So you've done cost cutting. Now for innovation, but do your people know how to do it?

So you've done cost cutting. Now for innovation, but do your people know how to do it?

So you've done cost cutting. Now for innovation, but do your people know how to do it?

The famous Diggers and Dealers forum in Kalgoorlie this year was an interesting experience. Listening to presentation after presentation about increasing grades, decreasing strip ratios and cutting staff and costs across the business, left me feeling that I was at a good old fashioned operators conference run by the excellent Australasian Institute of Mining & Metallurgy.

The presentations talked a lot about Digging and very little about Dealing – at least not openly.

The three days of that event in August and my subsequent observations of the market suggest that most mine operators have no spare people and significantly reduced head office support. The conclusion is that the bulk of the low hanging fruit has been picked off the cost tree.

But will it be enough?

A recent article from the Macro Business website poses some interesting questions. You can read the full article here.

The primary message was a caution that demand growth for certain commodities could undershoot the coming supply additions and that this could force companies to focus further on productivity gains and cost reductions. This is a direct reversal of the situation that has persisted for the past decade or so where costs more then doubled in most cases.

This period was preceded by 15 years of cost deflation when industry responded to pricing pressures by focussing on productivity and asset utilisation.

The graph of copper unit costs over the past 25 years paints the clear picture.


There is hope!

The full article breathes optimism though when it distinguishes between cyclical & structural costs and proposes that much of the cost inflation of the past 10-12 years has been cyclical and therefore more easily removed.

Now I’m not an economist and did my mining engineering and management studies a long time ago, so I make no comment on the detailed economic commentary. It is part of my job though to interpret the broader trends when trying to assist others in understanding what it might mean to their workforce and what they might need next.

So if it is true that the easy low hanging fruit has been picked and the next stage is about true productivity gains and innovation, who will drive it?

I’m also an optimist and believe the industry will find a way but as an industry leader I’d like you to consider that most resources industry graduates that left university at say 23 years of age in 2000 are now 36 years of age.

Our work tells us clearly that a lot of people who find their way into senior operational and technical roles (where they have influence and/or responsibility) tend to move into those roles (say at Department Manager level and beyond), in their early to mid 30’s.

I am in no way being critical of this generation of people, but it is worth keeping in mind that most of them have never seen anything other than rising prices and rising costs. I know there are exceptions, however as a group they have never experienced an environment where there was a constant drive to reduce costs, to get more out of people and equipment and to look for innovative ways of doing things. They have largely worked their whole careers in an environment of price taking, wage acceleration and ever increasing employee benefits.

This next phase could represent uncharted territory for many!

Another terrific article in the AFR Smart Investor magazine, entitled “why the big miners are poised to double” might also be of interest.

It makes a big call on where the share price of mining companies might be in 3 years time (double where it is now) but that is not what caught my attention. Well actually it DID catch my attention but a quote deep in the article was more interesting:

It’s a given that Aussie resource stocks have to grow their volumes, but the real key is cost control. In the 1990s the best mining companies used to sweat blood in order to cut their costs by 2 per cent annually. We need to do that (and more) again. It’s all about productivity.

How many of the people in your company have experienced sweating blood in order to reduce the cost of production, year in year out?

Many big companies can afford large R&D departments or to pay the best external consultants where many wise heads still ply their trade, but if you don’t have that luxury in your mining, processing, or exploration business, then these 5 tips might help you:

  • Ensure you have a good blend of old and young heads on your team.
  • Ensure you send your leaders out to leading edge conferences as well as other operations to see what others are doing well. Send them to other parts of the world if required and to places with similar issues to those that confront you.
  • Ensure your people attend regular professional development programs.
  • Innovation does not need to come in the form of one big bang. It can be lots of little things which all add up to get that 2% pa.
  • Lastly and most importantly, no matter how old your leaders are, ensure there is a culture of innovation driven from the top.

I’d love to hear your views on this article and anything at all about how we can improve things or present different topics. Please email or comment below to start a discussion.

Steve Heather
Managing Director/Principal Executive Search
Mining People International (MPi)