After being accustomed to a decade of the mining boom, experts believe mineworkers and managers will find it difficult to adjust to a climate of lower commodity prices.
The new phase of job and cost cutting measures in the mining sector could bring back systems that were applied in the mining sector during the 1990s.
The mining boom over the past ten years and the possible retirement of many older mining workers mean companies and their workers could be in for a rough phase as commodity prices decrease and operating margins shrink.
Deloitte partner and head of the firm’s restructuring services arm in Western Australia Gary Doran said the resources sector downturn would be a ‘shock to the system’ for a generation that is accustomed to the mining boom of the last decade.
Like many others, Doran predicted mining contractors would be worst hit as they had hitherto managed with very small margins.
“There’s a lot of younger people in the industry who haven’t had to manage a business on tight margins.
“Traditionally a contracting business is all about managing to a very tight margin, there aren’t huge profit margins in it, and the real skilled project managers are those that can manage their shift schedules well, manage their variation orders, and get their quoting right in the first place,” Doran said.
“All those practices have slipped because the market has become so fat, and a lot of people don’t have the skill set now to do it. That’s obvious in the industry.”
A host of mining services companies consecutively announced downgrades in profits and revenue in the recent past including UGL, Boart Longyear, Transfield Services and Ausdrill. This week, NRW Holdings joined the list.
New CEOs and tightening of belts at companies like BHP Billiton and Rio Tinto in recent times hinted at a change of course for the mining giants, Doran said.
“If you look at the chairman of BHP, (Jac) Nasser, he’s out of the automotive industry. if you look at where (new Rio Tinto chief executive Sam) Walsh came from, he’s out of the automotive industry,” Doran said.
“The motor vehicle industry about 30 years ago went through their changes and they worked with their suppliers in a collaborative way to find solutions, which brought up all these better practices that have now been implemented around the world.”
Partner and managing director at Boston Consulting Group’s Perth-based office Alex Koch said workers in the mining industry would have to change their mentality as companies move towards productivity and cost cutting measures instead of growth.
“There’s not many people left in town who were part of the 1990s mining story, which was all about productivity,” he said.
“It’s the experience of that being normality (that counts). You have to work very hard to get a few percentage point improvement out every year; that is what it takes to be competitive. That was just not a concept that was prioritised for the past decade.”
Ernst & Young global mining leader Mike Elliot said younger workers never had to face extended downturns in this boom time and skills shortages period.
He said mining job cuts among many mining companies and contractors could see many experienced employees exit the market.
“With the labour shake-out we’re going to see as part of this new phase that we’re in, then the risk is that companies exit, either voluntarily or involuntarily, a lot of that experience and it won’t come back,” he said.
“These are guys that can take retirement, or have been through downturns before and know that it’s hard work during those times, and will look for an easier lifestyle. It becomes a compounding risk.”
But BC Iron managing director Morgan Ball asked why the companies lost control of their cost bases at all. He said companies sometimes implement expensive initiatives during boom time that are unsuitable during downturns.
“People don’t even realise they’re complacent. It’s much easier for us, we only have 40 employees, 250 contractors and one project, so every day we think about making sure our production’s running right and our costs are what they should be,” he told The Australian.
“That would be more difficult when you’re a global goliath.”