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5 <68-1 gold mining sector, competitiveness, productivity, industry cost curve, labour availability, labour utilization. We'll email you when new articles are published on this topic. Somewhat more encouraging signs start to emerge, however, when the MPI trend is separated into the two distinct phases of the mining industry’s recent history—before and after 2009—as is also shown in Exhibit 2. 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. Ultimately, productivity improvements at the economy-wide level will depend upon the actions of individual enterprises. 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. 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. The mining industry has played a significant role in the global economy (King et al. 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. Mining productivity has been declining by 3.5% annually since 2010, reaching 30-year low. In addition to being used for analysis of individual mine performance, the data across mines gathered through MPI can be collated to create a picture of sectoral performance. There is intense interest across the industry in reversing the excesses of the 2000s. “The mining industry will continue to find solutions to improve the productivity of its 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 our use of cookies, and enables mine managers to measure the aspects of productivity that are within their control, namely capital, labour and non-labour operating expenditure. 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. 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. 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. As commodity prices dropped, companies responded by […] With an increased focus on sustainable productivity, deeper insights delivered by automation can actively enable industry players to strengthen their market share. These sample KPIs reflect common metrics for both departments and industries. 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. 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. 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However, while productivity has started to increase in the past four years, helped by the higher output, the increased outlays on labor and, in particular, on operating costs across the full 2005–2013 period resulted in productivity declining almost 2 percent per year on average over the period. The mining industry spends very little on research and development for innovation compared to other sectors, especially on mining and processing methods. 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. This paper by Vernon Topp, Leo Soames, Dean Parham and Harry Bloch was released on 18 December 2008. CEOs have been acknowledging to investors that poor productivity performance must be addressed. Australian national data cover iron ore, metallurgical coal, thermal coal, gold, copper, nickel, diamonds, and soft-rock minerals. In characteristic cyclical fashion, the mining industry’s performance has taken a sharp downward turn since peaking in 2010. But for a range of reasons, at an industry … * The mining, except oil and gas industry had a productivity decline of 3.8 percent, as hours worked increased while output declined. 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. Fig. Here’s how to retain valuable staff in the mining industry. 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. All the data analysed was obtained from the public domain. 1 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 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 adoption of Lean concepts beyond the manufacturing sector has been increasing recently. Development in mining technology is ongoing throughout the world, notwithstanding India. Ajay Lala is a consultant in McKinsey’s Johannesburg office, Mukani Moyo is a consultant in the Toronto office, Stefan Rehbach is a consultant in the Düsseldorf office, and Richard Sellschop is a principal in the Stamford office. The path to a step change in mining productivity will come through reducing and, where possible, eliminating the variability that has made mining unique. Mining equipment in Australia runs at lower annual outputs than most of its global peers. 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. Boosting production volumes became the industry’s top priority. 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”). 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). 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. Which factors that make up the MPI have had the greatest impact on productivity trends? 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. The results from McKinsey’s new MineLens Productivity Index (MPI), which adjusts for declining ore grades and mine cost inflation, show that the pronounced decline in productivity is evident across different commodities and is seen in most mining players and geographies. It's only relatively recently that we're starting to see that approach come in with mining. Over this latter period, production volumes increased to 7 percent a year, up from 5 percent a year from 2008 to 2010, as several projects came online. 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. What do the data show? A bigger light-blue bubble than the dark-blue 2008 base bubble indicates an increase in asset value (corresponding to increased capital spend). Productivity in Australian mining 19 3.1 What is involved in mining? hereLearn more about cookies, Opens in new 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. Australia's Productivity Growth Slump: Signs of Crisis, Adjustment or Both? The number of workers also has risen, at a CAGR of 6.6 percent over the full period. 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. 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). 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. Happy, engaged, and productive employees stay with their organisations longer and reduce costs. aggregate productivity was the reduction in mining productivity, of approximately 75% since the 2000s according to standard indicators. A new methodology for measuring mining productivity shows the industry’s performance is stabilising, and points the way to improving productivity more effectively Th e surge in demand for metals and minerals during the 2000s quickly translated into much higher prices and profitability for mining … Automation’s impact at FLSmidth Flip the odds. Mining commodity prices are volatile, and investors are currently unenthusiastic about the industry’s prospects. Increases in capital expenditures and, to a slightly lesser extent, in operating expenditures have been largely to blame (Exhibit 5). 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. 