“With rising costs and modest productivity gains, will we be able to satisfy the growing lifestyle expectations of a modern Australia while maintaining a globally competitive modern resources industry?”
That is the question OZ Minerals CEO, Terry Burgess, left his South Australian audience with on Thursday evening at the end of what was a thought provoking Essington Lewis Memorial Lecture.
Titled Modern Mining – New Directions, Burgess tackled a number of topics including copper demand and Chinese growth but, focused particularly on what it means to be a miner in the modern world. And, while he was speaking with a focus on Australia, most of what he said can be applied to the global sector.
According to Burgess, while challenges like the cyclicality of the sector and an uncertain external environment have been an issue for the industry since Lewis was running BHP, “dramatic changes have occurred to a modern mining company’s operations making the framework for decision making a rather different proposition.”
The main change to the sector has been wrought in many ways by its very success. As it has grown, not only in size, but also in profitability, so new societal pressures have been brought to bear.
No longer, for example, can the sector view communities as the people that you tended to keep away from your operation with fences and security guards, as it once did, Burgess said.
Rather, miners have to work within the communities that host them and provide them with a lifestyle that supports them.
Growing community and societal expectations is the first challenge that Burgess highlights. Not only is it important now to work within the communities wherein the mine is situated, it is also vital to provide these communities and ones employees generally with a lifestyle they are comfortable with, he says.
“When I started in the industry communities were the people that you tended to keep away from your operation with fences and security guards,” Burgess said, before adding that now it is vital to be a part of the host community.
“Companies now require a social licence to operate and the way to get that is to be a wanted guest in a host community,” he said.
The other major change is the nature of employees within the sector. Because skills are in short supply the sector needs to be appealing not only to new hires but to its existing skills base .
In this situation, safety has increasingly become, and will continue to be, the number one priority.
Where in the past, “The view taken was “Mining is a tough business and we are tough men”.
Now, he says, “A Modern Mining company does not expect people to be hurt at work.”
This fits very much into the thinking of the new generation of graduates coming into the mining sector. Recently, Burgess said, a group of current South Australian first-year university students was asked about their perceptions of the mining industry.
While, the most frequent response was ‘money’, he said, “their responses also showed that while money is attractive, it is not the only thing that they were seeking. This is also something that really stands out when I talk to my staff – people want a good lifestyle and they want to work for someone that offers it.”
As a result of these changes and the continued pressure exerted by the sector’s perennial challenges, “there needs to be a different way of thinking about the business to prevent the boom/bust cycle from which no one benefits.”
“Technological investment particularly in IT and control systems is one way of succeeding in this,” he says. Pointing out that, while it is unlikely that there will be major changes to the mechanics of mining and processing, “the use of cleverer technology and automation of equipment is an attractive option for a country such as Australia.”
Another key concern for Burgess is the lack of reward for long term thinking currently at play within the sector.
“Often there is too much focus on the short term, the next Quarterly Report results or the next forecast. This drives the wrong behaviour and there is a danger that we are in such a time currently when future projects are not valued in people’s spread sheets.”
For Burgess, it is obvious that without exploration there will be no discoveries and without discoveries no new mines.
“In our cyclical industry wherever there is a hint of a downturn it is the “discretionary” spending that is curtailed. Unfortunately this often means exploration. By stopping exploration and the discovery and development cycle we help create the very cyclical nature of the industry that we criticise.”
Costs are another thing that concerns him because, he says, ” Over the last couple of years, the mining industry has been a bit like the wedding industry. If you were to organise a nice dinner for a group of family and friends you may get it for a reasonable price. But mention that it is a wedding and you should expect to pay much more.”
The reason for this, he explains, is growing lack of supply of quality, skilled people and specialised equipment across Australia.
In South Australia, this was exacerbated by the looming Olympic Dam expansion.
Since that project was put on hold, smaller operators have seen much of this pressure on skills abate but, the core problem remains.
As a sector, Burgess says, ” We want to pay for the nice dinner – not the wedding or mining premium.”
South Australia is not the only region affected by this massive increase in costs, nor is it the only region facing a lack of skills. And, from China to South Africa; Australia to the US, safety has had its profile raised as communities want to ensure their people return home every day and now have the power to make such demands. But, as the saying goes, admitting there is a problem is the first step to solving it.