Industry analysts blame a 10-year increase in the cost position at existing operations combined with skyrocketing new project capital costs, for the significant loss of global competitiveness by Australia’s mining sector.  1

One of the country’s key business advisory and productivity agencies, the Resources and Engineering Skills Alliance (RESA), says more than half of Australia’s thermal coal, coking coal, copper and nickel mines have costs above global averages.

RESA’s chief executive officer Phil de Courcey addressed delegates at the Paydirt 2013 South Australian Resources and Energy Investment Conference, saying the mining sector needs to turn around its crippling costs to regain competitiveness. “In copper and nickel, Australia’s production is now in the most expensive 25% of mines globally, and our iron ore projects are 30% more expensive than the global average based on the capital spend to build a tonne of new capacity.”

“The skills gap and labour costs have been key drivers of Australia’s deteriorating competitiveness, given that labour is the primary driver of minerals project cost structures. Within this environment, it will be critical to generate serious contributions and data as to the debate needed to resolve these confronting issues as the mining industry is the least progressive and least productive industry in Australia.

“It is an industry marked by high capital costs, low commodity prices and a high Australian dollar. It has employees with some of the highest wages in the nation but with a less than desirable skill set among many of our employees. So many of these factors contribute to our poor productivity performance and thus have made the Australian mining industry the weakest industry in terms of productivity falling on average 8.1% over the past three years,” said Phil de Courcey.

He does believe however, that it is not too late to turn the productivity boat around and have it contribute significantly to the expected continued growth in Australia’s mining sector long after the current boom in commodity prices and resources investment peak.

He says South Australia could be one of the best beneficiaries of a productivity dividend in the future. “Mineral exploration expenditure on copper, uranium and iron ore dominate South Australia’s appeal as a major investment destination, accounting for $146 million or 34% of national copper exploration spend and $33 million or almost a quarter at 23% of the national uranium exploration spend.

“South Australia is also emerging as a major destination for iron ore exploration, attracting the largest share of expenditure for this commodity outside iron ore giant, Western Australia. In the energy sector, we have the opportunity to enhance our productivity profile in when and how we deliver on the new shale oil and gas discoveries in the State’s far northeast.

“And we still have Olympic Dam, it is still in production and will be for a very long time. It is still the world’s largest uranium deposit, fourth largest copper deposit and fourth largest gold deposit, and the site of Australia’s largest underground mine. It will still employ hundreds of people over the years but without some innovative workforce planning, wage and workforce costs will be driven up and that will impact productivity,” said Phil de Courcey.

The main challenges to Australia’s mining productivity are geographically remote locations, engaging regional communities, the ongoing need to up skill, attracting more women into the mining workforce, the unknown impacts of global commodity prices, mine development cycles, an ageing mining workforce, attracting and retaining new workers, and a high turnover in technical areas.

The RESA chief says solutions lie in high school students being encouraged to be receptive to mining careers, regional families recognizing mining’s job and lifestyle options, companies valuing the benefits of upskilling, increasing female employment, planning ahead, and attracting and retaining new workers.

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