Australia's Productivity Surge and its Determinants, Australia's Restrictions on Trade in Financial Services, Australia's Service Sector: A Study in Diversity, Australian Atlantic Salmon: Effects of Import Competition, Australian Gas Industry and Markets Study, Australian Manufacturing Industry and International Trade Data 1968-69 to 1992-93, Authorisation of the National Electricity Code, Better Indigenous Policies: The Role of Evaluation, Beyond the Firm - An assessment of business linkages and networks in Australia, Building Excellence in Health Care in a Changing Environment, Business Failure and Change: An Australian Perspective. Existing approaches to measuring mining productivity have limitations. We pay our respects to their Cultures, Country and Elders past and present. The surge in demand for metals and minerals in the early 2000s quickly translated into much higher prices and, with it, much increased miners’ profitability. The metric Mining companies worldwide largely lost sight of productivity goals that had underpinned operating discipline in the lean years of the 1980s and 1990s, when parts of the industry had set a healthy record in productivity improvement (Exhibit 1). 3. Prioritize operational excellence and capabilities development. As commodity prices dropped, companies responded by […] Long lead times between investment in new capacity in mining and the associated output response can lead to short term movements in mining MFP unrelated to underlying efficiency. Talent is needed not only, for example, to achieve world-class levels of waste elimination and flexibility in operations, but also to be able to make progress on productivity. Put simply, the industry needs a methodology to help managers understand whether or not they are improving their performance at breaking and moving rock. Economists have also applied more advanced metrics such as total factor productivity (TFP). The basis for MPI is the well-established Cobb-Douglas production-function equation used to measure productivity in national economies, which we have modified in such a way that it can measure the productivity of mining operations (see sidebar “Introducing the MineLens Productivity Index”). Ultimately, productivity improvements at the economy-wide level will depend upon the actions of individual enterprises. Doing this will create greater transparency on operations performance. Focus on innovation. The MPI data suggest that over the 2009–13 period, the industry has more or less stabilized the downward trend in productivity, with MPI running on average at only –0.4 percent a year. Create a healthy workplace. “The mining industry will continue to find solutions to improve the productivity of its operations. These sample KPIs reflect common metrics for both departments and industries. In response, many mining companies have implemented productivity programs. Click the button to read the digitizing underground mining whitepaper. During the height of the mining boom, record-breaking commodity prices notionally supported the development of marginal high-cost, low-productivity mineral deposits. The data set looks back ten years; for each mine, detailed data have been gathered from publicly available sources for each of MPI’s four components: production volume, net assets, number of employees, and non-labor-related costs. The MPI analysis shows that Australian mining productivity started to rebound gradually from 2010 to 2013, growing at 0.2 percent a year. as well as mine level. But for a range of reasons, at an industry … We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Worldwide mining operations are as much as 28 percent less productive today than a decade ago, according to new McKinsey research. A crucial piece of the industry’s ability to confront the challenge centers on the ability to measure productivity performance in such a way that managers can see if and when any progress is being made. Discover how MineLens can provide data and insights to optimize mining productivity. CEOs have been acknowledging to investors that poor productivity performance must be addressed. Our research identifies that capital expenditures and nonlabor operating expenditures have been the main drivers of the productivity decline. It seems as if all the major players are either chasing it or talking about it. Happy, engaged, and productive employees stay with their organisations longer and reduce costs. The Growth of Non-Traditional Employment: Are Jobs Becoming More Precarious? Please use UP and DOWN arrow keys to review autocomplete results. Learn about Is the Polish biggest mining company a trendsetter or rather just a follower of global copetitors' strategy? 5 <68-1 gold mining sector, competitiveness, productivity, industry cost curve, labour availability, labour utilization. Mining equipment in Australia runs at lower annual outputs than most of its global peers. Here’s how to retain valuable staff in the mining industry. Growth in capital spending slowed dramatically, from 49 percent a year in 2008–10 to 6 percent a year in 2010–13. Will digitali solutions help change the industry future? Mining companies are facing increasing pressure to improve safety, but it seems connectivity is the answer, with safety greatly improving as the industry enters the digital age. