Proposition in a Design Science Approach”. Since then, the business model canvas template has been taught at business schools and iterated upon to fit more niche businesses.
Structure of the Business Model Canvas Template
There are nine main building blocks in the business model canvas template:
- Key Partners
- Key Activities
- Key Resources
- Value Propositions
- Customer Relationships
- Customer Segments
- Cost Structure
- Revenue Streams
The following is a breakdown of each of these nine elements. These elements all link and work with each other to ensure the success of the business.
#1. Key Partners
Key partners are the companies or people your business works with to create a strategic relationship. A few examples of key partners are suppliers or distribution partners in the supply chain .
Here are a few things to consider about key partners:
- What key resources does your company receive from these partners?
- What key activities are performed by these partners?
- What is your company’s motivation for working with these key partners? Is there something specific that only they can provide? Do they help lower costs?
#2. Key Activities
Key activities are specific activities or tasks that are fundamental to the operation of your business. An example of a key activity would be the procurement of fresh produce in bulk for a restaurant.
Here are a few things to consider about key activities:
- What key activities are necessary to deliver your value proposition ?
- What activities set your company apart from others?
- How do your revenue streams , distribution channels , and customer relationships differ from competitors? How do your key activities affect these?
- Do you need to procure specific niche resources?
- Do you need to streamline to keep costs and prices low?
#3. Key Resources
Key resources are the assets necessary to operate and deliver your value proposition. For example, a diamond mining company cannot operate without mining equipment . Alternatively, an automotive company cannot operate without the human capital and expertise that goes into designing cars.
Here are a few things to consider about key resources:
- What specific assets are necessary to operate your business and deliver your value proposition ?
- What resources do your distribution channels and revenue streams need to function?
- What resources are needed to maintain customer relationships and customer satisfaction ?
- Does your company require significant capital or human resources?
#4. Value Propositions
Value propositions are arguably the most important element of the business model canvas template. The value proposition determines the fundamental offering the company is trying to give its customers. It is the primary driver of business operations. For example, Spotify’s value proposition, “Music for everyone.” , eloquently states its mission and offering. Spotify wants to be a music streaming platform that has music selections for everyone.
Here are a few things to consider about value propositions:
- What exactly is your company trying to give to customers?
- What problem is your company trying to solve and what needs are your company satisfying?
- How do you offer something different that satisfies the demands of your customer segments (e.g. price, quality, design, status, etc.)?
#5. Customer Relationships
Customer relationships are the different types of interactions a company has with its customers. For example, a designer suit company will provide significant help for the customer, tailoring to their needs and working directly with them to create the suit they want. Conversely, telecommunications companies often have poor reputations and customer relationships as many practice aggressive and predatory sales practices through their call centers. Compared to telecommunications companies, the designer suit company has significantly richer and more fulfilling customer relationships.
Here are a few things to consider about customer relationships:
- What type of relationship does your company have with its customers? For example, do you provide dedicated assistance or are they expected to self-serve their needs through provided support channels?
- How does the business interact with customers and how does this differ between customer segments ?
- Does your company frequently communicate with customers?
- How much support is provided by your company?
#6. Channels
Channels are the different structures and methods that are used to deliver your company’s product and value proposition to its customers. Channels encompass all of a company’s supply, distribution, and marketing channels. It is important to consider all channels of a company and make sure they are functioning cohesively. For example, a company like Amazon needs to consider how its fulfillment centers and shipping services are integrated to send out timely shipments.
Here are a few things to consider about channels:
- How do you deliver your value proposition ?
- How do you reach your customer segments ? What channels are used?
- Are your supply, distribution, marketing, and communication channels well-integrated and cost-efficient? Are they being utilized effectively?
#7. Customer Segments
Customer Segments are the different types of customers that a company manages. A company that produces different products will need to interact with different types of customers.
An example of this would be airline companies. Airlines offer tickets for economy, business, and first-class customers. First-class passengers have access to exclusive benefits and luxury travel arrangements. Conversely, economy passengers are provided much less support, thus costing less, but also coming in significantly larger amounts.
Here are a few things to consider about customer segments:
- Who is the main focus of your value proposition? Who are you creating value for?
- Who are your most important customers? What are they like? What do they need? What do they enjoy?
- What are your different types of customers ?
- What is the customer market like? Is your company targeting a small niche community or a mass market?
#8. Cost Structure
The cost structure refers to how a company spends money on operations. It consists of the company’s key costs and the company’s level of focus on costs. If a company is cost-driven, it focuses on minimizing costs and, thus, prices for customers. Alternatively, if a company is value-driven, it focuses on creating value for its customers, with less focus on cost.
