Australia in the productivity doldrums

Efficiency in the Australian mining industry has received a stern rebuke from PricewaterhouseCoopers (PwC), rated as one of the least productive regions in the world.

The damning report ‘Mining for Efficiency’states that Australia is the second least productive mining region in the world, with Africa taking the wooden spoon, and North America beating Australia on all classes of equipment.

The report claims there is an inherent conflict between the productivity plans of the mining boom which were based on increased volumes, and plans based on cost reduction which are now coming to the fore of business strategy.

Across the globe, mining productivity has declined by 20 per cent over the past seven years, despite the push for increased output, and declining market conditions.

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

Mining Intelligence and benchmarking director and report author Dr Graham Lumley argued that although industrial relations issues are considered a primary constraint on productivity, such as claims by industry lobby groups that high wages in Australia will impact on our competitiveness, results actually show “significant divergences” between mines in close proximity chasing the same minerals under the same industrial relations conditions.

Equipment and the way it is used is a key focus of the report, which shows that productivity differences between the best and worst performing mines are stark, with some of the best practice outputs coming in at more than 100 per cent greater than the median performers.

Lumley threw out the “well-worn excuse” that hard rock mining conditions can be responsible for lower productivity, with examples of hard rock miners with high productivity.

It was also shown that although equipment upgrades may see improvement in output of 5 to 10 per cent, changes in work practices relating to the way workers use and work around that equipment can deliver gains up to and above 20 per cent without incurring substantial further costs.

“The popular tagline of the mining sector is that the miners are serious about productivity,” PwC states.

“We suggest that most are reducing costs and increasing volumes but there are precious few with legitimate claims to improving core productivity in their open cut operations.”

Comments in the report echoed the new fashion for cost reduction employed by the major miners who continue to sell off ‘non-core’ assets, such as BHP Billiton had done earlier this year with Nickelwest operations.

“Miners are banking the first available dividend, selling or segregating mines deemed too hard to fix and tempering expectations of further productivity gains by citing a combination of labour laws, high costs, regulatory hold ups and mine configuration constraints,” Lumley said.

“There is no question that sustainable productivity dividends are harder to achieve, but if tackled properly they will drive superior long term returns.”

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.