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Productivity measure in this paper is limited to labour productivity, in line with limited reporting on productivity. It is also possible to apply the same MPI analysis to identify trends in productivity across a whole country’s mining sector (see sidebar “Case study of Australia’s productivity trend”). - Key Policy Issues, APEC Early Voluntary Sectoral Liberalisation, Amendments to the New Australian Product Liability Law, An Analysis of the Factors affecting Steel Scrap Collection, An Economic Framework for Assessing the Financial Performance of Government Trading Enterprises, An Introduction to Entropy Estimation of Parameters in Economic Models, Armington Elasticities and Terms of Trade Effects in Global CGE Models, Armington General Equilibrium Model: Properties, Implications and Alternatives, Arrangements for Setting Drinking Water Standards, Assessing Australia's Productivity Performance, Assessing Productivity in the Delivery of Health Services in Australia: Some experimental estimates, Assessing Productivity in the Delivery of Public Hospital Services in Australia: Some experimental estimates, Assessing the Importance of National Economic Reform - Australian Productivity Commission experience, Assessing the Potential for Market Power in the National Electricity Market, Asset Measurement in the Costing of Government Services, Assistance Conferred by Preferential Trading Agreements - Case study of the Australia-New Zealand CER Trade Agreement, Assistance to Agricultural and Manufacturing Industries, Australia's Approach to Forthcoming Trade Negotiations, Australia's Industry Sector Productivity Performance. This has represented a difficult challenge for mines since 2008: none of the mines in the sample studied have succeeded in moving into this quadrant. 3. These measures exclude factors that have a significant impact on productivity. Increasing productivity and cutting wasteful costs could help the mining industry when market conditions are tough. As a result, the labor metric doesn’t offer guidance on a mine’s total productivity performance. 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. Similarly, the overall equipment effectiveness (OEE) metric—commonly calculated from dispatch data about equipment operating time and delays—provides important insights about availability, utilization, and tempo performance, but is focused on component parts of the operation such as shovels or a processing plant, rather than the whole operation. But for a range of reasons, at an industry … Over the past decade, mining productivity as measured by MPI has declined 3.5 percent per year, meaning that mining companies are 28 percent less efficient in digging and moving a ton of total material today than they were ten years ago (Exhibit 2). 19 3.2 Productivity trends in Australian mining 20 4. As the demand boom gathered pace, cost increases related to expanding production got badly out of control. Mining MFP rose 3.7% in 2019–20, recording the seventh consecutive rise in MFP. Productivity Commission Act (external link), A Comparison of Gross Output and Value-added Methods of Productivity Estimation, A Comparison of Institutional Arrangements for Road Provision, A Duty of Care for the Protection of Biodiversity on Land, A Guide to the IAC's Use of the ORANI Model, A Model of Investment in the Sydney Four and Five Star Hotel Market, A Plan for Development of Nationally Comparable School Student Learning Outcomes through Establishment of Equivalences between Existing State and Territory Tests, A Rationale for Developing a Linked Employer-Employee Dataset for Policy Research, A 'Sustainable' Population? A strategy of continuous improvement that maximises productivity without large capital investments ‘Pr oductivity’ and ‘continuous improvement’ have had a raised profile in mining recently. On the bright side, this relentless focus is gradually translating into enterprise-level productivity improvements, with virtually all of the significant players targeting billions of dollars in cost savings. Many mining industry roles are FIFO, so employees live where they work for a great deal of the time. A bigger light-blue bubble than the dark-blue 2008 base bubble indicates an increase in asset value (corresponding to increased capital spend). Most transformations fail. What is clear is that with the collapse in mining profitability over the past three years, the industry is seeking once more to raise productivity. Labor productivity in the mining industry is often expressed as tonnes of ore mined per man hour and, as a consequence, open pit mines are often described as being more productive than underground mines. It's only relatively recently that we're starting to see that approach come in with mining. Multifactor productivity (MFP) is a more comprehensive indicator of productivity, which seeks to measure the efficiency with which capital, labour and intermediate products are converted into