PERTH (miningweekly.com) – A report by advisory firm EY has indicated that cost cutting would only lead to short-term productivity gains for mining companies with complex operations and that sustainable long-term solutions were needed.

In its new report, ‘Productivity in mining: now comes the hard part’, EY noted that the size and complexity of mining operations have created “diseconomies of scale” and were a significant factor in diminished productivity in the global mining sector.
 
EY global mining and metals advisory leader Paul Mitchell said on Monday that the research confirmed the factors that have eroded mining sector productivity globally were wide and varied, covering labour, capital and materials, largely a legacy of the “production-at-any-cost” approach during the boom.

“We also found a very strong theme around the challenge of operating larger, more complex mining operations and it is clear this requires a new approach to increase connectivity, promote collaboration and foster productivity,” Mitchell said.

“One miner aptly referred to the problem as the ‘diseconomies of scale’.”

Mitchell said that the focus on increasing output meant mines had to be larger, but simply scaling-up existing structures had made them more complex to run and resulted in silos and diminished connectivity within operations, creating an integration gap within businesses and dealing with it required an end-to-end approach.

“The productivity decline has been so large that cost cutting and point solutions are not enough. Significant costs have been stripped out of the industry and good efficiency gains have been made, but it is now time to look at sustainable long-term solutions to the productivity problem.”

University of Queensland Business School Associate Professor John Steen noted that a lack of innovation was another key theme to come out of the research.

“Compared with the oil and gas sector, there is an accumulated deficit of transformational innovation in the mining industry, and this is a problem recognised by the sector. With ore grades declining in mines around the world, the mining industry will have no choice but to embark on similar step-change innovation programmes,” said Steen.

Meanwhile, labour, capital, materials and economies of scale were identified as common causes behind the productivity decline in the global mining sector.

Mitchell said that miners needed a strategy that addresses the critical issue of integration, which had to address the five key issues, including management of complexity, end-to-end focus, culture, data and innovation.

“Ultimately, companies that can successfully improve productivity will be well-positioned to take advantage of growth opportunities when, true to the sector’s cyclical nature, new capital investment returns.”