Mining productivity down by a third over last decade

Kalgoorlie's Super Pit

Mining productivity has declined by about one third over the past decade, according to a new government report.

The Productivity in the Australian Mining Sector report said there has been a major decline in unadjusted measured productivity. The report used the Australian Bureau of Statistics (ABS) data to find the major decline in unadjusted Multifactor Productivity (MFP).

The ABS data showed the decline in unadjusted MFP between 2000-01 and 2009-10 was 33 percent.

Despite the decline in productivity revenue, there was still growth in the mining sector over the decade due to a rise in commodity prices.

Compiled by the Bureau of Resources and Energy Economics, the report’s explanation for this decline in mining productivity is that high commodity prices have meant firms have the incentive to dig out marginal resource deposits that were earlier unprofitable due to high costs of extraction.

Due to this, firms are using proportionately more inputs in their operations, to increase rates of extraction.

“Possible reasons for a slowdown in Australian mining productivity in the 2000s include transition to lower yielding resources, inefficiencies of vintage capital, output-input lags, the lumpy nature of mining investment, and high commodity prices that place a priority on rates of extraction rather than costs of extraction,” BREE’s executive director and chief economist Professor Quentin Grafton said.

The study noted the decline in productivity does not mean there is a specific mining policy problem. It said the strength of resource prices have contributed to endogenous resource reduction.

Innovations, quicker adoption of better off-the-shelf technologies and more skilled workers will all help in productivity growth of the mining sector.

Australian Mining has previously looked to explore how mining companies can increase productivity in 'Four Must-Have Productivity Improvements'. It looks at the challenges companies face and tips on how to increase efficiency, profitability and responsiveness.

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