MERCHANDISER
Top 10 Issues Facing Mining Companies
MINING COMPANIES ARE no strangers to volatility, but this past year delivered a string of serious blows. As China puts the brakes on its ultra-high growth rates, key commodities such as iron ore and coal threaten to tip into over-supply, according to a new report from Deloitte. Despite weaker commodity prices, costs continue to escalate and many governments are still demanding a growing piece of the pie. As a result, share prices, revenues and profits are falling, and debt levels are rising, with gold miners particularly devastated. In response to this pummelling, mining companies
are re-committing to cost efficiency in more obvious and vocal ways. This is crucial. Unfortunately, it’s not enough. Shareholder activism is on the rise. Boards are bringing in new management, with several
major companies already seeing CEO transitions. Communities are mounting protests that, in some cases, are resulting in project delays and halts. Regulators are enforcing more stringent legislative compliance. The industry has even been subject to investigations around price fixing.
2,500
Not a ‘Pendulum Swing’ More A Seismic Shift As these changes gain momentum,
it’s becoming clear that they herald nothing less than a seismic shift. To be fair, this is not the first time the mining industry has faced re- calibration. It’s just the first time in recent memory, which means few management teams retain the skills to respond effectively. And companies that don’t respond appropriately risk
2,000 1,500 1,000 500
0 2000 Source: Thomson Financial
not just their profitability, but their long-term survival as well. Breaking out of traditional responses is neither easy nor intuitive. For decades, the industry has typically waited out market swings, with the assurance that commodity
There’s no doubt the mining industry is experiencing tremendous pressure on costs. But cost constraints often lead to innovation. Mining has grown bigger over the past 200 years – bigger plants, bigger trucks, bigger blasts. But the industry itself hasn’t evolved much. Now is the time to make fundamental and dramatic changes.
Glenn Ives, Americas Mining Leader, Deloitte
prices would eventually rebound. They will again this time, too. Some industry analysts even anticipate more robust recovery by the second half of 2014. But which companies, and which management teams, will be knocked out of the ring before we get there?
20 March 2014
Productivity: The New Mining Mantra Beyond giving rise to an untenable cost environment, the mining sector’s aborted drive to produce at any cost has led to massive inefficiencies. As a result, industry productivity (defined as the GDP value contribution an average worker creates in an hour of work) is hitting new lows. A report by Port Jackson Partners commissioned by the
Minerals Council of Australia, for instance, found that, since 1990, high resource sector wages and productivity declines have caused Australia to lose its competitive advantage over emerging miners in Africa, Asia and South America. According to the report, Chinese and Indian producers have an estimated 60-80% cost advantage in minerals processing compared to their Australian counterparts. Although miners are now working to improve their productivity levels, Australia’s mineral sector last generated a productivity increase in 2003. Since then, productivity has fallen by 30%.
Global Productivity Dips But productivity challenges are not isolated to Australia.
2005 2010 2013
Radical Shifts Call for Radical Change To assure the viability of your own organization, you
may need to make structural changes rather than simply moving around the margins. This involves, among other things, engaging in sustainable cost reduction, relentlessly focusing on productivity and returns on shareholder value, “right-sizing” capital projects, taking advantage of modular construction and embracing new forms of innovation. It requires new approaches for dealing with local communities, governments and regulatory bodies. It may even require a new mindset – one that’s open to the possibility that past methods may not yield the most promising future results. Deloitte’s 2014 (6th) edition of Tracking the Trends looks at all these issues and more. In addition to highlighting and organizing key industry indicators by order of current importance, Deloitte’s global mining professionals once again share a range of responses companies can adopt to stay ahead of the curve.
Global Completed Metals & Mining Deals Number of DealsDeal Value ($bn)
300 250 200 150 100 50 0
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