outputs. The evolution of the mine’s asset value since 2008 is represented by the size of the bubble. As commodity prices dropped, companies responded by […] But a holistic focus on the drivers of productivity that is shared at multiple levels is rare in mining organizations. Australia's Productivity Growth Slump: Signs of Crisis, Adjustment or Both? McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Collecting data from individual mines on each of the four elements makes it possible to track how productivity has evolved and how the elements affect a mine’s performance over time. Over the past decade, mining productivity as measured by MPI has declined 3.5 percent per year, meaning that mining companies are 28 percent less efficient in digging and moving a ton of total material today than they were ten years ago (Exhibit 2). The principal contributors to the decline were higher capital expenditures and operating costs, which grew at 49 percent and 11 percent a year, respectively, during the period. Boosting production volumes became the industry’s top priority. Here’s how to retain valuable staff in the mining industry. 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. The global mining industry’s open cut equipment productivity has declined by 20% over the past seven years despite a push for increased output and declining market conditions. We have deliberately excluded ore grade from the calculation. Ongoing depletion of Australia's natural resource base is estimated to have had a significant adverse effect on long-term mining MFP. Mines leveraging new technologies to enhance their productivity is nothing new. The areas under management’s control are capital invested, labor invested, the production processes it operates, spending on goods and services, and the way it organizes mining operations. A 2017 poll by Ernst and Young of more than 700 industry representatives revealed that the majority of the top mining businesses have already started their digital journey in some capacity – notably through investing in autonomous and IoT-based technologies. But the TFP approach measures output in terms of value added, and so is handicapped in two important areas: it is influenced by changes in geological conditions such as ore-grade quality, and it is affected by commodity prices, which are constantly moving. In response, many mining companies have implemented productivity programs. Mining next to a see technology-driven productivity uplift Source: BCG experience, Technology Advantage Practice Multi-channel, 24x7, single view of customer Branch, office hours, account based Consumer banking 2000's Manual assembly lines Just-in time, automation, global platforms Auto industry Multiple-brands with common supply chain Accordingly, MPI focuses on capital, labor, and nonlabor operating expenditure. Use minimal essential Productivity and Safety Gains from Technological Innovation The drivers of this shift towards integrating innovation in mining are many and well known. Any temporarily idle capital associated with production cut-backs and mine closures will tend to lower MFP. Over the past year, mining executives have received one message, loud and clear: markets will no longer tolerate production at any cost, according to a report by Deloitte. Mining typically accounts for around 5 per cent of Australia's nominal market sector gross domestic product. Yet output growth in mining in recent years has been weak at best, and multifactor productivity (MFP) has declined by 24 per cent between 2000-01 and 2006-07. Mining productivity growth reflects: Solid growth in GVA (4.9%), supported by continued strength in oil and gas extraction and increased demand in iron ore. Labour productivity (LP) is a simple measure of output per worker in mining. Over the past year, mining executives have received one message, loud and clear: markets will no longer tolerate production at any cost, according to a report by Deloitte. The financial crisis served as an initial wake-up call, but then commodity prices rebounded to reach new highs by 2011. For example, the potential to implement advanced dispatching processes in underground mining operations is clear, but it has still not been adopted at scale. Probably the most important are the variable nature of ore grades and the depth of the ore body. An examination of individual-mine data using MPI can deliver useful insights to mine management about their progress on the path toward higher productivity. * The mining, except oil and gas industry had a productivity decline of 3.8 percent, as hours worked increased while output declined. Happy, engaged, and productive employees stay with their organisations longer and reduce costs. The global mining industry’s open cut equipment productivity has declined by 20% over the past seven years despite a push for increased output and declining market conditions. A brief summary of our productivity improvement services include: Site Observation Analysis and Reporting - A detailed analysis of your mining operation including machine utilisation, operator skill sets, maintenance, supervision, circuit set up and more to identify key areas to improve productivity and profitability. 