Reduced head count, capex spending biggest contributor to mine efficiency mid-decade: McKinsey

McKinsey tracked 2.8 per cent per annum increase in productivity between 2014 and 2016 mostly due to mines reducing headcounts and limiting spending, says the consultancy in a study published last month.

Data is still pending, but McKinsey believes the productivity trend is continuing.

McKinsey measures mine productivity using its MineLens Productivity Index, a measure of physical mining output, employment at the mine site, the value of assets at the site, and nonlabor costs. Physical mining output is measured as total material moved, so changes in ore grades, stripping ratios, or commodity prices don’t affect the MPI.

"Our research shows that the biggest contributions to higher mining productivity have come from a sustained push to reduce mine workforce head counts and boost labor productivity while modestly increasing output," writes the study's authors.

"Employment has fallen by around 3.0 percent a year, while production (or output) has increased by 1.8 percent a year. At the same time, mining companies have tightly controlled capital spending and expenditures for nonlabor operations—particularly in the most recent year of the period researched, when outlays on both items fell."

The consultancy said productivity gains were largely absent for the five-year period between 2009 and 2014. While production increased four per cent per year, hiring was also up at eight percent per year and operating expenditure was hitting growth of six per cent per year.

To stay productive, McKinsey warns that miners must maintain fiscal discipline.

"In the short term, [miners] will need to guard against relaxing their discipline on capital and operating expenditures (including head counts) in the face of the demand and pricing rebound. Mining companies have to ensure that they extract each ton of dirt at the best possible cost, so that they can pocket a greater portion of the higher prices currently seen in the market as demand gains momentum."

Creative Commons image courtesy of Wystan