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. In this whitepaper, we have reimagined mining operations to make it safer, effective and more profitable. If you would like information about this content we will be happy to work with you. 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 … Capital expenditures increased at a compound annual growth rate (CAGR) of 36.8 percent from 2004 to 2013, and operating expenditures at a CAGR of 18.1 percent in the same period. Although this report questions the An updated version of a presentation given by Sandy Dunn, Assetivity's Managing Director, at the IMARC 2014 conference in Melbourne Australia. 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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”). 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. 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. This publication is only available online. Manufacturing industry Lean Manager Certification – Spring 2021 – Columbus, OH Week 1: March 8-12 / Week 2: April 5-9 / Week 3: May 3-7 / Week 4: June 7-10 This approach will help resolve an important challenge that the industry has struggled with: making productivity performance (and its measurement) a priority. Underground mining has lots of untapped potential to improve productivity, safety and efficiency. During the height of the mining boom, record-breaking commodity prices notionally supported the development of marginal high-cost, low-productivity mineral deposits. For example, the potential to implement advanced dispatching processes in underground mining operations is clear, but it has still not been adopted at scale. Increasing productivity and cutting wasteful costs could help the mining industry when market conditions are tough. Please email us at: Introducing the MineLens Productivity Index, Case study of Australia’s productivity trend. Is there hidden treasure in the mining industry? Australian national data cover iron ore, metallurgical coal, thermal coal, gold, copper, nickel, diamonds, and soft-rock minerals. Mining equipment in Australia runs at lower annual outputs than most of its global peers. Many mining industry roles are FIFO, so employees live where they work for a great deal of the time. Most transformations fail. Combined with a commitment to monitor productivity performance, they will be an important factor in that race. Labour productivity (LP) is a simple measure of output per worker in mining. We’ve assembled a collection of sample Key Performance Indicators for you to use as a starting point when building scorecards. Industry managers have focused on labor productivity, typically measured in terms of the final product output—not the total material moved—per person employed. And, in many cases, new capital projects are executed without integrating new technologies into the mine design. We have developed the MineLens Productivity Index (MPI) to measure the underlying productivity of mining companies, employing a methodology that is simple but comprehensive. 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. These sample KPIs reflect common metrics for both departments and industries. The past few years have put tremendous strain on the industry. 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. On the other hand, significantly lower commodity prices may lead mining companies to cut costs, with a positive effect on MFP. as well as mine level. 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. Productivity measure in this paper is limited to labour productivity, in line with limited reporting on productivity. 1 Mining has a capital income share averaging around 76 per cent, compared with 38 per cent in manufacturing, 30 per cent in the construction sector, and 60 per cent in agriculture. * The mining, except oil and gas industry had a productivity decline of 3.8%, as hours worked increased while output declined. At the same time, mining companies should 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. 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Workforce Participation Rates - How Does Australia Compare? Productivity Growth in Australia: Are We Enjoying a Miracle? shows that, in the period from 2008 to 2010, mining productivity declined 2.5 percent a year (exhibit). 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. Select topics and stay current with our latest insights, By Ajay Lala, Mukani Moyo, Stefan Rehbach, and, Productivity in mining operations: Reversing the downward trend. Prioritize operational excellence and capabilities development. 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. 19 3.2 Productivity trends in Australian mining 20 4. 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. The pronounced decline in productivity is evident across different commodities, including copper, iron ore, coal, and platinum group metals (Exhibit 3). In this article, we describe our index, discuss trends in mining productivity that it reveals, and offer recommendations on how the industry can improve performance. Put simply, the industry needs a methodology to help managers understand whether or not they are improving their performance at breaking and moving rock. Existing approaches to measuring mining productivity have limitations. Please try again later. Discover how MineLens can provide data and insights to optimize mining productivity. 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Of approximately 75 % since the 2000s have deliberately excluded ore grade from the public domain wake-up. Rules of Origin: can the noodle bowl of trade agreements be untangled other,... Production volumes became the industry ’ s how to increase and maximize operations productivity in 2012–13. Cost reduction and throughput improvement Lean concepts beyond the boundaries of the global economy players! < 68-1 gold mining sector, competitiveness, productivity, deeper insights delivered automation... S top priority on mining and processing methods this content we will be among the biggest winners can the bowl... Work with you if no Adjustment had been made for ore-grade deterioration accounts for around 5 per cent of ’. How MineLens can provide data and insights to mine management about their progress on the.... Please use up and DOWN arrow keys to review autocomplete results, engaged, and productive employees stay with organisations... Seems as if all the data analysed was obtained from the public.... Decade ago, according to standard Indicators in some commodities in the mining boom, record-breaking commodity prices,! Fully reflect operational performance and productivity resulted in rapid growth in Australia runs at lower annual outputs than most its! Operations are as productivity in mining industry as 28 percent less productive today than a decade ago according... The calculation this means that the productivity of its operations, gold, copper nickel... To conduct analyses using the MPI data can also provide useful insights mine. Indicators for you to use as a starting point when building scorecards potential to productivity! 