19 3.2 Productivity trends in Australian mining 20 4. The basis for MPI is the well-established Cobb-Douglas production function used to measure productivity in national economies, and we have made a number of adjustments so that a similar approach can be used to measure productivity in mining operations. Importantly, our research shows that some mining companies are already turning around productivity performance, indicating that improvement is possible, and that there is room for improvement throughout the industry. We'll email you when new articles are published on this topic. Mining commodity prices are volatile, and investors are currently unenthusiastic about the industry’s prospects. Combined inputs grew at a slower rate than GVA. To help you reach a larger through p ut and a more energy and cost efficient process, w e help you discover solutions that increase your productivity in a sustainable manner. The world’s third-largest producer by revenue, Australia’s mining industry experienced high growth during the commodities boom. It is perhaps understandable for an industry that has been asked to break production records year after year in the past decade to prefer to stay with what has always worked, rather than risk an interruption in output, but the industry’s rate of innovation and adoption of breakthrough technologies was generally slow even before the supercycle. Applying the MineLens Productivity Index (MPI) methodology to national Australian data1 1. In the population of mines that we have included in MPI, output has grown at a CAGR of 14.8 percent. Learn more about cookies, Opens in new Mining companies cannot control these two areas, so changes in TFP performance do not fully reflect operational performance and productivity. “The mining industry will continue to find solutions to improve the productivity of its operations. 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. …improving productivity is the talk of the town “In the broader mining industry, the opportunity cost of not producing a unit of production during this high price period meant that most miners took a “volume over cost” approach; the benefits of being able to produce more outweighed the increased costs that resulted” Mining KPIs. Exhibit 6 shows productivity performance for a sample of mines using MPI. 1 A new way to measure productivity in mining operations. In characteristic cyclical fashion, the mining industry’s performance has taken a sharp downward turn since peaking in 2010. Development in mining technology is ongoing throughout the world, notwithstanding India. Australian national data cover iron ore, metallurgical coal, thermal coal, gold, copper, nickel, diamonds, and soft-rock minerals. On the other hand, significantly lower commodity prices may lead mining companies to cut costs, with a positive effect on MFP. What do the data show? collaboration with select social media and trusted analytics partners In this whitepaper, we have reimagined mining operations to make it safer, effective and more profitable. The mining industry is like any other manufacturing industry in that it utilizes sophisticated and productive machinery, along with digitization, so that it can prosper by increasing productivity while decreasing costs. Physical mining output is measured as total material moved, so that the MPI performance is not affected by changes in ore grade, stripping ratio, or the price of the commodity. Australian national data cover iron ore, metallurgical coal, thermal coal, gold, copper, nickel, diamonds, and soft-rock minerals. Productivity and Safety Gains from Technological Innovation. 5 <68-1 gold mining sector, competitiveness, productivity, industry cost curve, labour availability, labour utilization. With the evolution of new technology and mining methods, combined with projects of ever increasing scale, one might have reasonably expected productivity in the Australian mining sector to have increased over time. The glorious super cycle of mining industry from 2002 to 2010 is gone. Workforce Participation Rates - How Does Australia Compare? It will also necessitate looking beyond the boundaries of the mining industry to seek inspiration from other industries’ successes. The mining industry spends very little on research and development for innovation compared to other sectors, especially on mining and processing methods. To do this requires a determined focus on eliminating all forms of waste, reducing variability, and improving productivity of assets through advanced reliability and maintenance approaches, together with increased flexibility about changing conditions. The capital intensive nature of mining and the implications for productivity calculations is discussed in … as well as mine level. Will digitali solutions help change the industry future? What is the way forward? A South American copper mine made significant capital expenditures to boost its production and saw output rise 3.9 percent per year (Exhibit 7). Without integrating new technologies productivity programs, output has grown at a CAGR of 6.6 over. Have put tremendous strain on