Tracking the 2016 Trends – Part 1

Mining is changing.

We are currently in an era of extreme volatility in terms of commodities, where we can experience the swiftest growth in value, and one of the sharp drops, all within a few weeks of one another.

Up to this point it has been a tale of decline, of enormous readjustment as the resources industry saw prices whip from unsustainable highs to unsustainable lows, where commodity values could no longer keep afloat many of the smaller to mid-cap players.

According to Deloitte, “mining companies are struggling to recalibrate.”

Much of this is down to the not wholly unexpected economic transition underway in China, which is turning the corner from a heavy industrial focused economy to one supporting its burgeoning middle class, which is have deep and long lasting effects on the resources industry.

However, there seems to be life returning to the industry in terms of growing demand, particularly for gold, despite dire market predictions.

The industry appears to have reached the bottom of the downturn and is slowly making its way to a more sustainable median.

Companies that emerge from this great reckoning will do so stronger and smarter than when they first entered this cycle of the industry.

Iron ore, which has ridden a short rally wave that soon receded, even drew positive forecasts, with Citibank and even Western Australia lifting their forecasts compared to early 2016 predictions.

As we move to the mid-point of 2016, we examine the apparent trends that will be defining 2016, and what way the industry will move.

Below is the first of a ten-part series Australian Mining will investigate over the coming weeks.

1.     Going Lean: operational excellence

Belt tightening has been a consistent theme for the industry over the last two years.

According to Deloitte’s report a relentless focus on cutting costs has translated into enterprise level productivity improvements.

“With the downturn in commodity markets, most organisations stopped discretionary spending and improved operational efficiencies,” Deloitte Brazil’s mining leader Eduardo Raffaini said.

“But that doesn’t mean the extreme diligence can now end, it’s important for companies to consider the full range of potential scenarios – from their options to grow should the market turn, to their response strategies if prices continue to plummet.”

It stated that “whilst there is no ‘right’ solution to this quandary, industry leaders are tackling this issue in a number of ways”.

“One strategy involves a continued investment in innovation; from automation and enhanced drilling systems to data analytics and mobile technologies, companies embracing innovation are improving mining industry whilst reducing people, capital, and energy intensity.”

For a long time industry heads have said mining could learn more about productivity and efficiency by studying the manufacturing industry.

Unsurprisingly, BHP chairman Jac Nasser – a former president of automotive manufacturer Ford – advocates mining study the manufacturing industry for efficiency measures.

“Although there are as many differences between the automotive and mining sectors as there are similarities, forward thinking mining can likely make unanticipated productivity gains by taking lessons from this example – including reforming industrial relations, co-opting suppliers into the cost equation in an effort to extract efficiency, and shifting from traditional command-and-control hierarchies into a world of matrix or networked structures where human ingenuity is not overly hampered by rigid processes,” Deloitte said.

Even Rio Tinto’s former head of technology and innovation Greg Lilleyman said, “There may well be technologies from manufacturing, food processing, oil and gas or aerospace which are ripe for application [in the mining industry].”

In today’s market place, finding these operational efficiencies is more important than ever.

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