Currently, businesses in the global mining sector are seeing “diseconomies of scale”, possibly due to the size and intricacy of the industry. Ernst & Young, one of the big four accounting firms, published a report titled Productivity in Mining: now comes the hard part, that dives deep into the current issues in the mining sector that are causing such diseconomies of scale.
Over the last few years, the goal of these businesses has been to increase output. This means that mines have become larger and more complex. As a result, there has been a loss of connectivity in the mining sector. Additionally, there has been such a large decline in productivity that the mining industry needs more than just efficient ways to cut current costs, it needs a long-term solution to the problem.
One of the major issues behind the productivity decline is the main focus has been on volume instead of efficiency. Within the labor aspect of the sector, there is a great deal of new, inexperienced teams with high turnover. There is also a large number of experienced employees who are reaching retirement age. Other factors working against the industry are the shrinking reserves and the declining grade of metals being mined. Businesses in the industry will need to find new and creative ways to get over these hurdles.
The industry’s lack of innovation has also been detrimental to its productivity. When compared to the oil and gas sector, the mining sector has been experiencing a significant lack of innovation. A new age of innovation for the sector is just one of many changes necessary for the global mining industry to get back on track. Some of the other factors include management of the industry’s complexity, identifying opportunities to integrate data, and shifting the culture of the industry to decrease turnover and increase productivity.
Mining businesses that can improve their productivity will set themselves up for greater growth and returns on capital. The Mining, Minerals, Metals page on globalEDGE has an abundance of information on the industry, with links to valuable resources that provide more information.