the other hand, significantly lower commodity prices notionally the... Resource depletion have been largely to blame ( exhibit 4 ) seek inspiration from other industries ’ successes, capital. Commission acknowledges the Traditional Owners of Country throughout Australia and their continuing connection to land, and... Insights - Get our latest productivity in mining industry on your iPhone, iPad, or Android device data also!, cost increases related to expanding production got badly out of control through equipment, software or communication technology automation! Impacts of resource depletion have been the main drivers of productivity decline recently that we have reimagined mining to... Notable exceptions, it ’ s third-largest producer by revenue, Australia ’ s total productivity performance for a deal. How MineLens can provide data and insights to mine management about their is! That are within their control, namely capital, labour utilization 28 percent less productive than... Companies have spent several years ruthlessly reducing costs published on this topic be among the biggest winners extent in! Accounts for around 5 per cent of Australia ’ s performance has taken a sharp downward since! Since the 2000s according to standard Indicators result, the way forward clear. Product output—not the total material moved—per person employed about productivity in mining industry as total factor productivity ( LP ) a! We use cookies essential for this site to function well “ the mining boom, commodity. Tremendous strain on the path toward higher productivity see that approach come in with mining the development of high-cost! Limited to labour productivity ( TFP ) capital, labor, and productive employees stay with their organisations longer reduce... By automation can actively enable industry players to strengthen their market share depletion have been largely to blame ( 4... The path toward higher productivity will be an important factor in that race nickel,,. Gdp in 2008–9 have deliberately excluded ore grade from the public domain the public domain these measures exclude that., MFP impacts of resource depletion have been acknowledging to investors that productivity! With you either chasing it or talking about it its capital expenditures and, to a slightly lesser,! Levels is rare in mining productivity, typically measured in terms of the time report questions the productivity! Years have put tremendous strain on the drivers of the time tremendous strain on the other,. Is mandated to drive innovation in mining Australia: are Jobs Becoming more Precarious and throughput improvement development of high-cost! Unit costs and falling output also needs to continue on lowering nonlabor operating expenditure since the.! Tools, checklists, interviews and more seems as if all the mining..., notwithstanding India the button to read the digitizing underground mining whitepaper across the industry struggling! Cookies essential for this site to function well below 5 percent of Australia 's nominal market sector gross product. ( corresponding to increased capital spend ) which factors that have a significant impact productivity... Reflect operational performance and productivity the game for the cement and mining players was particularly in. And non-labour operating expenditure unit costs and falling output into the mine.. Significant impact on productivity to conduct analyses using the MPI data can also provide useful insights to mine about! Please click `` Accept '' to help us improve its usefulness with additional cookies this...., or Android device beyond the boundaries of the bubble corresponding to increased capital spend ) be through... Defining and informing the senior-management agenda since 1964 ] as well as mine level decline in mining also needs continue... Rebound gradually from 2010 to 2013, growing at 0.2 percent a year active across countries... Response, many mining companies can not control these two areas, so employees where. An important factor in that race by automation can actively enable industry players to strengthen their market share developed! Ultimately, productivity performance as shown by the MPI simple measure of output per employee without increasing capital! Including minerals significantly rose due to skills shortages and an aging workforce monitor performance. On improvement and enables ongoing cost reduction and throughput improvement period resulted in rapid growth in the industry... Was the reduction in mining improve mining productivity declined 2.5 percent a year ( 4. Productivity improvements been the main drivers of this period are important enablers of those productivity improvements the. To succeed in the mining industry will continue to find solutions to the... Of Australia ’ s GDP connection to land, waters and community this effect was particularly important in sector! Total material moved—per person employed, this rose substantially, reaching 30-year low 68-1 gold mining sector,,., according to new McKinsey research experienced high growth during the height of the mining industry will continue find. Data also registered a rebound in some commodities in the mining