02/07/2008 - 22:00

Claims under the spotlight

02/07/2008 - 22:00

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I was reminded the other day of a phenomenon I'd previously heard of in general terms, though I could not recall a name being put to it.

Claims under the spotlight

I was reminded the other day of a phenomenon I'd previously heard of in general terms, though I could not recall a name being put to it.

It's called the Hawthorne Effect.

Named after a factory near the US city of Chicago where it was first observed, the Hawthorne Effect generally refers to a temporary change in behaviour or performance, usually an improvement, due to altered environmental conditions.

Researchers studying workers at the electrical goods factory found that temporary changes to conditions, such as improved lighting, initially improved performance, but over time those efficiency gains were lost and production returned to the same levels as before the changes were implemented.

This is well known in management texts and is understandable given human behaviour.

People in the spotlight may well work harder or, as they say, a change is as good as a holiday. Perhaps the worker, perked up by changes to their environment, tries harder for a while, until they get used to it.

Of course, it's not necessarily a human condition.

I was reminded of this so-called Hawthorne Effect when I was investigating a fuel additive company called Firepower, which many readers will have noted in recent press coverage.

In talking to a sub-layer of people who know about the company and, in many cases, are investors in some entity that bears the Firepower name, there's been one consistent line.

The company's management and structure may be a disaster but, these people say, the product works.

Out there in resources land, is the claim, there are terrific stories of how well Firepower products are doing.

However, when I've asked for specifics to test these claims, it's been a lot harder to extract examples.

Often cited are the mysteries of mine site management and how these remote operations are laws unto themselves. As an experienced financial journalist, it's these sorts of claims that really get the bulldust detector revving at high speed.

Anyway, I finally received a document that provided some names of companies, some of them miners, with claims of the extraordinary improvements in their fuel efficiency and emissions.

As a result I contacted four Australian companies and one South African company.

The results have been mixed.

As I mentioned in a story last week, I managed to speak to Tasmanian-based Australian Bulk Minerals chief executive Dave Sandy, whose company runs the Savage River Mine near Burnie, one of those sites named in the document I received.

It was Mr Sandy who spoke of the Hawthorne Effect when he rang me back having confirmed a trial had taken place.

He said the product had been tested on one truck which, after having its fuel system cleaned and then run with the additive, had produced fuel saving of 5-8 per cent.

Further work had been suspended when mine management became concerned about the credentials of the company. It seems one of the downsides of seeking national attention through high profile sponsorships is that people actually pay attention to what you do and say. Funny that.

Mr Sandy is clearly an experienced mining executive and was well aware of fuel additives which, apparently, pervade the market.

But while he also said that 5-8 per cent was nothing to be sneezed at, the trial results could have been impacted by simple things like cleaning the fuel system. Hence, the Hawthorne Effect, this time in the guise of a machine rather than a human.

Mr Sandy was clear to me that the results had not been extraordinary enough to filter their way up to him in any formal way - in fact it took a phone call from me for him to learn the detail about the trial.

In normal times this might be understandable but these aren't normal times. He said that with fuel costs near doubling in a year and with those claiming the diesel fuel rebate being required to show they are making efforts to reduce emissions, improving fuel efficiency and emissions is paramount throughout all levels of management.

To me it is quite telling that this trial went no further.

When I asked Harmony Gold Mining Company Ltd in South Africa about specific numbers I had seen cited in a document I got the following response from Amelia Soares, general manager, investor relations.

"Reduction in fuel consumption varied depending on circumstances between 4 per cent and 17 per cent," Ms Soares said in an email.

"This should be seen in the light of the test being done under 'ideal' conditions of test benches and with varying concentrations of additives. We believe that no definitive measure of savings could be found."

"In so far as emissions are concerned, we found that in some instances they increased, and we did not achieve a [58 per cent] reduction in total emissions."

"It was also noted that there are many different emissions and of these the reductions also varied."

Again, proof that tests occurred, but nothing screaming from the rooftops.

Finally, I managed to track down someone at mining giant Barrick Gold Corporation who had used the product.

It would be fair to add that this contact came through the local distributorship, which appears pretty keen to distance itself from the corporate shenanigans that have hit the press around the parent body run by Tim Johnston, who seems to have staged a disappearing act.

Dean McAllister, maintenance superintendent for mobile equipment at Barrick's Kanowna Belle operations, confirmed that the site had run a four-month test on five big haulpaks operating underground.

Surprisingly, in my view, Mr McAllister didn't know the actual results of this test. He said a final report was with his general manager, who was overseas and out of reach at the time this article went to press.

However, he said he understood the results were better than the 3 per cent that had been hoped for when the mine sought authorisation for expenditure (AFE) to buy the additive.

"What I am hearing from the general manager, they [the results] are certainly over what we put in for the AFE," Mr McAllister said.

He added that there were no downsides in terms of the operability of the machines and that the only difference in operations was a different station was used for refuelling.

That latter point does undermine the likelihood of the Hawthorne Effect occurring at Kanowna Belle.

But maybe there's a wider application of the Hawthorne Effect taking place here.

I find it staggering that at every company that I've sought information I've found only vague notions of trial successes and management at all levels unaware of any striking results.

This is all the more notable because they operate in an industry that is screaming out for efficiency improvements in the wake of rising costs and concerns over carbon emissions.

Yet, out among Firepower investors, there are all these stories about how good the products are.

Does this mean that the investors have better information than the mine management? Somehow I doubt that.

Perhaps the Hawthorne Effect theory should be expanded to include the improved performance of a product when subject to rumour and innuendo?

I guess we'll have to wait and see if this is truly a short-term phenomenon.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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