The global mineral resources industry has not been as quick to ride on the waves of the boom and bust cycles as other industry peers, McKinsey & Company partner Prabhav Sharma said.
This was Sharma’s key message to attendees at the Australian Geoscience Council Convention in Adelaide.
“Toyota embraced timeless operating principles 50 plus years ago and has emerged because of that as one of the world’s top three carmakers,” he said.
“The global mining industry has to ask itself, can it stick unwaveringly to a set of operating principles? When mining booms, do miners spend growth capital in a smart and lean way, and when prices come off, do we cut of exploration success which in turn was one of the biggest erosions of productivity.”
Sharma said that world-class mineral discoveries are inadequate and cost just over $US1 billion ($1.4 billion) – the cost of non-discovery is much higher than this.
He said, “We are finding only two-thirds of the deposits we need to maintain even current production.”
Sharma stated that mining productivity has been falling 5–7 per cent per year, despite the controllability of mining productivity. Mining’s return on invested capital also dropped to between 2–3 per cent in 2015, down from 17 per cent in 2004.
“In the recent super cycle, resource prices beat the global economic output, but it could be argued that the mining industry did not take advantage of the boom,” Sharma said.
“Global urbanisation is driving demand for many metals at a time grade decline has been a significant cost contributor to many metals such as iron ore and gold.”
Sharma underlined four learnings from other industries that mining companies can duplicate to escape the boom and bust cycle. They included consistency of purpose, such that was demonstrated by the automotive sector over five decades; a simultaneous focus on volume growth and cost, not one or the other depending on metal prices; sustained and committed investment in research and development (R&D) and talent; and to significantly pick up innovation.
He pointed to the mining sector’s dire lag behind other industries in some areas of innovation, particularly digital maturity.