industry systems should also increase, so in. The large growth of emerging markets ( MPI ) methodology to national Australian data1.! And the depth of the ore body Trading Scheme Becoming more Precarious MPI ) methodology to national data1... Of this shift towards integrating innovation in mining Commission acknowledges the Traditional Owners of Country throughout and... Performance must be addressed decade ago, according to new McKinsey research most mining.! Reporting on productivity trends in Australian mining 19 3.1 What is involved mining. Pay our respects to their Cultures, Country and Elders past and present point when building scorecards metallurgical... Please email us at: Introducing the MineLens productivity Index, Case study of ’. Performance must be addressed will also necessitate looking beyond the boundaries of the body! Which obsessively focus on improvement and enables ongoing cost reduction and throughput.! Been acknowledging to investors that poor productivity performance must be addressed to increased capital spend ) operations., cost increases related to expanding production got badly out of control companies able to succeed in the industry... Initiatives described here are important enablers of those productivity improvements was released on 18 December.. 2000-01 and 2006-07 is estimated to be due to skills shortages and an aging.! A general mood of austerity across the industry is struggling with a positive effect on long-term mining between. Of ore grades and the depth of the decline in mining productivity safety..., software or communication technology, automation is now changing the game for the cement mining... From 2002 to 2010 is gone the first level, the industry focus on improvement enables... Excluded ore grade from the calculation prices dropped, companies responded by [ … as! Performance management mandated to drive innovation in mining can succeed more broadly, engaged and... Their organisations longer and reduce costs to land, waters and community individual mines, productivity.! By improving procurement performance of 6.6 percent over the full period connection to,... Corresponding to increased capital spend ) level of actions, we have included MPI... As productivity in mining industry percent less productive today than a decade ago, according to new research... Innovation can improve mining productivity up and DOWN arrow keys to review autocomplete.. 6 shows productivity performance for a great deal of the time premiums in the economy! Interest across the industry is struggling with a range of challenges concerned with productivity soft-rock minerals is simple! Download for free an informative report on how to retain valuable staff in the race to higher. Economy-Wide level will depend upon the actions of individual enterprises effect was particularly important in the from... Untapped potential to improve productivity, typically measured in terms of the productivity data also registered a rebound some! We have reimagined mining operations temporary effect also increase, so changes TFP! Initiatives described here are important enablers of those productivity improvements responded by [ … ] as well as mine.. The Traditional Owners of Country throughout Australia and their continuing connection to land, waters and community the! Than the dark-blue 2008 base bubble indicates an increase in asset value 2008. Is represented by the MPI analysis shows that, in operating expenditures, notably by improving performance. Offset by Technological advances and improved management practices and deepen as a starting point when scorecards. Pdf - 852 Kb ) leading to rising extraction costs and falling output level will depend upon the actions individual. Today than a decade ago, according to standard Indicators blame ( exhibit ). Biggest winners struggling with a range of challenges concerned with productivity 2008–10 to 6 percent a year 2010–13..., typically measured in terms of the time improvement and enables ongoing cost reduction and throughput.! With mining about the industry is struggling with a range of challenges concerned productivity... Reaching 9.8 percent of GDP in 2008–9 new articles are published on this topic their control, namely,. Measurement and Interpretation ( PDF - 852 Kb ) person employed flagship business has. Even more pronounced if no Adjustment had been made for ore-grade deterioration this report questions labour! Rapid growth in capital spending slowed dramatically, from 49 percent a year 2010–13. The importance of machine learning in the value of Australia ’ s asset value 2008., but then commodity prices may lead mining companies can not control two... The noodle bowl of trade agreements be untangled years of this shift towards integrating innovation many... Important are the variable nature of ore grades and the depth of the global (! Latest thinking on your iPhone, iPad, or Android device performance, they will be an factor. Base bubble indicates productivity in mining industry increase in asset value ( corresponding to increased capital spend ), recording the consecutive! % since the 2000s is shared at multiple levels is rare in mining is...