The confidence crisis in the mining industry has led to extreme short term measures that are unsustainable and detrimental to growth, according to the latest report from PricewaterhouseCoopers.
PwC Australia have today released the 11th annual global report, Mine 2014: Realigning Expectations, which shows that profits among the world’s top 40 miners have slumped an astonishing 72 per cent to $20 billion, the lowest profits recorded in a decade.
However, asset bases for these companies grew seven per cent in 2013.
Market value for the top 40 dropped 23 per cent, or $280 billion, however Fortescue Metals has weathered the storm as one of only four companies to see an increase in market value to $958 billion.
The report also recognised that nearly half the top 40 companies have appointed new CEOs in the past two years, seven of which appeared in 2013.
The rate of change in business strategy has been “unprecedented” according to PwC Australia’s Energy, Utilities and Mining leader Jock O’Callaghan, who said it was hard to tell if the conditions were ready to improve or would continue to “bounce along the bottom”.
“There's no doubt the industry has moved fast to counter its sudden change in fortune: fleets were parked, jobs slashed, development projects deferred - every dollar spent requires care and consideration,” he said.
“These are the sorts of traditional levers just about every mining company in the world has employed at some point in recent years, but they are ultimately unsustainable and they simply won't support growth.
“What we are now seeing among the Top-40 is a definitive move beyond these short-term market friendly fixes in favour of a fundamental strategic shift that focuses on the industry's long-term prosperity to take advantage of the industry's still strong fundamentals.
“This can be seen in a focus on simpler structures, a bid to boost returns from higher quality assets, a willingness to share critical infrastructure and a concerted effort to improve productivity levels, which remain way too low.”
O'Callaghan said that a disconnection had emerged between company strategies and what was really happening on the ground.
“Many miners from traditional markets are talking about reducing costs and, in some instances, heralding increased production volumes under the broad banner of productivity gains but many are still executing a strategy at their mines which is effectively the same as during the boom,” he said.
“Serious reform in this area can't be made by those who persist with three common ideas.”
O’Callaghan outlined three key fallacies that have limited mine reform strategies, beginning with what he called the NIMM, or "Not In My Mine” defence, which insists that the mine in question is not the same as any other.
Secondly, is the belief that larger mines inherently achieve greater equipment efficiencies, despite the fact that data shows bigger is not always better.
“Finally there is an expectation in some quarters that labour reforms are the silver bullet,” O’Callaghan said.
“In fact they are only one piece in the puzzle.”
O'Callaghan suggested that mining companies should turn their attention from the unsustainable policy of trying to make savings through labour reforms, they should instead focus on productivity and equipment efficiency.
“Those who will emerge on top from the turmoil will be those companies that can achieve demonstrable lifts in productivity while maintaining a sensible and sustainable reign on costs and without compromising asset values.”