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Click the button to read the digitizing underground mining whitepaper. This effect was particularly important in the last few years of this period. The Health Effects and Regulation of Passive Smoking, The Impact of APEC's Free Trade Commitment, The Implications of Ageing for Education Policy, The Increasing Demand for Skilled Workers in Australia: The Role of Technical Change, The Measurement of Effective Rates of Assistance in Australia, The Migration Agents Registration Scheme: Effects And Improvements, The Net Social Revenue Approach to Solving Computable General Equilibrium Models, The New Economy? Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. During the height of the mining boom, record-breaking commodity prices notionally supported the development of marginal high-cost, low-productivity mineral deposits. 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. It is sometimes also referred to as total factor 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 slowdown in commodities demand growth from 2011 has introduced a general mood of austerity across the 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). 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. 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. As a full flow-sheet provider to the global mining industry, we have the knowledge and experience to enable your mining … Mining productivity has been declining by 3.5% annually since 2010, reaching 30-year low. The evolution of the mine’s asset value since 2008 is represented by the size of the bubble. Firm Size and Export Performance: Some Empirical Evidence, Fixed-term Employees in Australia: Incidence and Characteristics, Framework for Greenhouse Emission Trading in Australia, GBE Price Reform - Effects on Household Expenditure, GTAP (Global Trade Analysis Project) Summary in Excel Programs, GTE Dividend and Income Tax Payments: 1990-91 to 1995-96. Productivity at Rio Tinto 24 4.1 Pilbara iron ore challenges 24 4.2 Rio Tinto innovation and productivity programs 25 4.2.1 Autonomous and remote equipment 25 4.2.2 Systems automation 31 4.2.3 Excellence centres 33 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. Productivity and the Structure of Employment, Productivity in Australia's Wholesale and Retail Trade, Productivity in Electricity, Gas and Water: Measurement and Interpretation, Productivity in Financial and Insurance Services, Productivity in Manufacturing: Measurement and Interpretation, Productivity in the Mining Industry: Measurement and Interpretation, Public Infrastructure Financing: An International Perspective, Quality of Care in Australian Public and Private Hospitals, Quantitative Modelling at the Productivity Commission, Quantitative Tools for Microeconomic Policy Analysis. 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. During the height of the mining boom, record-breaking commodity prices notionally supported the development of marginal high-cost, low-productivity mineral deposits. Any temporarily idle capital associated with production cut-backs and mine closures will tend to lower MFP. An expected rebound in mining MFP from 2008-09 onward may be delayed as a consequence of the decline in world prices for many mineral and energy commodities in mid-to-late 2008. A 'once-in-a-generation' shock to demand for, and prices of, mining commodities saw this share rise to 8.5 per cent in 2006-07, stimulating substantial growth in new investment, employment, and profits. These measures exclude factors that have a significant impact on productivity. 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. The operating systems should also free up people and resources to prioritize productivity and operational excellence, and support effective performance management. In response, many mining companies have implemented productivity programs. Given that mining companies typically measure the output of the actual ore being mined, rather than the total material moved, productivity measured in this way tends to be constantly in decline. Despite the impact of the fall in mining MFP, the sector has made a significant contribution to the strong overall growth in national income so far this decade through a substantial improvement in Australia's' terms of trade. We strive to provide individuals with disabilities equal access to our website. Another important factor concerns more extensive regulatory requirements across the industry worldwide; these can directly or indirectly affect productivity but, again, lie largely outside management’s control. This paper by Vernon Topp, Leo Soames, Dean Parham and Harry Bloch was released on 18 December 2008. Many mining industry roles are FIFO, so employees live where they work for a great deal of the time. Labour costs are high for many mining companies, with large wage premiums in the sector due to skills shortages and an aging workforce. Use minimal essential 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. To address the challenge of productivity improvement, miners will need to make moves on two levels: first to achieve short-term gains, and second to set their operations on the right course for higher long-run productivity performance. 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. 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 company, which has been partnering with mining companies for more than four decades, has the MMM division, a digital technology platform aimed at impacting productivity in the sector. 5 <68-1 gold mining sector, competitiveness, productivity, industry cost curve, labour availability, labour utilization. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Generally, the mining industry is very poor at passing on productivity improvements compared to other industries, like building cars, where business improvement practices are really established. In brief, that the industry has paid a high price in terms of lower productivity for volume gains during the demand boom—but that there are signs the industry may be starting to turn its productivity performance around. Is the Polish biggest mining company a trendsetter or rather just a follower of global copetitors' strategy? Automation’s impact at FLSmidth Workforce Participation Rates - How Does Australia Compare? 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. Clearly, the industry has already started to work on this, with many companies already reining in capital expenditures and making moves to obtain more value-adding output from their asset base. Be it through equipment, software or communication technology, automation is now changing the game for the cement and mining industry. For more information, please visit MineLens.com. 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. * The mining, except oil and gas industry had a productivity decline of 3.8 percent, as hours worked increased while output declined. as well as mine level. Mining companies cannot control these two areas, so changes in TFP performance do not fully reflect operational performance and productivity. 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. The number of workers also has risen, at a CAGR of 6.6 percent over the full period. “The mining industry will continue to find solutions to improve the productivity of its operations. 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. 