Ernst & Young’s latest mining risks survey has highlighted the shrinking investment landscape will have massive flow on effects for the sector’s future growth.
The report outlined the top 20 business risks that miners are facing, showcasing the about face in the major concerns for operators as the industry shifts from boom to bust, with only three of the top ten risks from this year – resource nationalism; access to energy; and social licence to operate – also featuring in the 2008 survey at the peak of the supercycle.
This year’s survey saw a switch to growth leading the risks concerns, followed by productivity improvement, and capital access.
The issue of growth, whether to build or buy for the future as we sit in the cycle’s trough, is a massive about face for the industry.
“Pro-cyclical, short-term behaviour currently prevails, with the collective industry mindset focused on consolidation and capital returns in a low-growth environment,” EY stated.
This flows in to the current focus for all operations in the current era of mining – productivity.
This is little surprise for the industry, with productivity levels having fallen consecutively for a number of years.
A study by consultancy firm McKinsey showed that multi-factor productivity was growing up until 2005; but it dropped 0.7 per cent per year until 2011, when the initial study was carried out.
A report by the Mineral Council of Australia also highlighted that the mining industry last delivered a productivity increase in 2003, but since then overall productivity in the minerals sector has fallen by 30 per cent.
According to a recent report by Ernst & Young mining labour productivity has declined by about 50 per cent since 2001.
IBISWorld chairman Phil Ruthven explained that the mining boom, or more specifically a pricing boom, protected the industry from the worst of the productivity slumps, but stated that the sector “desperately needs transformation as it is one of the most inefficient industries right now".
Ruthven explained that mining's productivity has dropped over the last ten years, and seen "a 9.8 per cent dip in productivity from 2001 through to 2011".
Overall, mining operations around the world are 28 per cent less productive today than they were ten years ago.
“The need for sustainable and enduring productivity improvements remains vital for survival and prosperity and, even though some work has been done on it, there is still sizeable scope for improvement,” EY said.
“Productivity improvement has been a source of competitive advantage for those that have been early adopters. Those that have been successful in improving their productivity levels have addressed productivity as a whole of business issue and with an end-to-end focus. They have also actively engaged workers who have operated in a cost-constrained environment.
“These companies are also open to innovation and are addressing cultural change to foster a productivity focus. They are effectively managing data to understand what good productivity looks like, and are measuring and monitoring performance accordingly.
“Critically, they are focusing on productivity for the long-haul,” it explained, in turn building their position for future growth.
EY global mining and metals leader Mike Elliot added: “Growth today is undoubtedly fraught with risk and tension, but standing still is not an option. Growth is essential in an industry that diminishes with every tonne or ounce it produces, where value is ultimately destroyed if the pipeline is not replenished.”
New to the list were cybersecurity and innovation, which is driving greater productivity..
With the rise of Big Data, remote operations, and equipment automation programs such as Rio Tinto’s Mine of the Future, cybersecurity and secure networks are becoming more crucial than ever before.
“The burning platform for innovation is clear,” EY stated.
“The sector is currently operating in a low-price environment; therefore, many mining and metals companies may need to innovate to survive, while others may look to maximise revenues and gain first-mover advantage when the market returns to growth.
“Unfortunately, it is clear that compared with most other sectors, there is a deficit of transformational innovation in the sector. The first automated truck was seen 20 years ago and yet there is still not a complete fleet in existence at a mine.”
Elliott added: “Innovation will be vital to protecting and sustaining margins in the long term, and will be key to maximising revenues in the future.”