Mining shows signs of revival: Data shows an upward trend, albeit from a low base
- September 1, 2018: Vol. 5, Number 8

Mining shows signs of revival: Data shows an upward trend, albeit from a low base

by Nathan Flesher, Mukani Moyo, Stefan Rehbach and Eben van Niekerk

Several indicators are suggesting the global mining sector is now turning around after the dark days of 2014–2015 and early 2016. To wit:

  • The Bloomberg World Mining Index shows the sector’s return on capital has rebounded strongly from the bottom of the trough it reached in 2016
  • The S&P GSCI Industrial Metals Index of commodity prices has risen by nearly 60 percent from its low in January 2016
  • The MSCI Metals and Mining Index of company share prices has rebounded even more dramatically, up more than two-and-a-half times from its low point in January 2016

On the productivity front, the Mine-
Lens Productivity Index (MPI), McKinsey & Co.’s proprietary indicator of the global mining sector’s productivity, registered an increase of 2.8 percent a year in productivity performance for 2014 to 2016, the most recent period researched. While productivity performance remains far below the levels reached before the demand supercycle struck, MPI data show the sector is making some headway: Its 2014 to 2016 MPI score is starting to move up from the period of stagnant productivity in the five-year period from 2009 to 2014. News of productivity gains from major mining companies suggests that the trend is continuing.

The biggest contributions to higher mining productivity have come from a sustained push to reduce mine workforce head counts and boost labor productivity, while modestly increasing output. Employment has fallen by around 3.0 percent a year, while production, or output, has increased by 1.8 percent a year. At the same time, mining companies have tightly controlled capital spending and expenditures for nonlabor operations, particularly in the most recent year of the period researched, when outlays on both items fell.

These performance dynamics differ significantly from what happened during the period of stagnant productivity from 2009 to 2014. During those years, the industry managed to raise production by 4 percent a year, while holding the increase in its capital expenditures to 3 percent a year. That represented a major change in conduct from the pre-2009 peak of the supercycle, when the sector’s capital expenditures rose 24 percent annually. Despite these efforts, overall productivity performance for the period was hurt by substantial increases in employment (more than 8 percent a year) and operating expenditures (around 6 percent a year).

These latest trends signaling a small uptick in productivity are all the more important in today’s context. The reason is that as demand picks up and metals and minerals prices recover, the mining sector again confronts some of the same dynamics that led to the collapse in productivity performance during the supercycle. The sector has been seeing strong growth in demand and substantial price increases for battery-related mining commodities, such as cobalt, nickel, lithium and, to a lesser extent, copper. Prices for other commodities, however, have remained flat or, in some cases, declined. The sector must, therefore, be careful to stay on track toward better productivity, regardless of commodity, by nurturing today’s first green shoots of what remains, so far, a fragile recovery.


This article was excerpted from a McKinsey & Co. report authored by executives Nathan Flesher, Mukani Moyo, Stefan Rehbach and Eben van Niekerk. Read the complete report at this link:

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