PERTH (miningweekly.com) – Cost-cutting measures in the coal and iron-ore sectors have resulted in increased productivity during the three months ended December, advisory firm PricewaterhouseCoopers (PwC) reported on Monday.
In its latest productivity scorecard for the Australian mining sector, PwC’s energy, utilities and mining leader Jock O’Callaghan said the cost-cutting measures had led to a 37% decline in the number of hours worked in the coal industry during the second half of the year and a 10% fall in the number of hours worked in the iron-ore industry during the final quarter of the year.
He noted that several miners continued to engage in short-term austerity measures, while other industry participants have recognised the magnitude of the challenge and had deferred expansion plans or scaled back existing operations.
PwC predicted that these measures should lead to another rise in productivity during the first half of this year.
“But austerity is not the key to unlocking the industry’s productivity puzzle, not just in coal and iron-ore, but across the resources industry,” said O’Callaghan.
“What is required is greater investment in processes and changing the way industry does business. The worm did start to turn in the December quarter, but for many, cost-cutting should mark the first phase in a long-term plan to improve productivity.”
O’Callaghan said that much of the recent cost-cutting needed to be seen in the context of the boom in commodity prices and their subsequent fall in the second half of 2012.
“During the high-price phase of the boom, many miners sought to rapidly increase production and put in place processes and contractual arrangements that are no longer suitable for the environment, where overall demand remains strong but prices are tracking lower.
“You can’t unpick these things apart overnight but it must be done and in such a way that satisfies markets and investors. This is a real challenge.”
Quoting figures from the Australian Bureau of Statistics (ABS), the PwC report noted that the mining sector had been less efficient in its use of both labour and capital resources between 2002 and 2011, with the sector producing less output each year per hour of labour employed, compared with the previous year.
At the moment, the ABS estimated that mining was achieving 56% less output per hour of work employed and 44% less output in terms of capital employed.
O’Callaghan noted that inherent barriers to the Australian mining sector’s productivity included long lead-times in achieving capital investment returns, declining ore grades and supply chain issues.
“Some companies don’t have any short-term levers left to pull and will need to set their sights on longer term productivity improvements.”
He noted that the exception was the potential in the oil and gas sector.
“Productivity may worsen in the short to medium term, while the vast coal seam gas and liquefied natural gas projects in Queensland and Western Australia remain in development phase. As these major projects reach completion, workforces will naturally reduce in size, therefore lifting reported productivity.”