Mining companies need to shift focus towards lifting productivity, not towards digging up larger volumes of minerals, a new report suggests.
Extensive cost cutting measures across Australia’s mining sector has resulted in job losses, assets being put up for sale and planned projects put on the back burner.
Many commentators have blamed the cutbacks on market uncertainty, volatile commodity prices, a strong Aussie dollar and deepening ore bodies.
But according to a recent PricewaterhouseCoopers report, the cost cutting has also been fuelled by falling productivity levels.
Using Australian Bureau of Statistics data, PwC said the output of minerals per hour worked in the sector fell by 56 per cent between 2001/02 and 2011/12 while use of capital assets became 44 per cent less productive, the Australian reported.
These figures do not separate work done throughout the construction phase of mining and as the life of a mine progresses there is a trend towards decreasing productivity, PwC explains.
"In general, product mined earlier will be nearer the surface, easier to extract and require minimal processing,” the report stated.
"Over time, miners have had to work harder and more efficiently, simply to alleviate the productivity pressures applied by a depleting asset.”
The global consultancy company warns that austerity is not the entire solution to the sector’s waning productivity numbers.
Instead PwC recommends an overhaul of corporate structures and a rethink of business process is required.
PwC said that increased automation and ramping up of existing assets is what the industry needs to boost productivity.
According to the report, coal and iron ore businesses have showed the most immediate evidence of productivity shake ups with a drastic shortening of total hours worked.
The coal sector has recorded an almost 40 per cent drop in the second half of last year and hours worked in the iron ore sector decreased by 10 per cent in the last quarter of the year, Herald Sun reports.
Resource companies also made savings by shelving major projects and cutting the number of contractors on site.
"Softer commodity prices and a persistently high Australian dollar have been the catalysts of action in the mining industry," the report said.
"Headcount reductions, the postponement of major projects and changes to senior leadership in the major miners are reflective of a marked switch away from a volume growth mentality to a cost and productivity focus."
PwC's energy, utilities and mining leader Jock O'Callaghan said productivity improvements would continue this half, but cautioned against industry taking a stringent "austerity" approach.
Rather O'Callaghan said savings could be unlocked through a "greater investment in processes" and "changing the way the industry does business".
"Cost-cutting should mark the first phase in a long-term plan to improve productivity," O'Callaghan said.
PwC expects the mining industry to continue to target significant productivity gains over the next 12 months.