With limited upside for precious metal prices, miners are refocusing on productivity, says Nathan Flesher, who works for McKinsey’s mining arm.
Gold miners are looking at a rangebound price for bullion at the $1,300/oz level. But with a limited outlook for any significant moves for gold upwards, miners must generate more output from capital spent to attract investor interest. Flesher says measuring mine productivity can be difficult given how unique each operation is.
“Many mines are making their production goals but don’t have the freedom to produce more,” says Flesher noting that productivity at some mines is restricted by location.
Flesher says those mines are asking how can they minimize operating expenditure while continuing to increase productivity.
‘You have other mines, for example, selling into the copper market that can sell everything that they produce and so those mines might say: “Hey, we have a lot of room to increase productivity. Let’s drive that mindset into our workforce and into our management. Let’s get more tonnes without employing more resources in our mines.”’
Flesher heads up the division at McKinsey that produces the MineLens Productivity Index, a benchmarking tool to measure a mine’s productivity.
Flesher marvels at how well oil and gas has been able to rise to the challenge of making itself more productive with commodity prices in a nose dive.
“You’ve seen oil and gas productivity increase dramatically over the last few years. Some of that is structural, but some of it is a really relentless focus on productivity in fracking and in natural gas drilling, where you have prices that we thought . . . were impossible to sustain over time. But those drillers managed to get more productive and get more adventurous. With mining we’re still probably feeling our way around the productivity challenge.”
Mines compete for the same investor dollars that are flowing to oil and gas. Some base metal prices have been on an upswing but Flesher warns high prices can hide problems.
‘One of the reasons that we developed the MineLens Productivity Index was to separate the impact of prices and factors that mine management can’t necessarily control from the factors that they can control. So we like to see local mine managers focus on the following question: “How do we make our operation more productive over time regardless of what place we are in the commodity cycle?’
“It’s easy to get distracted by high prices and develop bad habits. And when the prices go down, you can be stuck with the bad habits.”