The recent McKinsey analysis of the mining industry is more evidence for what we already know: Productivity has been going down and has not yet turned up. Catchy numbers: Productivity declined 28% in the last 10 years.
McKinsey has developed a new tool, the MineLens Productivity Index (MPI), which indicates “actual” productivity of mine operations. In this case, productivity is the measure of how well the mine and its people move total tonnes (not product tonnes). The decoupling of product tonnes from productivity measures is meant to remove the influence of declining grade, increasing pit depth etc — in other words, to attempt to measure the instantaneous productivity of a mine operation without letting actual tonnes produced in a year skew the data (including positive movement following heavy capital investment.
The analysis demonstrates that productivity is an area for improvement across commodities and geographic areas. The Australian industry receives a nice little sidebar showing that we were doing very poorly during the height of the boom and have slowed the rate of decline of productivity since.
But note: we have slowed down how fast we are going backwards. This is good in the sense that applying more pressure to a wound slows down how fast you bleed.
At no point is Productivity increasing. Opex is decreasing. Capex is decreasing. We are saying that “Productivity is improving” and citing $/tonne costs. But does Lower Opex = Higher Productivity? Opex margin certainly improves survivability and it can be translated into short term profitability, both of which are good for business, but the workers who have had their ranks slashed would argue that “doing more with less” is unlikely to lead to increases in business productivity. Have we genuinely simplified our operations? Have we shifted our cost structure to enabling and supporting less people to do more work? Are we still striving to improve safety standards while demanding higher outputs? Or are we gaming a system where dividing tonnes by people, and reducing the denominator, makes the reportable number look larger?
Our industry is fundamentally a people industry. Self driving trucks won’t save us just yet and despite the press on AI we’re not quite ready to hand over the reins to machines.
Productivity is the sum of many moving parts. Many of those parts are causally linked to other parts, in feedback loops that render decision making difficult. A focus on $/tonne or $/ounce costs is important for maintaining positive media attention and required for marginal producers to survive. The McKinsey numbers, however, make it clear that current plans aren’t working. Our industry strategy needs to evolve beyond cost cutting and delay of projects as our preferred methods of delivering sustainable competitive advantage. Staunching a wound is not enough in a world where competition and complexity are growing.