In its fourth year now, Newport’s annual Mining Business Outlook Report serves as an independent pulse-check of Australia’s mining industry. This special election-year edition of the report features more than 60 lengthy interviews with mining leaders as well as feature interviews with John Morschel, Chairman ANZ; Roy Green, Dean UTS Business School; and Brendan Cannon, Director, Firewall Logistics. This year’s report paints an even more sober outlook for the sector than our previous three reports. This year, mining leaders are focused primarily on what they can control including cost management, operational efficiencies, improved productivity, profitability and cashflow. With sharp falls in commodity prices, reduced investment in CAPEX projects and a contracting labour market, many in the industry are facing conditions they have never experienced before.
From our interviews with more than 60 mining leaders, here are the headline messages:
Companies are significantly slashing CAPEX spend. This is the first time in four years of this study that leaders have declared they’re reducing CAPEX spend, not just postponing or moderately increasing it. This should send a strong warning signal to the industry and analysts as investment is definitely on the decline in most major areas of the sector. If a hold on investment is sustained, Australia risks becoming less attractive for investment in resources compared to other countries.
Cost control and management are high on the agenda. This is even more important in 2013 due to project cost blow-outs and subsequent budget constraints. Last year, cost control and management was identified as both a challenge and a key strategy for many of the leaders interviewed, and this year the sentiment has strengthened. Cost-cutting is being felt across the economy by other businesses servicing the sector, such as machinery, labour hire and accommodation. The focus on cost control has been largely driven by the fall in commodity prices. Many mines are now operating at a loss, kept open by take-or-pay contracts in the supply chain.
The labour market is contracting. Within the last 12 months there has been a significant shift from a skills and labour shortage crisis in the resources sector to a situation where there are few vacancies and more job redundancies.
Miners must act now to improve productivity. Productivity is high on mining leaders’ agenda as they face falling demand and commodity prices. Mining leaders must now turn their focus and attention on internal measures to maintain profitability and shareholder value. They must improve operational efficiencies and focus on input and labour costs. This year’s survey notes a slight trend among miners to focus on operational excellence and productivity. However, there is still a long way to go before the sector can be described as having fully embraced productivity as their strategy for success and survival.
Innovation must be embraced by the resources sector. Along with a focus on lifting productivity levels, the resource sector must embrace new sources of growth through creativity, technology and innovation as a long-term strategy for productivity improvement and lower production costs. Advancements in the mining industry through innovation and new technologies have opened up opportunities for new suppliers, stimulating employment and growth in other industries. With relatively low levels of debt, Australia can afford to invest in research and innovation infrastructure, which will be necessary if we are to support a national productivity agenda and productivity levels by 2 per cent.