The Australian mining industry must accept “the new normal” and accelerate its ability to implement innovative thinking in order to survive the higher volatility of the global market, says a report released by Deloitte.
The report, released on Friday, details the 10 key trends facing the global mining industry in 2015, highlighting the imperative for companies to break away from boom-time thinking.
Deloitte Australia’s national mining leader, east coast, Reuben Saayman said it is particularly critical for Australian companies saddled with a high starting cost base compared with their global competitors.
“I think there is an absolute imperative to change, you cannot sit it out,” Mr Saayman said.
“The market is cyclical but companies have to adapt to the new normal now which is really volatile prices.”
“People have been seeing innovation as driverless trucks and the like, but it goes way beyond that. It needs to be the way that you share your infrastructure, the way you secure your funding. You need to adapt your whole business style and innovate the way you do business,” Mr Saayman said.
Deloitte’s report came as the benchmark iron ore price dropped to below $US70 a tonne, the price of copper plunged to a more than five-year low and oil prices continued to decline below $US50 a barrel.
Mr Saayman said Australian producers were working hard to improve productivity levels and cut costs but the standard back-to-basics approach was no longer enough.
The junior and mid-tier mining sector, which was being buffeted the most by the decline in commodity prices, needed to think more strategically about collaboration, said Deloitte Australia’s national mining leader, west coast, Nicki Ivory.
“There has never really been a culture in the sector for juniors sharing infrastructure, ideas or innovation and I think the oil and gas industry is far better at that,” Ms Ivory said.
“We are suggesting that one of the responses could be to look at other options such as joint ventures and consolidation. You don’t have to survive as a standalone entity the way you have in the past. You can look at other ways to operate but again, it relies on an adjustment to the traditional mindset.”
Ms Ivory said an expectation that prices would improve in the short term had slowed the reaction from junior miners which were endangering themselves by not “acting in advance of being absolutely forced to act”.
One of the most critical ways companies need to implement some innovative thinking was in their search for financing, the report urged.
Equity investors remained wary of the sector, Chinese investors were far more selective and traditional lenders that walked away from the industry years ago, were yet to return in meaningful numbers, it said.
“If [companies] need to do something because they are facing pressure, they need to do it now,” Ms Ivory said.
“We are seeing junior miners exiting the market . . . and it is a real challenge for those that want to continue to operate. You have to be doing everything you can to get yourself to the right side of the cost curve.”
The Australian Financial Review