Plummeting Productivity At Australian Mine Sites Is Starting To Bite

Image: Carsten Koall/Getty Images.

Productivity in Australia’s mining sector has been falling for over a decade, with mining companies operating on a volume-at-any-cost model during the boom.

Productivity falls have in part been driven by the salaries mine workers have been able to command in the face of a mid-boom skills shortage. There are stories of truck drivers being paid upwards of $200,000 a year, and labourers much the same.

Without record-high commodity prices, the drop in productivity, which the Australian Bureau of Statistics estimates has fallen almost 50 per cent since 2001, is starting to bite.

Image: EY.

EY Global Mining & Metals Advisory Leader, Paul Mitchell, said solving the productivity issue “isn’t as simple as further cost reduction efforts,” adding the big cost reduction programs miners have enacted in the past 18 months may have made the productivity problem worse.

“A lot of the cutting has been done but they still need to do the broader transformation,” he said. “They’ve cut off all the excess and in some cases I think they’ve probably gone too far.”

This isn’t just an Australian issue. Productivity problems are hacking through the global mining sector. Across US coal mines labour productivity fell by an average of 27.5% between 2009 and 2013, EY reports.

However labour isn’t the only drag on the mining sector’s productivity. According to ABS data capital productivity is also declining, dropping 45% since 2000 compared to an all industry figure of 22%. EY said part of the problem has been “poor project execution” which includes budget and time overruns.

“During the commodity boom, projects got approved just on the basis of the commodity price increases,” Mitchell said. “The way you operate that mine has to be far more flexible from a cost perspective.”

Image: EY.

Mitchell said sustainable productivity improvements will require mine plans to be altered and increased automation at a site level. Similar to what BHP Billion and Rio Tinto are implementing at their Pilbara operations, using driverless trucks and trains to mine iron ore.

Looking at future Chinese demand, Mitchell said urbanisation in the Asian state means strong commodity prices by historical standards still have some time to run.

“Commodity prices for development type assets will stay high, at a relative level. They probably won’t got back to the peak but I’m still really positive. There’s still so much development going on in China from an industrial perspective. ” Mitchell said.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.