Where Do Mines Lose the Most Money?
If mainstream news is all you’ve got to go on, the last several years have not been kind to the mining industry. Most of the stories have been about tragic accidents, the falling price of commodities, the end of a boom cycle, the slashing of jobs and restructuring of operations. Many of the mines built to meet Chinese demand were only just reaching peak production when that country’s economic growth began to slow.
But things aren’t always as bad as they look on TV. According to PWC’s 2017 report, the global mining industry yielded a net profit of AUD $26b in 2016, compared to a net loss of over AUD $30b the year before. In large part, this was due to mines improving their existing operations to pay down debt and improve equity. According to the report, AUD $121b worth of debt was repaid by the industry as a whole in 2016. This reduction in debt, along with increased production, has brought more investment capital back to mining.
It’s easy to see how we ended up in this situation. The industry has been in a global boom cycle since the turn of the millennium – and when demand and prices are both high, there’s less incentive to make individual mines more efficient. High capital expenditure projects and the exploration of new sites are areas of greater focus as operators seek to maximize their market shares and profitability.
But necessity, as the saying goes, is the mother of invention. When the end of a boom cycle is painfully apparent, it makes sense for operators to “turn inward” and fine-tune their existing operations, rather than pouring cash into new ones. We know that ore will continue to be relevant in the global economy, but we can’t predict the ebb and flow of demand. Therefore, if existing operations are can be made more efficient through new technologies and better planning, they’ll be able to weather passing storms – and when demand rises again, they’ll stand ready to meet it.
Technology is one of the main reasons why this thinking is possible – indeed, PWC has been clear about what they think mining operators should do. Instead of trying to cut costs and boost volume (a very common strategy as the most recent boom cycle appeared to reach its end), they should be focusing on optimising the performance of their equipment and their people.
It’s long been speculated that substandard or malfunctioning equipment is responsible for massive losses in the mining industry. The problem is, we haven’t had much in the way of reliable data or comparisons – aside from an earlier PWC report from 2014 called “Mining for Efficiency.” Over a period of twenty years, researchers looked at the performance of 4760 pieces of mining equipment from 136 different open cut mines across the world. The report concluded that most mining operators are unaware of how much better their equipment could be performing. Interestingly, it also found that mining hardware in Australia is routinely outperformed by hardware in other countries.
Employee work habits are another area of focus in the 2014 report. To quote directly, it found that “productivity is heavily dependent on the way people act.” Selecting and training the right people to operate equipment is perhaps the single most important way to realize gains. For example, the report found that operators of large earthmoving equipment have exhibited a steady decline in productivity during the last twenty years. Again, some of these operational inefficiencies are very difficult to see without clear reference points.
What picture is being painted here?
When demand for commodities skyrockets and the party is in full swing, operators can lose site of the minutiae that actually drives their productivity. It’s when the belt tightens that our industry is forced to evolve. So what does evolution look like?
The future is not in reckless expansion but greater control. That means expert partnerships and precision blasts. It means optimised equipment and healthier work cultures. The demand for ore will always have peaks and valleys. Those who seek out the right partners and technologies can be poised to handle both.
This article originally appeared on www.daveybickford.com