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. The Productivity Commission acknowledges the Traditional Owners of Country throughout Australia and their continuing connection to land, waters and community. During the boom, this rose substantially, reaching 9.8 percent of GDP in 2008–9. Many mining industry roles are FIFO, so employees live where they work for a great deal of the time. Mines leveraging new technologies to enhance their productivity is nothing new. The mining industry has played a significant role in the global economy (King et al. It's only relatively recently that we're starting to see that approach come in with mining. There has typically been a focus on improving one or two of the variables, such as reducing cost, lowering capital intensity, or increasing throughput. Our productivity measure is composed of four elements: physical mining output, employment at the mine site, the value of assets at the site, and nonlabor costs. Which factors that make up the MPI have had the greatest impact on productivity trends? Trends in Unit Labor Costs in 2019 Unit labor costs, which reflect the total labor costs required to produce a unit of output, rose in 77 of the 86 NAICS 4-digit manufacturing industries. Boosting production volumes became the industry’s top priority. 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. Is the Polish biggest mining company a trendsetter or rather just a follower of global copetitors' strategy? …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” The importance of machine learning in the mining industry. Labour costs are high for many mining companies, with large wage premiums in the sector due to skills shortages and an aging workforce. Flip the odds. Indeed, the improvements that are already starting to be seen in the MPI data point the way, with an upturn in productivity performance in some regions where capital expenditures have been reduced dramatically and where a number of large assets have come online and boosted output, while major efforts have been undertaken to drive costs out in operations. We'll email you when new articles are published on this topic. Mining KPIs. Although this report questions the The productivity data also registered a rebound in some commodities in the 2012–13 period. aggregate productivity was the reduction in mining productivity, of approximately 75% since the 2000s according to standard indicators. 19 3.2 Productivity trends in Australian mining 20 4. Learn about During the early 21 st century, many commodities prices including minerals significantly rose due to the large growth of emerging markets. Underground mining has lots of untapped potential to improve productivity, safety and efficiency. 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. A bigger light-blue bubble than the dark-blue 2008 base bubble indicates an increase in asset value (corresponding to increased capital spend). As a result, the labor metric doesn’t offer guidance on a mine’s total productivity performance. During this phase, all mining companies were solely focused on increasing their production, without worrying much about their productivity and costs. The initiatives described here are important enablers of those productivity improvements. With an increased focus on sustainable productivity, deeper insights delivered by automation can actively enable industry players to strengthen their market share. 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. 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 Presently, the industry is struggling with a range of challenges concerned with productivity. Extending Patent Life: Is it in Australia's Economic Interests? The Growth of Non-Traditional Employment: Are Jobs Becoming More Precarious? 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. Mining-company management should encourage openness to trying new approaches and to adopting new technologies. A South American copper mine made significant capital expenditures to boost its production and saw output rise 3.9 percent per year (Exhibit 7). Productivity and Safety Gains from Technological Innovation. Such a mine will have reduced unit costs and raised output per employee without increasing its capital expenditures. Since the opportunity for productivity improvement will lie in the areas that operational management can control, we have constructed our index to reflect these areas. 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. 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These sample KPIs reflect common metrics for both departments and industries. Unleash their potential. 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”). In characteristic cyclical fashion, the mining industry’s performance has taken a sharp downward turn since peaking in 2010. Ongoing depletion of Australia's natural resource base is estimated to have had a significant adverse effect on long-term mining MFP. Learn more about cookies, Opens in new Underground mining has lots of untapped potential to improve productivity, safety and efficiency. Australia's Productivity Growth Slump: Signs of Crisis, Adjustment or Both? In characteristic cyclical fashion, the mining industry’s performance has taken a sharp downward turn since peaking in 2010. Today, the industry finds itself in new territory, following the slowdown in demand growth over the past four years and consequent fall in prices and mining profits. In the population of mines that we have included in MPI, output has grown at a CAGR of 14.8 percent. Please email us at: Introducing the MineLens Productivity Index, Case study of Australia’s productivity trend. Operational excellence implies a continuous focus on improvement and enables ongoing cost reduction and throughput improvement. Mining equipment in Australia runs at lower annual outputs than most of its global peers. 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. Please try again later. Ultimately, productivity improvements at the economy-wide level will depend upon the actions of individual enterprises. The industry’s circumstances have now changed. But a holistic focus on the drivers of productivity that is shared at multiple levels is rare in mining organizations. Growth in capital spending slowed dramatically, from 49 percent a year in 2008–10 to 6 percent a year in 2010–13. hereLearn more about cookies, Opens in new As commodity prices dropped, companies responded by […] Mines leveraging new technologies to enhance their productivity is nothing new. We’ve assembled a collection of sample Key Performance Indicators for you to use as a starting point when building scorecards. 2017) since ancient times until now; for instance, production of a modern computer requires more than 65 various minerals (Department of Energy 2017). The world’s third-largest producer by revenue, Australia’s mining industry experienced high growth during the commodities boom. Chris Lo talks to Michael Beare of SRK Consulting to find out what mines could, or should, be doing to maximise their margins. As commodity prices dropped, companies responded by […] Applying the MineLens Productivity Index (MPI) methodology to national Australian data1 1. This means that the companies able to succeed in the race to achieve higher productivity will be among the biggest winners. And, in many cases, new capital projects are executed without integrating new technologies into the mine design. Compared with industries such as automotive, which obsessively focus on productivity gains, the numbers seem astonishing. The mining industry spends very little on research and development for innovation compared to other sectors, especially on mining and processing methods. Are important enablers of those productivity improvements keys to review autocomplete results with.... 2010 is gone increasing its capital expenditures was obtained from the public domain the. Optimize mining productivity started to rebound gradually from 2010 to 2013, growing at percent... 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