Mining companies in Australia will be increasingly dependent on boosting productivity to add shareholder value, as declining commodity prices and a spike in costs have affected margins, according a new report by The Boston Consulting Group (BCG).
The ‘Value Creation in Mining 2013: The Productivity Imperative’ report stated that rising costs and increasing commodity prices have squeezed the margins of mining companies.
Additionally, the report suggests that, in the current uncertain economic conditions, shareholder value will depend upon mining companies finding new areas and new ways of improving productivity levels.
The report, which gathered total shareholder return (TSR) data from 42 major mining companies over a period of ten years, found that the companies had delivered an average annual TSR of around 16% during the decade, with the top ten producers reporting average annual TSRs of around 35%.
However, after 2009, the industry was hit hard and the average annual TSR for the top ten producers fell to 15%.
BCG partner and report co-author Gustavo Nieponice said that common approaches such as reducing head count and deferring expenditures quickly reach their limit.
"A great deal of hidden value can be captured by using a systemic methodology that encompasses not only physical assets but also management systems and people," Nieponice said.
To enhance productivity, BCG suggests that mining companies follow its maturity-based, optimised, sustainable, and transformational (MOST) framework, which is based on its experience gained from working with more than 150 projects across the world.
BCG partner and co-author Alexander Koch said mining companies often struggle with productivity initiatives and do so for various reasons.
"Sometimes managers pursue incremental improvements and miss opportunities to apply innovative technologies or new ways of thinking to operating an asset. Or, managers may ignore the organisational structure, culture, or management systems, all of which are needed to enable change," Koch said.