The mining and resource industries continue to be major drivers of economic growth, forming the foundation of the ongoing energy transformation, but they are experiencing profound change. In the context of declining commodity prices and skilled labour shortages impacting productivity, budgets and profitability, our team offer their insights on how firms can navigate these challenges in the coming year.
The global energy transformation is directly impacting mining, with demand for critical minerals doubling in the last five years.[1]
From his vantage point in the USA, Director Brady Countryman sees three issues disrupting firms’ ability to meet demand: talent shortages, declining productivity and rising costs.
For talent, the major contributing factors are:
With lower labour availability, absenteeism is a greater concern, especially in operational areas. Brady believes firms can bridge the labour gap through, “operational excellence focused on people, process and continuous improvement to build a more resilient workforce.”
Australian Partner, Richard Horton, sees similar issues as “many workers are retiring, leading to a shortage of experienced people to fill positions.” He believes leaders should retain this knowledge before it is lost. As the workforce evolves, skills are not transferring adequately to newer workers.
“The lack of skill transferring is not just happening at an operational level, but also in management. Leaders need to build capability and think about mentorship and learning before this gap widens further.”Richard Horton’s thoughts on addressing the skill and labour gap
Talent shortages are playing out differently around the world. The skilled labour challenges seen in South Africa are unique as there is an abundance of talent that is not being developed into skills and experience. When development does occur, it is recruited by other parts of the world to plug their own shortages. Focus needs to shift to developing and maintaining local skills, which will secure skilled individuals and drive larger mining projects to completion. As the energy transition picks up pace, organisations need labour and capability to capitalise on the opportunities this presents.
Environment, Social and Governance (ESG) continues to be a top agenda.
Large companies are deploying new technologies in key areas like South Africa. Boardrooms are being driven by survival rather than competitive advantage. For example, in the steel industry, blast furnaces are being replaced with electric arc furnaces as demand for greener products extends down the value chain. While the pressure to decarbonise is not as intense as in Australia and Europe, it is moving up the line as a priority and firms are responding.
There is also a global drive, in part due to geopolitical conflicts, to invest in energy supplies for operations and build future resilience. This helps firms ensure they are doing the right thing for the life of the mine, as investing in energy presents a trilateral opportunity to increases available energy, reduce costs by delivering energy at better rates than utilities and build energy security to keep operations running. Building an energy supply that is renewable also has the benefit of helping decarbonise the mine.
Richard Horton points to encouraging steps taken by the USA[2] and the Australian government to encourage critical mineral exploration. The Critical Minerals Strategy 2023- 2030 provides a national framework to grow Australia’s critical minerals sector[3], offering new incentives to increase production and accelerate project timelines. “These steps are working and there is more activity, but ESG is a critical consideration, and we are seeing companies increasingly address these issues.”
“I’ve heard more about decarbonisation from CEOs in their annual reports and their feedback to shareholders than ever before.”Richard Horton
Declining productivity and rising costs risk becoming endemic. As prices for labour and equipment rise, firms are struggling to regain pre-pandemic productivity highs and meet critical mineral demand, which has grown to a market size of US$ 320b[4]. Innovation and new technologies can help overcome these challenges.
Daniel Salazar, a Director based in Peru, sees large mining houses looking for technology and advanced analytics to improve productivity and reduce costs. Brady believes larger mining houses can better absorb the rising costs associated with labour, technology and equipment, “whereas smaller mining houses need to rely mainly on technology and automation to reduce costs, improve productivity and stay competitive.” He sees an opportunity, “as one of the things that come out of the pandemic is putting data to use in a much bigger way.” Digitisation can lead to greater efficiency and productivity through technologies such as remote operating centres, autonomous trucks, digital twins and AI tools.
Digitisation should be holistically applied as a strategy – a siloed approach may lead to short-term productivity gains but locking them in for the long term requires integration across departments and sites. Daniel Salazar cautions leaders to ensure “transformations are value-driven, not tech-driven,” as following trends and investing into a digital transformation without proof of value could severely impact performance. Richard Horton also believes caution is the right decision. “It is not always clear what the right solution or technology is, so waiting is a wise decision when technological readiness is not at the level of deployment.” He points to current technologies once believed to have multiple applications, such as drones, which turned out to serve one useful purpose – aerial surveying.
Our team concurs technology offers a pathway to increased productivity, but, as Richard succinctly puts it: “It must make sense - you have to focus on where the value is and apply a fit for purpose solution. Finding a clear link between technology and opportunity for business is critical before investing.”
Daniel Salazar on digitisation in mining
Daniel Salazar believes cost reductions and resilience can help firms navigate the socio-political turmoil and inflation impacting Latin American industries. He sees ‘sourcing and cost optimisation as key items on leaders’ mind right now.”
Richard Horton adds that high costs are impacting Australia miners as well. However, since a large component of costs for assets are fixed, leaders need to consider “how productive their organisations are within these fixed costs.” Understanding cost structure is the best first step organisations can take. Richard believes that
“Creating a healthy business comes from increasing output and utilising people and equipment in a better way.”Richard Horton
Daniel thinks Latin American firms are entering an era of high competition and, “need to secure the best people and solutions to succeed - in some cases this means bringing on external expertise who can quickly find inefficiencies and areas for improvement to help achieve much-needed cost reductions.”
Mining organisations of every size will face challenges in 2024. But opportunities exist for building resilience and driving growth as the energy transition continues. Key areas leaders should focus on are technological adoption to overcome talent shortages, renewable energy development, meeting ESG goals to retain social licences to operate and collaborating to thrive in the future.
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1. World Economic Forum, 2023
2. White House Press Release, 2023
3. Critical Minerals Council, 2023
4. International Energy Agency, 2023
Director
Brady has over 15 years of experience in operational improvement and line management across North America, Australia, and Europe. His speciality lies on mining and mineral operations, where he is focused on delivering exceptional results and building lasting relationships.
Director
Daniel has over 20 years of experience in driving successful and sustainable change in process improvement and organisational design. He has led initiatives that improved mine operations, achieved cost reductions, optimised labour efficiency and driven operational excellence across Latin America and Australia.
Partner
Richard Horton has over 12 years’ experience across operational planning, engineering and leadership roles with a focus on business improvement, transformation and production optimisation.
