McKinsey has released a detailed report Productivity in mining operations: Reversing the downward trend. Which can be found here.

The authors conclude by examining the way forward. “To address the challenge of productivity improvement, miners will need to make moves on two levels: first to achieve short-term gains, and second to set their operations on the right course for higher long-run productivity performance.

“On the first level, the way forward is clear. Our research identifies that capital expenditures and nonlabor operating expenditures have been the main drivers of the productivity decline. Clearly, the industry has already started to work on this, with many companies already reining in capital expenditures and making moves to obtain more value-adding output from their asset base. Work also needs to continue on lowering non-labour operating expenditures, notably by improving procurement performance. Indeed, the improvements that are already starting to be seen in the MPI data point the way, with an upturn in productivity performance in some regions where capital expenditures have been reduced dramatically and where a number of large assets have come online and boosted output, while major efforts have been undertaken to drive costs out in operations.

“Moving to the second level of actions, we see three important areas of focus to address the root causes of productivity decline.

“Embed effective management operating systems at mines. Doing this will create greater transparency on operations performance. The operating systems should also free up people and resources to prioritize productivity and operational excellence, and support effective performance management. This approach will help resolve an important challenge that the industry has struggled with: making productivity performance (and its measurement) a priority. There has typically been a focus on improving one or two of the variables, such as reducing cost, lowering capital intensity, or increasing throughput. But a holistic focus on the drivers of productivity that is shared at multiple levels is rare in mining organizations.

“Prioritise operational excellence and capabilities development. Operational excellence implies a continuous focus on improvement and enables ongoing cost reduction and throughput improvement. To do this requires a determined focus on eliminating all forms of waste, reducing variability, and improving productivity of assets through advanced reliability and maintenance approaches, together with increased flexibility about changing conditions. Many mining companies struggle with capabilities constraints and need to address them: building up the capabilities of individuals and of the organization is a necessity for companies to be able to deliver on all the levers involved in productivity improvement.

“Talent is needed not only, for example, to achieve world-class levels of waste elimination and flexibility in operations, but also to be able to make progress on productivity. Many mining companies still consider operational productivity improvement to be the domain of a “continuous improvement” department or a handful of Lean experts or Six Sigma black belts, but do not yet regard it as a core competence.

“Focus on innovation. It is perhaps understandable for an industry that has been asked to break production records year after year in the past decade to prefer to stay with what has always worked, rather than risk an interruption in output, but the industry’s rate of innovation and adoption of breakthrough technologies was generally slow even before the supercycle. For example, the potential to implement advanced dispatching processes in underground mining operations is clear, but it has still not been adopted at scale. With a few notable exceptions, it’s also unclear who is mandated to drive innovation in many mining companies. And, in many cases, new capital projects are executed without integrating new technologies into the mine design.

“Mining-company management should encourage openness to trying new approaches and to adopting new technologies. At the same time, mining companies should use advanced analytics to harness the potential of the vast amounts of data generated in typical modern mining operations in order to boost productivity-improvement initiatives. To make this happen will require a broadening of the expectations of what operations leaders are responsible for, and tighter integration with other corporate functions. It will also necessitate looking beyond the boundaries of the mining industry to seek inspiration from other industries’ successes. Partnering between mining companies and equipment and technology providers should also increase, so innovation in mining can succeed more broadly.

“Mining commodity prices are volatile, and investors are currently unenthusiastic about the industry’s prospects. Nevertheless, we think the long-term supply-demand fundamentals of many important mining commodities suggest that companies that can cost-effectively raise their output will be rewarded. This means that the companies able to succeed in the race to achieve higher productivity will be among the biggest winners. The initiatives described here are important enablers of those productivity improvements. Combined with a commitment to monitor productivity performance, they will be an important factor in that race.”