Modern Mining – New Directions

The 38th annual Essington Lewis Memorial Lecture, delivered by OZ Minerals Managing Director and Chief Executive Officer, Terry Burgess in Adelaide Thursday, 22 November 2012.

Essington Lewis was indeed operating in very different times, however some of the major issues that concerned him are the very issues that concern me today.  The challenges of operating in an uncertain external environment and in a cyclical industry are two such examples. However, dramatic changes have occurred to a modern mining company’s operations making the framework for decision making a rather different proposition.

The resources industry operates in an environment of dramatically changed and growing community and societal expectations.

Mining has traditionally been a cyclical industry. However, we have just seen a period of phenomenal demand for commodities over almost ten years, particularly for iron ore and coking coal — the ingredients of the Chinese steel mills and the raw materials for infrastructure of this rapidly growing economy. I believe this demand will continue for some time to come.

Urbanisation in China

The demand for copper has come in the next wave of development, with copper used for electrical infrastructure, wiring and other elements of construction, however where we see the sustained use is where people fill their homes with air conditioners, white goods and other appliances.

Consumer goods have been a major boon for the copper industry over the years and demand has benefited from the urbanisation and increase in standard of living in China.

Urbanisation is still occurring, but now at different rates with a potentially bigger driver of demand being urban regeneration. In China there is still significant scope for urban living conditions to improve significantly from current levels across the whole country.

Overall therefore it looks like we will continue to see growth in China, however 2012 will likely see a decline in growth rates with a forecast 7.7 percent in 2012 compared with 9.2 percent in 2011. This growth remains strong enough to create a demand in the copper market but China is not the only story; other developing economies which have significant populations like those in India, Brazil and Indonesia are also investing heavily in copper-intensive sectors such as power, infrastructure and construction.

Copper supply gap

The largest contributing factor in the copper market is supply. On the supply side as an industry we are quite plainly struggling to keep up. Globally in 2012 it is estimated that there was an 800,000 tonne short fall compared to plan. Reasons for this ranged from delayed project delivery to weather impact to industrial unrest.

New supply is coming from some of the world’s more risky jurisdictions; many new projects are huge and will require massive capital inputs.

These projects also take time to progress from exploration discovery to production. This is something that some people outside the industry find it difficult to grasp. The Oyu Tolgoi deposit in Mongolia, for example was discovered in 2001 and is scheduled to move into production in 2014. At Xstrata’s Las Bambas in Peru the project was acquired in 2004 and will also be commissioning in 2014.

The current environment of a Modern Mining Company

As the industry has grown, so have society’s expectations. This changed social environment brings with it both challenges and opportunities.

As a company you also decide what sort of values you subscribe to and the framework you use as a guide to operate your business.

At the very top of this framework, for the resources industry, is safety.

At mine sites around Australia, a safety discussion is how we start the day. The way a modern mining company looks at safety is to analyse our risks with the priority of eliminating them or controlling them as best as reasonably practical.

Working with Community

Another key part of the framework which we work within is the importance of working with communities.

When I started in the industry communities were the people that you tended to keep away from your operation with fences and security guards.

As we all know companies now require a social licence to operate and the way to get that is to be a wanted guest in a host community.

Expectations of the workforce

People want a good lifestyle and they want to work for someone that offers it.

Having a good roster was the most important reason our employees continue to work with us. And the next most important reason is our ability to offer a work / life balance.

We need to ensure that we attract the right people into the industry since it is our employees who also drive our values — they do not want to work for a company in which conditions are unsafe or which damages the environment or which does not respect other people.

So keeping in mind all the issues a modern mining company needs to think about, how do we ensure we also address the issues of productivity, costs and efficiency?

We are hearing a lot about productivity in Australia today because costs have escalated with the pressure of the resources projects with goods, services and people in relative short supply. There is a strong view from many parts that this has gone too far.

Overall I think 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. The use of cleverer technology and automation of equipment is an attractive option for a country such as Australia.

Summary

Dramatic changes have occurred to a modern mining company’s operations making the framework for decision-making a rather different proposition. Many of these changes have had a very positive impact on the industry, local communities and wider society. There are areas like safety that will remain at the top of our decision-making framework.

But I will leave you with a question: 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? 

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