June 2018

The mining industry is making a comeback

  • By David Hand, Managing Director, Newport Consulting Ltd

Newport Consulting’s 2017-18 Mining Business Outlook Report shows that confidence has returned, and investment will follow with the right government policy support

Since the first Mining Business Outlook Report was launched in 2010, Newport Consulting has spent eight years mapping the latest trends, challenges and opportunities impacting Australia’s mining sector. Each year, we have canvassed the views of leading mining executives and stakeholders to gather first-hand insights on the peaks and troughs of the sector.

The 2017-18 report demonstrates the clear revival of Australia’s mining sector, with renewed optimism for the future driven by a recovery of commodity prices and a focus on technology and automation as the way forward.

Recent price growth has clearly restored confidence among miners for 2018. However, the future is far from clear, with the world’s second biggest mining company, Rio Tinto, selling its coal assets in Australia and Indian energy giant Adani facing huge opposition for its Carmichael coal mine in northern Queensland. The growing influence of the environmental lobby is clear within the thermal coal sector also.

Key findings in the 2017-18 Mining Business Outlook Report

1. Renewed hope for the future

Over the past five years, there has been a distinct rise in optimism among miners. The outlook is no longer bleak, with leaders expressing renewed confidence in the sector’s revival. In 2014, 93 per cent of miners surveyed were not optimistic about future growth. This was when the twin challenges of low commodity prices and environmental activism were having their greatest effect. At that time, miners were holding the line, often operating at a loss but maintaining supply contracts and take-or-pay agreements with rail and port partners. In the latest report, those surveyed who were not optimistic about future growth has fallen to 13 per cent, and 71 per cent of respondents are cautiously optimistic about future growth. A further 17 per cent are very optimistic. The resources boom that began in 2003 lasted ten years and the pain associated with its end has taken time to work its way through the global economy.

2. Commodity prices on the rise

The rise in commodity prices has stirred further positivity in the sector. Miners are experiencing a good outlook for future orders and reduced operational costs. The restoration in confidence comes not only from the recovery of commodity prices, but also a growing belief that they will be maintained. They’ve been high for long enough for miners to begin to plan future operations based on the recovered prices remaining in force.

3. Market consolidation continues

The tide is turning towards global partnerships, with governments investing in international markets. The
report findings indicate that one in three leaders are concerned over the impacts of market consolidation, mergers and acquisitions. In uncertain times, miners are reluctant to form new partnerships due to the financial and reputational risks involved. An equal number of leaders indicated that government investment in overseas operations has lowered the demand for commodity investment in Australia. To keep Australia’s mining industry progressing, there is increased pressure on the government to form deals and agreements with global giants like Adani. A further one in three miners believe that the market is looking for high-quality resources, which Australia isn’t providing. Australia is not lacking in high-quality resources but the increasingly difficult regulatory environment is making other markets more attractive and less risky than Australia. With global giants turning to South America and Africa as key areas of investment, Australia’s mining sector faces ongoing challenges in attracting investment.

4. Spending looks promising

Over the last three years, capital spending and investment has moderately increased. After a significant reduction in spending in 2014-2015 during the price collapse, 2016 began to look more hopeful. In 2017-2018, the rise in spending has continued, with almost half of leaders moderately increasing spending (Figure 1). It appears that industry spending has stabilised and looks promising. Just four per cent of miners are reducing costs this year. However, with demand for thermal coal on the downward slope, miners are cautious about spending in this area. Mineral exploration is the biggest area of investment in mining, with gold accounting for almost half of total exploration expenditure. Western Australia is taking centre stage as the state with the most activity.

Figure 1. Will you increase spending and investment?

5. Companies are hiring again

After a huge reduction in hiring during the mining bust in 2014-2015, the number of companies hiring has risen by 25 per cent in 2017-2018, creating new opportunities for the next wave of talent. This year’s report indicates a positive long-term outlook for employment growth. Over half of leaders indicated that employment is set to stabilise over the next 12 months (Figure 2). The number of job openings in the mining sector grew by 70 per cent at the start of 2017, compared to the same period in 2016. Job opportunities in mining are growing faster than any other industry and appear to correlate with a spike in metallurgical and thermal coal prices that occurred earlier in the year. In the face of uncertainty, there is an increased focus on job security among miners. Despite the ongoing challenges of disruption and the gig economy, the solid increase in hires and job openings suggests that labour market conditions are improving.

Figure 2. What is your outlook on employment for the next 12 months?

Upskilling the future workforce

With disruptive technologies set to transform the Australian mining industry into the ‘digital mine’, many companies are concerned that Australia will not be able to fill a growing skills gap in the workforce. Training and developing talent is a key way to stay ahead of disruptive automation and technology and leverage these trends for competitive advantage. Training in robotics for mining workers is now available to produce the workforce necessary for the digital future, along with data analytics and management of complex IT systems.

Overall, Australia’s mining sector is seeing a distinct culture shift and is changing its operations in response to digital disruption.

Rise of the machines: automation, drones and big data

To remain competitive and enhance productivity, many miners have begun to adopt new technologies and innovations, such as drones and making use of ‘big data’.

Of the survey respondents, two in three are focusing on drones and automation to enhance inspections, planning and scheduling. The top technology trends impacting the market over the next 12 months are predicted to be automated haulage vehicles (21 per cent), big data (17 per cent) and drones (16 per cent). Drones are increasingly being used to map, survey and explore mines in Australia. Over the last five years, both miners and the government have increased investment in drone technology to safely collect data and explore Australia’s open pit and underground mines – including areas that would otherwise be inaccessible.

Meanwhile, big data offers powerful tools for streamlining data management, collecting valuable data, and better tracking costs and profitability. In today’s digital world, real-time reporting can enable miners to control costs more efficiently, connect with stakeholders and ensure the overall viability of the business.

Call to government

In 2017-2018, almost three quarters of those surveyed are calling for the Australian government to focus on three areas in particular: power costs and water supply (27 per cent), industrial relations (IR) law changes (23 per cent) and maintaining control of unions (23 per cent).

As global mining market conditions have coped with the steep decline in prices over the past three years, companies have looked to their workforce to share some of the challenges just as they shared in the benefits of high commodity prices. Mining companies are now looking to governments to help constrain demands from unions and to increase flexibility of working conditions.

Power costs and water supply have emerged as a key action point for the government. These are key areas where government environmental and pricing regulations have a direct impact on key input costs to the industry. Companies are concerned that governments will compromise the viability of the industry in favour of environmental lobby groups at the expense of economic prosperity.

Since 2014, there has been a 19 per cent rise in industry concern over unions, with unions continuing to lobby for better pay and working conditions. While there has been a significant 38 per cent drop in concern over IR laws, it remains a key concern for the industry.

Conclusion

Newport Consulting’s 2017-18 Mining Business Outlook Report highlights that optimistic sentiment is returning to the industry, bolstered by rising commodity prices and exciting developments in technology. However, there are key challenges that remain – including ensuring a skilled future workforce – and support from the government will be key in securing a positive future for the sector.

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