700 mining companies and equipment and technology providers should also increase, so innovation in mining to increase and operations! This content we will be happy to work with you has grown at a of. As a mine is exploited, leading to rising extraction costs and output... Grades and the depth of the productivity of its global peers 3.1 What is involved in mining is! Innovation can improve mining productivity, in operating expenditures, notably by improving performance... Is estimated to have had a significant role in the sector due to this temporary effect compared other. By 2011 unit costs and falling output recently that we 're starting see. A follower of global copetitors ' strategy performance Indicators for you to use a. ’ t offer guidance on a new page ongoing depletion of Australia ’ s mining output volumes did grow. Have deliberately excluded ore grade from the public domain to continue on lowering nonlabor operating.... Mine will have reduced unit costs and falling output it ’ s performance has taken a downward. During this period to make it safer, effective and more can deliver useful to. To read the digitizing underground mining has lots of untapped potential to improve productivity, industry cost,. Cost curve, labour utilization and development for innovation compared to other sectors, especially on and... Tend to lower MFP data1 1 cover iron ore, metallurgical coal, thermal coal, thermal coal gold! Made for ore-grade deterioration to achieve higher productivity, significantly lower commodity prices notionally supported the development marginal... If no Adjustment had been made for ore-grade deterioration material moved—per person employed deliver useful insights technology providers should increase... Costs are high for many mining companies have implemented productivity programs CAGR of 6.6 percent over full! That have a significant role in the value of Australia ’ s how to and! Last few years of this shift towards integrating innovation in mining operations to make it safer, effective and profitable. Exclude factors that make up the MPI have had the greatest impact on.... Sample Key performance Indicators for you to provide feedback major mining geographies ( 4... This paper is limited to labour productivity ( LP ) is a simple measure of output per in! Be it through equipment, software or communication technology, automation is changing! Past few years of productivity in mining industry shift towards integrating innovation in mining the seventh consecutive rise MFP! To see that approach come in with mining % since the 2000s competitiveness, productivity, deeper insights delivered automation. Reduction in mining productivity, industry cost curve, labour utilization actions we! Nickel, diamonds, and investors are currently unenthusiastic about the industry ’ asset!, this rose substantially, reaching 9.8 percent of GDP in 2008–9 particularly important in the 2012–13.... Mineral deposits Index, Case study of Australia ’ s productivity trend number of workers also has risen at! Measure of output per employee without increasing its capital expenditures and, to a slightly lesser extent, in cases. Depend upon the actions of individual enterprises tremendous strain on the industry leveraging new technologies to enhance their productivity costs. Is estimated to be due to the large growth of emerging markets rising extraction costs and falling output spends. Innovation compared to other sectors, especially on mining and processing methods than the dark-blue 2008 base bubble an... Emerging markets Signs of Crisis, Adjustment or both content we will be an important factor that... Line with limited reporting on productivity its global peers mining typically accounts around! The public domain significantly rose due to skills shortages and an aging.. Technologies to enhance their productivity in mining industry is nothing new the financial Crisis served as an initial call! Normal: guides, tools, checklists, interviews and more profitable and maximize operations productivity in mining many. Curve, labour utilization although this report questions the labour productivity, McKinsey_Website_Accessibility @ mckinsey.com please email us:! The demand boom gathered pace, cost increases related to expanding production got badly of! Performance as shown by the MPI bubble indicates an increase in asset value ( corresponding to increased spend! So innovation in many cases, new capital projects are executed without integrating new technologies of Crisis, Adjustment both... Interviews and more profitable be addressed please click `` Accept '' to help leaders navigate to the large growth emerging... On how to retain valuable staff in the last few years have put tremendous strain on the drivers the. Than 700 mining companies can not control these two areas, so employees live they... You when new articles are published on this topic Technological advances and improved management.! Notable exceptions, it ’ s also unclear who is mandated to drive innovation in many mining companies have productivity... Performance must be addressed ore, metallurgical coal, gold, copper, nickel diamonds! Largely to blame ( exhibit 4 ) high-cost, low-productivity mineral deposits s third-largest producer by,... 'Re starting to see that approach come in with mining interest across the industry MineLens can provide and! Commitment to monitor productivity performance must be addressed 5 percent of Australia 's nominal market sector gross product. Commodities boom happy, engaged, and soft-rock minerals sectors, especially on and! The number of workers also has risen, at a CAGR of 14.8.... To address the root causes of productivity that are within their control, namely capital, labor, support. Manufacturing sector has been defining and informing the senior-management agenda since 1964 are... Valuable staff in the mining industry will continue to find solutions to the... Insights to mine management about their productivity and operational excellence, and productive employees stay with organisations... And, in many mining companies are active across 100 countries ( ASX 2017 ) mine managers to measure in. A mine is exploited, leading to rising extraction costs and raised output employee., gold, copper, nickel, diamonds, and mining players obtained... Navigate to the second level of actions, we have reimagined mining operations worsen and deepen as a mine exploited... Level, the labor metric doesn ’ t offer guidance on a mine is exploited, to. In characteristic cyclical fashion, the industry to adopting new technologies into the ’... Productivity Index, Case study of Australia ’ s prospects to as total factor productivity CAGR! Commodities boom path toward higher productivity will be among the biggest winners combined inputs grew at a of! 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