Productivity in the mining sector has been steadily declining for a decade, and miners need to make radical changes to their business models to reverse this trend, according to an EY study released July 24.
Mining companies have made a “conscious choice” to pursue growth in headline revenue and volumes during a time of commodity price growth and this has led to an inefficient use of labour and equipment, damaging productivity, said EY Canadian mining and metals leader Bruce Sprague.
Growth was the only goal for many companies since 2000 when it came to developing processes, corporate culture and performance measures, according to the report.
“Behavioural change is critical given that many mine managers, frontline engineers and operations supervisors appointed to these positions during the super cycle have never operated under a marginal environment,” reads the report, entitled Productivity in mining: A case for broad transformation.
Rising wages in developing countries and declining labour and capital productivity have been partly to blame.
What does this mean for Canadian miners?
“The Canadian mining companies would all be selling into the same ecosystem, so a global economy affects the Canadian companies, as Canada’s mining companies are such a large contributor to the global mining output,” Sprague told Business in Vancouver.
The report recommends several steps for mining companies to transform their business models. These include aligning measurements for planning, budgeting and performance and standardizing work procedures.
“[The report] goes beyond a financial accounting exercise, where you are looking at costs and trying to drive costs out of some obvious areas,” Sprague said.
“It requires more of an in-depth review of the supply chain associated with taking [for example] the ore from the mine site right through the end customer.”
Canadian miners are different in how they do things when compared with companies in other parts of the world, he said.
“I would suggest that there is a lot more rigour and review of the process to make sure they are challenging themselves to look to ways to be more efficient,” he said.
The full report can be found here.
