The confidence crisis in the mining industry has led to
extreme short term measures that are unsustainable and detrimental to growth,
according to the latest report from PricewaterhouseCoopers.
PwC Australia have today released the 11th annual
global report, Mine 2014: Realigning Expectations, which shows that profits
among the world’s top 40 miners have slumped an astonishing 72 per cent to $20
billion, the lowest profits recorded in a decade.
However, asset bases for these companies grew seven per cent
Market value for the top 40 dropped 23 per cent, or $280
billion, however Fortescue Metals has weathered the storm as one of only four
companies to see an increase in market value to $958 billion.
The report also recognised that nearly half the top 40
companies have appointed new CEOs in the past two years, seven of which
appeared in 2013.
The rate of change in business strategy has been
“unprecedented” according to PwC Australia’s Energy, Utilities and Mining
leader Jock O’Callaghan, who said it was hard to tell if the conditions were
ready to improve or would continue to “bounce along the bottom”.
no doubt the industry has moved fast to counter its sudden change in fortune:
fleets were parked, jobs slashed, development projects deferred – every dollar
spent requires care and consideration,” he said.
are the sorts of traditional levers just about every mining company in the
world has employed at some point in recent years, but they are ultimately
unsustainable and they simply won’t support growth.
we are now seeing among the Top-40 is a definitive move beyond these short-term
market friendly fixes in favour of a fundamental strategic shift that focuses
on the industry’s long-term prosperity to take advantage of the industry’s
still strong fundamentals.
can be seen in a focus on simpler structures, a bid to boost returns from
higher quality assets, a willingness to share critical infrastructure and a
concerted effort to improve productivity levels, which remain way too low.”
said that a disconnection had emerged between company strategies and what was really
happening on the ground.
miners from traditional markets are talking about reducing costs and, in some
instances, heralding increased production volumes under the broad banner of
productivity gains but many are still executing a strategy at their mines which
is effectively the same as during the boom,” he said.
reform in this area can’t be made by those who persist with three common ideas.”
outlined three key fallacies that have limited mine reform strategies,
beginning with what he called the NIMM, or “Not In My Mine” defence, which
insists that the mine in question is not the same as any other.
is the belief that larger mines inherently achieve greater equipment efficiencies,
despite the fact that data shows bigger is not always better.
there is an expectation in some quarters that labour reforms are the silver
bullet,” O’Callaghan said.
fact they are only one piece in the puzzle.”
O’Callaghan suggested that mining companies should turn their attention from the unsustainable policy of trying to make savings through labour reforms, they should instead focus on productivity and equipment efficiency.
who will emerge on top from the turmoil will be those companies that can
achieve demonstrable lifts in productivity while maintaining a sensible and
sustainable reign on costs and without compromising asset values.”