According to new research, mining operations around the world are 28 per cent less productive today than they were ten years ago.
The results come from new data collected by McKinsey’s MineLens Productivity Index (MPI).
The MPI shows the decline in mining productivity is occurring across different commodities and is seen in most mining companies and geographies.
McKinsey said the decline is not surprising considering that the industry has just come out of a demand super cycle which saw the production of certain commodities rise by 50 per cent over the past decade.
Higher prices and increased productivity meant miners’ lost sight of productivity goals, McKinsey said. This means that as the demand boom ramped up, cost increases related to increased production was not kept in check.
However the industry’s circumstances have now changed, with demand slowing, and commodity prices falling with it.
“There is intense interest across the industry in reversing the excesses of the 2000s,” McKinsey explained.
“Miners are seeking to cut costs incurred to produce mining output, or to increase output at no additional cost—in other words, to raise productivity. CEOs have been acknowledging to investors that poor productivity performance must be addressed. Meantime, governments in big mining countries are also trying to understand the productivity challenge, with publicly funded research institutions studying the issue closely.”
McKinsey said a crucial way in which to fix productivity challenges is to be able to measure performance.
“Industry managers have focused on labor productivity, typically measured in terms of the final product output—not the total material moved—per person employed,” the report said.
“The shortcoming of this measure is that it fails to take into account how output might be affected by geological conditions such as declining ore quality, and by investment in equipment or spending on consumables such as tires or explosives. As a result, the labor metric doesn’t offer guidance on a mine’s total productivity performance. “
Adding to the problem is that overall equipment effectiveness (OEE) is most commonly measured from dispatch data about equipment operating time and delays.
While this provides valuable insights about the availability, utilization, and tempo performance of equipment, McKinsey says it only zeroes in on parts of the operation such as shovels and processing plants rather than the whole site itself.
McKinsey said its MPI metric focuses on capital, labor, and nonlabor operating expenditure, deliberately excluding ore grade from the calculation.
The three elements are then linked with a measure of physical mine output, which is not affected by changes in the ore grade and stripping ratio.
According to McKisney, what the data shows is that the mining industry has paid a high price in terms of lower productivity for volume gains during the demand boom.
Over the past decade, mining productivity as measured by MPI has declined 3.5 per cent per year.
It said copper, iron ore, coal, and platinum group metals all suffered from this pronounced productivity decline.
“This decline stands after adjusting for external factors such as deteriorating ore grades and mine cost inflation, including escalations in the prices of mine inputs such as fuel and explosives,” the report said.
“It is important to note that the productivity decline would be even more pronounced if no adjustment had been made for ore-grade deterioration.”
However McKinsey said there were some encouraging signs that the sector is trying to buck the trend, with companies already working to rein in capital expenditure and add value to their existing assets.
But the report suggests that the focus should now turn to three important areas which address the root cause of productivity decline.
Embed effective management operating systems at mines
McKinsey said this step will create greater transparency, while freeing up people and resources to prioritise productivity and operational excellence, and support effective performance management.
“This approach will help resolve an important challenge that the industry has struggled with: making productivity performance (and its measurement) a priority,” McKinsey said.
“There has typically been a focus on improving one or two of the variables, such as reducing cost, lowering capital intensity, or increasing throughput. But a holistic focus on the drivers of productivity that is shared at multiple levels is rare in mining organisations.”
Prioritise operational excellence and capabilities development
McKinsey said operational excellence requires a continuous focus on improvement, and to achieve this, all forms of waste must be eliminated.
It also said companies must reduce variability, and improve the productivity of assets through advanced reliability and maintenance approaches, together with increased flexibility about changing conditions.
“Many mining companies struggle with capabilities constraints and need to address them: building up the capabilities of individuals and of the organisation is a necessity for companies to be able to deliver on all the levers involved in productivity improvement,” it said.
Focus on innovation
McKinsey said mining companies should encourage openness to trying new approaches and to adopting new technologies instead of sticking with tried and tested processes.
“For example, the potential to implement advanced dispatching processes in underground mining operations is clear, but it has still not been adopted at scale,” McKinsey said.
“With a few notable exceptions, it’s also unclear who is mandated to drive innovation in many mining companies. And, in many cases, new capital projects are executed without integrating new technologies into the mine design.”
It is recommended that miners use advanced analytics to harness the potential of the vast amounts of data generated in typical modern mining operations in order to boost productivity-improvement initiatives.
“To make this happen will require a broadening of the expectations of what operations leaders are responsible for, and tighter integration with other corporate functions.”