Mining productivity slump?
Two recent Mining Industry reports paint an interesting, sometimes worrying, and somewhat contradictory picture of the immediate future of the Australian Mining Industry.
The first titled Productivity in mining – A case for broad transformation from Ernst & Young in collaboration with the University of Queensland has been much referenced by the media lately – for instance by the ABC, Mining Journal and Mining News. The report points to statistical evidence of a 50% drop in productivity in the industry over the past 10 years and argues that wholesale change is required to rectify this, rather than change targeted at isolated pain points (productivity constraints or bottlenecks).
The author of the report, Paul Mitchell (Ernst & Young's Global Mining & Metals Advisory Leader), highlights three particular factors in his video interview accompanying the report on Ernst & Young's website:
- Transformative change is required – not just point solutions
- Many solutions don't consider the whole of business – there is a need to understand the full business process and put in place solutions that work to deliver full business benefit
- Talent management – there is a big gap in management capability within the sector arising from the recent super-cycle, as it allowed employment of a less skilled workforce including management with little or no experience of leaner times.
The second report from ANZ, titled Phase III of Australia's Mining Boom claims that the mining boom is currently transitioning into the third phase of the mining boom – the Production Phase. This follows Phase I, characterised by sharply rising commodity prices, including iron ore and coal (the bulk commodities), which drove a sharp lift in Australia’s terms of trade, and Phase II, or the Investment Phase, which saw an enormous expansion in production capacity of these commodities, as well as in LNG. The paper further argues that the third phase is just beginning, as the extra capacity from the investment boom boosts the production and exports of Australia’s key commodities, and that the flow-on effects of the transition will include a reduced industry workforce size (by 50-75K over 2-3 years) and increased production and export volumes.
When labour productivity, resources investment and sector employment are mapped against the 3 mining boom phases (as illustrated in the above graph, which is an overlay of charts from the two papers mentioned) several factors become apparent.
- The shift from Phase I to Phase II shows a natural decrease in productivity due to the industry's focus on ramping up capacity through project development, rather than production.
- Taking the Ernst & Young paper's call for broad transformation in concert with the ANZ paper's outlook for Phase III of the Mining Boom, a natural consequence of the shift from project development in Phase II to increased production in Phase III becomes apparent – reduced workforces combined with increased production will no doubt result in an upswing in productivity.
- The mining life cycle (exploration, project, production…) necessarily lags somewhat behind the bust to boom economic cycle, which tends to exacerbate the disconnection between the cycles and works to feed mismatching of supply and demand.
This cuts to the case raised by the Ernst & Young paper, that broad industry transformation is required… however by its very nature the industry isn't agile enough to achieve such transformation, particularly when whole of organisation transformation requires a certain type of corporate culture – generally one in which is change is mandated and managed from the top.
Such cultures are perhaps more prevalent in the mining industry amongst the majors (Tier I companies), however most Tier II/III organisational and operational structures don't support global change to this extent, particularly given that mine managers often have a great degree of autonomy in deciding how to manage their individual sites and that companies may employ a deliberate, though unstated, strategy of competition between operations to lift productivity and output.
In mining operations that are more locally focused and which rely to a greater extent on individuals within mine management to increase productivity, point solutions can have a significant impact, and are often the only means to increase productivity. Given that broad transformation may not be an option for many companies, and that targeted action to address specific pain points is more palatable, what form should these actions take?
For example, tech-savvy management in such situations is increasingly looking to data visualisation and analytics solutions to identify, assess and to some extent, remediate, such pain points.
Although the transition into Phase III of the mining boom will close the gap somewhat in the productivity deficit identified by Ernst & Young and the University of Queensland, there will undoubtedly still be a significant shortfall from the position enjoyed 10 years ago.
Identification of the "lost competencies" of mine/productivity management should be a priority for mining educators and researchers. Perhaps we should be asking, "what was being done 10 years ago that has been lost, and how can it be recovered?"