Bridging the mining productivity gap

The productivity gap in mining has come as a surprise for everyone except those working in the industry. 

Mining is now 28 per cent less productive than it was a decade ago, with Australia sitting in the unwanted position of second least productive mining region in the world. 

McKinsey's MineLens Productivity Index (MPI) reports released earlier this year highlight the general decline. 

The report found productivity across Australian mines peaked at 104 points in 2007, and slumped to a rating of around 88 points in 2013. 

Australia was in a unique position in which it was insulated from this decline in efficiency by soaring Chinese demand, and artificially high prices.  

However, as the market saw, this growth could not be sustained indefinitely, and the resulting downturn has wiped billions of dollars from miners.  

Solving this productivity crisis is crucial, not just for miners, but for the Australian economy as a whole. 

Yet the proper steps are not being taken. 

In Ernst & Young's Productivity in Mining: Now comes the hard part report, it stated that many of the executives interviewed said productivity is the number one challenge in mining, and firmly on their agenda. 

 "The popular tagline of the mining sector is that the miners are serious about productivity: we suggest that most are reducing costs and increasing volumes but there are precious few with legitimate claims to improving core productivity," PwC also stated. 

E&Y added: "Many found that productivity decreased as operations got larger, and that it was difficult to manage the complexity of these larger operations, particularly given the additional challenge of high turnover and lack of experienced staff in focusing on driving efficiency. 

Mining seems almost set up to fail, so what can it do? 

It needs to go beyond the basics. 

"Our view is that mining companies should move beyond point solutions, and adopt an end-to-end solution to transform the business," E&Y stated. 

"There is a need to ensure that each part of the business is optimised, not on its own but as part of a business system." 

This wider, holistic view was supported by the Boston Consulting Group, which stated, "As the supply of 'low-hanging fruit' is exhausted it has become increasingly necessary to go beyond traditional approaches to productivity improvement." 

This was echoed by E&Y which said that "many productivity initiatives to date have focused on cost cutting¬but our participants have acknowledged that what needs to be done is now more complex". 

So what about the boots on the actual ground? 

Efficiency in contract management is one of the major avenues for dramatic shifts in productivity, BCG stated. 

"Companies need to consider two additional pillars of performance: effective management systems and people excellence," it said. 

"One effective, though often neglected avenue to productivity is contractor management." 

This could constitute contract consolidation, with one miner demonstrating that by combining four different auxiliary equipment leases it was able to create savings of 15 to 25 per cent of its annual expenditure. 

On the other hand segmenting contracts that require different services or capabilities on the basis of the scope of their component parts creates new efficiency opportunities.  

"On average, applying multiple levers [to contractor management] can generate a total savings of 10 to 20 per cent of the contracted costs," BCG stated. 

Another avenue is the machine-run mine. 

Automation is being touted as the saviour of mining, but it will not be the panacea for the current productivity woes. 

Big Data is aiding this push, allowing for greater granular view on operations and more precise decisions to be made thanks to more detailed data. 

But it can't fix every problem. 

"A well run mine that implements automation  becomes a well run mine that is automated, while a poorly run mine that implements automation simply becomes a poorly run mine that has automation," Rio Tinto's Lilleyman Group Executive and head of technology and innovation told Australian Mining.  

"Productivity is a CEO issue and therefore needs the CEO to lead and drive end-to-end transformation to solve the issue," E&Y added. 

There are a number of avenues available for miners to increase productivity, apart from the traditional slash-and-burn, belt tightening mentality, and as the industry currently sits at a point where it has little more fat to cut, these avenues must be taken if it is to grow. 

 

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