Over the last few months there have been a number of reports released highlighting the declining trend in productivity for the mining sector. This comes amid a scramble by many organisations to cut costs to compete in a market with both declining commodity prices and declining ore grades. The question that should be being asked is how we can be smarter about processing to reverse the declining productivity trend and be ready to maximise gains when the inevitable recovery arrives.
A report by the Australian Bureau of Resources and Energy Economics (BREE) released in March 2013 showed that labour productivity in the Australian mining sector had declined by close to 50% since 2001 (see figure 1). While these findings are dramatic they did identify that it was attributable in part to the incapability of productivity measurements to take into account mining specific variables over this time, such as declining feed grade.
Adjusting for factors such as declining grades and volatility in commodity prices actually indicated that multi-factor productivity (MFP) had risen slightly between 1985 and 2010 but this just highlights another major consideration for the mining industry, that we are facing ever declining feed grades and quality and need to be making considerable investment simply to keep up. The upshot of this is that while value has been added the declining grades mean that more energy is required to sustain productivity and consequently the energy productivity has declined. (See figure 2).
A recent report by PwC has again raised the issue that mining organisations should be focusing on increasing productivity, rather than simply focusing on reducing costs. The report demonstrates that no longer can miners focus on expansion at any price – the so called “volume frenzy”- and simply rely on high commodity prices to maintain profitability and deliver shareholder returns. Rather, fluctuating commodity prices combined with a ballooning cost base have reduced profits and challenged asset values. This has prompted an urgent need for better capital investment disciplines as well as a closer focus on productivity.
What is clear from all of these statistics is that at some point in the very near future mining organisations need to shift focus from cutting costs to promoting productivity. This has been recognised by industry leaders such as Andrew Mackenzie, CEO of BHPB quoting “We’ve put an extreme focus on issues of productivity and capital discipline, which really are very close to my heart.” In AFR Boss, March 2013 and Mark Cutafani, CEO of Anglo American saying “we must work with each other to create a new set of mining models that deliver step-changes in cost and other key performance metrics”. However, making that change in thinking is much harder in practice.
A report on mining business risk by Ernst and Young highlighted this recognition. Productivity is now seen as the greatest risk to growth in the sector ahead of capital allocation and social licence to operate. The question is, what is the best way to promote the structural changes that are needed to generate these productivity improvements?
The underlying themes for productivity improvements that we keep seeing revolve around understanding the fundamentals of processing at a much higher level. The work done by groups like CRC ORE with developments such as Grade Engineering and by various groups in geometallurgy systems development are a step in the right direction but need further development to gain widespread support in the industry.
One thing that is consistent is that step-change technical breakthroughs in productivity need to have a much better fundamental understanding of the feed material for operations. Forward thinking companies have made good investments in process mineralogy and ore body characterisation in recent years but to make a significant impact this needs to become mainstream. For low grade complex deposits a sound understanding of the mineralogy can drive effective process development at lower risk, which is a level of understanding we will need more and more in coming years.