The incoming chief of the world’s fifth-largest miner, Anglo American, told analysts on Tuesday night that all it took to make a good mining manager was a good mineral deposit.
“In the mining industry, we’re some 20 to 30 years behind other more progressive sectors in terms of productivity and business practices,” Mark Cutifani said. “We’ve got to go beyond that and make sure we’re working our assets – the engine room – as hard as we can.”
In business and political circles, productivity is on everyone’s lips. Since the global financial crisis, productivity has improved across many industries, but at a slower pace. In mining, productivity has actually gone backwards. Why are other industries powering ahead while mining falls in the productivity stakes?
Largely, because they’ve had to. Many high-employment industries have had to radically improve their productivity just to survive in a globalised world. In manufacturing, things like automation and just-in-time production (where goods are made immediately before being sold) have helped some manufacturers in developed countries survive into the 21st century.
Other less productive manufacturers have relocated, outsourced or shut down altogether. In services, casualisation and a reduction in staffing levels have also cut down on costs.
Mining, on the other hand, has experienced a sellers’ market. The rapidly developing economies of the world have been paying top dollar for the commodities that fuel their expansion. With the money rolling in, it’s unsurprising the sector remains relatively inefficient.
Paradoxically, capital investment has also served to lower mining productivity, in the short-term at least. Before new capital is fully utilised, the cost of it can raise the cost per unit of output. Australian miners have ploughed fortunes into construction in recent years, which is benificial for productivity in the long term, but lowers it during construction.
As commodity prices taper off and caution gripes the minds of mining executives, there have been moves to do something about the sector’s productivity problem. At Chevron’s $US52 billion Gorgon liquefied natural gas project, Leighton Contractors in December responded to a 40% cost blowout by issuing a prescriptive productivity policy – policing, among other things, how long their presumably well-paid employees can spend walking around the site.
In another effort to cut costs and get things moving on time, big miners Rio Tinto and BHP, as well as minnows such as Fortescue, have all recently announced cost-cutting initiatives.
“Labour productivity in the mining sector is an absolute disaster,” wrote BIS Shrapnel economist Adrian Hart in a report released late last year. “It is now 60% off its peak in 2000/01?– when miners had to respond to the Asian financial crisis and then a global downturn –?and is at its weakest level since 1987.”
Steven Gosarevski, a research economist at the forecaster who helped write the report, says they’re currently preparing a more detailed look at productivity in Australian mining. He cautions that coming up with detailed analysis of productivity is a complicated task.
“One thing we’ve noticed is that a lot of construction workers who’ve been involved in the construction of large projects have been included as mining sector employees,” Gosarevski says. “We’re trying to get to the bottom of that.”
Given the research is ongoing, Gosarevski declines to give firm figures on mining productivity in Australia –?but he expects it to rise. “A lot of the big miners are currently rolling out labour-saving technologies; Rio Tinto with their automated trucks and trains, for example. That’s a trend we expect to see continue,” he said.
BIS Shrapnel also says the Australian mining boom is reaching its peak. This could improve productivity in the sector, as a fall in investment could deliver a boon to productivity levels.
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
