Improving productivity is the biggest challenge in the mining industry: Ernst & Young

27 July 2014 (Last Updated July 27th, 2014 18:30)

Improving productivity is the biggest challenge being faced by the global mining and metal companies, according to a report by Ernst & Young (EY).

Improving productivity is the biggest challenge being faced by the global mining and metal companies, according to a report by Ernst & Young (EY).

Productivity topped this year's list of the ten major business risks, rising from fourth in 2012 and second in 2013. This year's result was followed by capital allocation and access to capital, and social licence to operate mines.

EY global mining and metals leader Mike Elliott said: "The decade-long decline in productivity, as the sector chased growth during the commodity boom, will require complete business transformations to fully recover.

"The decade-long decline in productivity, as the sector chased growth during the commodity boom, will require complete business transformations to fully recover."

"Cost cutting measures alone will not achieve the longer term productivity gains required.

"The super-cycle altered the DNA of mining companies to adapt the processes, performance measures and culture solely toward growth. The transformation has occurred by stealth and the counter-transformation will need to be far more radical."

Though the capital allocation issues amongst mining firms have come down in the last year, many smaller mining firms and explorers are still on the look-out for cash funding to survive.

Approval to operate mines has always been a high business risk for companies, as many small and large projects are still being delayed or halted due to opposition from local and environmental activists.

Rising energy costs and water scarcity have emerged as bigger risks, especially for companies operating in Chile, Peru, South Africa and Mongolia.

Elliott said: "With global demand for energy expected to increase 36% by 2025, and with falling ore grades, risk related to access to water and energy is compounding year by year with the sector facing higher energy prices and volatility.

"Managing costs sustainably is a priority and we expect to see increasing reliance on renewable energy in the sector as the cost declines, especially in remote areas.

The other major issues faced by industries are resource nationalism, capital projects, price and currency volatility, infrastructure access, sharing the benefits and balancing talent needs.

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