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MINING PRODUCTIVITY: WHY HAS IT FALLEN? WILL IT RECOVER?. John E. Tilton Pontificia Universidad Católica de Chile and Colorado School of Mines Email: [email protected] PUC Department of Mining Engineering Santiago, Chile April 26, 2013.

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Mining productivity why has it fallen will it recover

MINING PRODUCTIVITY:WHY HAS IT FALLEN?WILL IT RECOVER?

John E. Tilton

Pontificia Universidad Católica de Chile

and Colorado School of Mines

Email: [email protected]

PUC Department of Mining Engineering

Santiago, Chile

April 26, 2013


Labor productivity 1985 2011 chilean copper industry tons per own worker

LABOR PRODUCTIVITY 1985-2011CHILEAN COPPER INDUSTRY(Tons per Own Worker)

Source: Cochilco


Similar global trends

SIMILAR GLOBAL TRENDS

Australia, Canada, US, and other mining countries

Coal, iron ore, and other mineral commodities

Both labor and multifactor productivity


Prevailing view

PREVAILING VIEW

Falling productivity likely to continue over the long run

New technology no longer able to offset depletion

China’s growing demand

Less attractive deposits

Less technological change


An alternative perspective

AN ALTERNATIVEPERSPECTIVE

Falling productivity is mostly cyclical

Result of high prices and efforts to expand output rapidly

Productivity likely to rise if prices fall


Recent research
RECENT RESEARCH

  • 2012 RioTinto request

  • Interpretative survey of the literature over the past several decades

  • Copper, aluminum, iron ore and coal


Focus and approach
FOCUS AND APPROACH

  • Two central questions

    • What are the major drivers of changes in mining productivity?

    • Are recent changes largely secular or cyclical?

  • Approach –

    • Identify determinants of productivity and the extent to which they may vary cyclically

    • Empirical evidence – does productivity tend to rise and fall with commodity prices?


Major determinants
MAJOR DETERMINANTS

  • Innovation & technology

    • Major vs minor technological advances

    • IT technology

    • Embodied vs disembodied tech change

    • Learning by doing

  • Resource quality

    • Ore grades

    • Stripping ratios

    • Other


Other determinants
OTHER DETERMINANTS

  • Government regulations

  • Worker quality

  • Economies of scale

  • Capacity utilization

  • Unplanned stoppages (eg, strikes)


Cyclical determinants
CYCLICAL DETERMINANTS

  • Innovation

  • Resource quality

  • Worker quality

  • Unplanned stoppages

  • High cost and inefficient mines close when prices decline

  • Cost control vs output


Empirical evidence
EMPIRICAL EVIDENCE

  • Copper

    • Chile in recent years

    • US in 1980s

  • Metal Mining - Canada 1989-2006

  • Iron Ore - US and Canada in 1980s

  • Coal - US in early 1970s


Labor productivity 1985 2011 chilean copper industry tons per own worker1

LABOR PRODUCTIVITY 1985-2011CHILEAN COPPER INDUSTRY(Tons per Own Worker)

Source: Cochilco


Chilean labor productivity and the copper price 1985 2011 tons per own worker 2012 us per ton
CHILEAN LABOR PRODUCTIVITYAND THE COPPER PRICE, 1985-2011(Tons per Own Worker, 2012 US$ per Ton)

Sources: Cochilco, UNCTAD, World Bank

Productivity

Price


Chilean labor productivity and the copper price 1985 2011 tons per own worker 2012 us per ton1
CHILEAN LABOR PRODUCTIVITYAND THE COPPER PRICE, 1985-2011(Tons per Own Worker, 2012 US$ per Ton)

Sources: Cochilco, UNCTAD, World Bank

Productivity

Price


Chilean labor productivity and the copper price 1985 2011 tons per own worker 2012 us per ton2
CHILEAN LABOR PRODUCTIVITYAND THE COPPER PRICE, 1985-2011(Tons per Own Worker, 2012 US$ per Ton)

Sources: Cochilco, UNCTAD, World Bank

Productivity

Price




Copper head grades us copper industry 1971 1993
COPPER HEAD GRADESUS COPPER INDUSTRY, 1971-1993

Source: Tilton and Landsberg, 1999


Labor productivity and production in the u s iron ore industry 1970 1995
LABOR PRODUCTIVITY AND PRODUCTION IN THE U.S. IRON ORE INDUSTRY, 1970-1995

Source: Schmitz, 2005.


Productivity in the u s coal industry 1947 1991 1972 100

PRODUCTIVITY IN THE U.S. COAL INDUSTRY, 1947-1991 INDUSTRY, 1970-1995(1972 = 100)

Source: Ellerman and Berndt 1998 as cited in Darmstadter 1999.


Productivity in the u s coal
PRODUCTIVITY IN THE U.S. COAL INDUSTRY, 1970-1995

“During the 1970s nearly everything seemed to conspire to reduce labor productivity, but the largest effect was attributable to the rising price of coal. . . Both statistics and anecdotes suggest that the first response of coal-mining operators was almost literally to throw labor (and other inputs) at the coal face. The inevitable result was lower productivity.”

Souce: Ellerman and others, 2001, p. 405


Findings

FINDINGS INDUSTRY, 1970-1995

History suggests a strong cyclical component in productivity trends

When prices rise, productivity falls, and vice versa

So mining productivity is likely to rise again when prices falls


Implications

IMPLICATIONS INDUSTRY, 1970-1995

Rising productivity means mining costs may decline in the future

So copper prices could also fall

Not necessarily bad news for producing firms and countries

And, clearly good news for consumers and society as a whole


References

REFERENCES INDUSTRY, 1970-1995

Darmstadter, J. 1999. Innovation and productivity in U.S. Coal Mining, in Productivity in Natural Resource Industries, edited by Simpson, R.D., Resources for the Future, Washington, DC.

Ellerman, A.D., Stoker, T.M. and Berndt, E.R. 1998. Sources of Productivity Growth in the American Coal Industry, MIT Center for Energy and Environmental Policy Research, Working Paper no. MIT-CEEPR WP-1998-004, March.

Schmitz, Jr., JA, 2005. What determines productivity? Lessons from the dramatic recovery of the US and Canadian iron ore industries following their early 1980s crisis, Journal of Political Economy, pp. 582-625.

Tilton, JE, 2003. Creating Wealth and Competitiveness in Mining, Mining Engineering, September, pp. 15-22.


Mining productivity why has it fallen will it recover1

MINING PRODUCTIVITY: INDUSTRY, 1970-1995WHY HAS IT FALLEN?WILL IT RECOVER?

John E. Tilton

Pontificia Universidad Católica de Chile

and Colorado School of Mines

Email: [email protected]

PUC Department of Mining Engineering

Santiago, Chile

April 26, 2013



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