An example of this would be a comparison between fashion retailers, Forever 21 and Gucci. Forever 21 is a fast-fashion company focused on delivering the newest styles at low costs – a cost-driven company. Alternatively, Gucci is a luxury brand focused on delivering high-quality clothes and accessories designed with the latest trends in the fashion industry – a value-driven company.
Here are a few things to consider about cost structure:
- What are the key costs in your company’s business model
- What are the major drivers of cost ?
- How do your key activities and key resources contribute to the cost structure?
- How do your costs relate to your revenue streams?
- Is your company properly utilizing economies of scale ?
- What proportion of costs are fixed and variable ?
- Is your company focused on cost-optimization or value?
Check out CFI’s course on Budgeting and Forecasting Course to learn more about estimating future cash flows, revenues, and expenses!
#9. Revenue Streams
Revenue streams are a company’s source of cash flows . They are the final element of the business model canvas template. Revenue streams are the different ways your company’s value proposition generates money. A company might have multiple revenue streams. For example, Apple has multiple revenue streams between its variety of products and its services, such as Apple Music.
Here are a few things to consider about revenue streams:
- Does your company have multiple methods of generating revenue ?
- What is the pricing strategy for the products offered by your company?
- Through what channels do your customers pay?
- Does your company offer multiple forms of payment (up-front, payment plans, financing, etc.)?
Example of a Business Model Canvas
Here is a simple example built for an automotive company using our business model canvas template!
Additional Resources
Proper financial management is the backbone of any business. Corporate Finance Institute has resources that will help you expand your knowledge, advance your career, and manage the financials of your company! Check out the helpful CFI resources below:
- Financial Modeling & Valuation Analyst (FMVA)® Certification Program
- Corporate & Business Strategy
- Budgeting and Forecasting
- Three Financial Statements Summary
- See all management & strategy resources
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To receive mining.com digests, 70% of miners say new business models needed.
The mining industry is moving to embrace stakeholder capitalism, according to KPMG International’s latest global mining risk report.
The top 10 risks identified by global mining and metals companies include commodity price, permitting, access to capital, community relations and social license to operate, political instability, economic downturn/uncertainty, regulatory and compliance changes & environmental risks, global trade war, ability to access and replace reserves and tailings management.
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Three-quarters of mining companies indicated that the industry needs to redefine success using more holistic metrics that include social values, community stakeholders, health, safety, and long-term development, the report found.
“The bottom line is no longer the only gauge of success,” said Katherine Wetmore, Partner, Energy and Natural Resources, KPMG Canada. “The priority is to demonstrate greater transparency and accountability related to sustainable and responsible mining practices.”
Australian companies are most concerned about climate change, including natural disasters and global trade wars, while Brazilian and US companies noted community relations and social license to operate among their top three risks.
Canada was the only country where mining companies identified access to capital among their top three risks.
Almost 60% of companies believe that access to traditional sources of financing has deteriorated, and nearly 70% say new business models are needed
According to the report, almost 60% of companies believe that access to traditional sources of financing has deteriorated, and nearly 70% say new business models are needed, such as strategic partnerships, private equity, and public private partnerships.
“With the traditional public mining company model becoming increasingly difficult to maintain, companies are looking at joint ventures and partnerships as important objectives for growth,” said Wetmore.
“But, even more importantly, we’re seeing a growing recognition from mining companies to be more innovative and use technology to help them become more productive and efficient and to achieve longer term sustainable growth.”
The largest companies – worth over $10 billion – said they do not feel the need to merge and can rely on technology, organic growth, and talent to grow their organizations.
Companies identified organic growth through exploration and capital investment, together with innovation and technology transformation as their two most-important growth objectives for their organization.
(Read the full report here .)
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The answer to that question is provided by the mining business model. But what is a business model? Here is one definition: The term “business model” is used to describe how systems and people are organized to create, capture, and deliver value. Shown below is an illustration of the current business model of Mine Co. Government owns the ...
View all canvas. Vizologi is a platform powered by artificial intelligence that searches, analyzes and visualizes the world’s collective business model intelligence to help answer strategic questions, it combines the simplicity of business model canvas with the innovation power of mash-up method. See how Vizologi works View all features.
The Business Model Canvas, created for this coal mining business, provides a snapshot of the company's operations and their potential for success. It shows the interconnectivity between all the elements that make up the business and how they impact the profitability.
Three-quarters of mining companies indicated that the industry needs to redefine success using more holistic metrics that include social values, community stakeholders, health, safety, and...
Business model canvas maker features Elaborate your business idea in a concise and visually strategic way. Assess how viable and competitive your business will be by identifying your customers, activities, costs, and revenue stream. It’s easy with free templates from Canva’s online business model canvas creator.