Australia's resource and energy export earnings are forecast to rise to a record $419 billion in 2022-23, surpassing the previous record of $405 billion in 2021–22. From Western Australia alone, $191 billion worth of minerals were supplied in 2020-21.
High prices across several commodities, volume growth, a weak Australian dollar and the reliability of Western Australian operations have driven a surge in export earnings. Commodity prices are surging due to increased demand following COVID-19 lockdowns, as well as global production disruptions constraining supply. Given the already low inventories for many commodities, these demand and supply factors pushed many commodity prices to record highs. In light of these statistics, it's not surprising that mining executives in general are optimistic.
However, they note that tougher times may lie ahead.
The mining and mining services sector is experiencing strong performance. However, export earnings are forecast to drop to $338 billion in 2023-24 as supply rises and demand growth moderates. Organisations are grappling with rising costs, labour shortage, inflationary pressure, supply chain and global macroeconomic issues, all of which are likely to remain significant concerns, at least in the short-term. There are also reputational risks for the sector in terms of how it addresses the serious issue of sexual harassment, particularly in the FIFO industry.
The outlook for Australia's mineral exports remains strong, as the world economy rebounds from the impact of the COVID-19 pandemic and energy shortages persist.”
Office of the Chief Economic, Resources and Energy Quarterly, June 2022
From June to August 2022, MinterEllison's mining team in Western Australia met with key executives in the mining and mining services sector to explore the sector's evolving challenges and opportunities. The executives provided their comments and views regarding matters such as workforce challenges, impacts of COVID-19, supply chain challenges, and the appetite for mergers and acquisitions or financing.
Ongoing impacts of labour shortages
Labour shortages were top of mind for respondents. Notwithstanding that the mining industry in Western Australia employed a record average of 155,004 people (121,959 FTEs) during 2021.
Respondents noted shortages of both skilled and unskilled workers. This includes geologists, mining engineers, drillers, jumbo operators, blast hole drillers, surveyors, auto-electricians, heavy diesel operators and shift bosses. Executives also highlighted the shortage of head office staff.
Widespread labour issues across the state means that the mining sector is also competing for workers with employers beyond its own industry. As one respondent said, 'even the guy across the road at the coffee shop is short of people'.
In addition to recruitment, many respondents expressed concern about retaining talent. Several spoke of hiring inexperienced people and the significant investment of upskilling and training them, only to have competitors offer something more attractive – mainly higher wages. The cost of this is impacting the industry, with employees looking for increased wages and greater flexibility – as one respondent said, 'every second person is asking for a pay rise'.
Absenteeism due to COVID-19 continues to exacerbate staff shortages. In an industry where certain specialities and amounts of people are required for safety purposes, respondents found there was a constant question around 'can we operate safely with the number and mix of people we have?' One gold company respondent believes the constraints of not having enough people would continue, saying 'we're only about 40% of the way through COVID positives'.
At the recent Jobs and Skills Summit, thirty-six immediate initiatives were agreed, including an increase in the permanent migration program ceiling. 'Governments are starting to get it now that it's not a short term thing, and it's not something that's easily fixed,' said one respondent.
Sexual harassment, diversity and inclusiveness in the FIFO sector
Recent and consistent publicity about sexual harassment in the FIFO sector indicates the importance of this issue – widely discussed in all interviews. All executives agreed that more needs to be done to create safe and inclusive workforces in the FIFO sector.
We need to 'accept that we, as an industry, haven't done as good a job as we could have in the past,' said one respondent. While it was clearly acknowledged that it's a sector-wide issue, some respondents also flagged that it extends beyond that. It's 'a big issue, not just for the industry but for society as a whole,' said one respondent, with another adding that the 'mining industry needs to lead the way on these issues'.
Executives agreed the issues were front of mind, and are focused on improvement. A second report from a recent Parliamentary Inquiry, Enough is Enough – Sexual harassment against women in the FIFO mining industry was widely cited, providing a list of findings and recommendations for improvement.
The WA Parliament's Enough is Enough report included many practical recommendations. Organisations need to conduct a proper risk assessment to make sure that their workplace is safe. This includes creating an environment that is suitable for a diverse range of genders and races”
MinterEllison Partner Kathy Reid
Executives interviewed said their companies are responding to the issues presented in the Enough is Enough report – and that staff safety was their utmost priority. Stronger and clearer policies, diligent training, consistent communication, strong leadership, onboarding specialist managers and improved culture were just some ways companies were responding to the recommendations. Most importantly, they said, was ensuring there is zero tolerance for bad behaviour.
Focusing on diversity and inclusion
MinterEllison Partner Kathy Reid said that a broader focus on diversity and inclusion is key to making the mining sector safe and appealing for women – however it is facing a chicken and egg problem. 'You can't really make women feel more comfortable in these workplaces until you've got greater numbers. But of course, it's hard to get greater numbers of women in the industry in the first place.'
She added that the industry is taking positive steps to help make the workplace more inclusive for women:
- Physical comfort – companies are starting to design uniforms that are comfortable and suitable for different builds.
- Technology – new technology is enabling women to perform jobs that they previously had been unable to due to the requirement for physical strength.
- Flexible rosters – rostering practices are being adapted to factor in part time and child care, which affects more women than men.
MinterEllison partner Craig Boyle added: 'Where there is greater diversity and acceptance of people in workplaces, people feel comfortable to be themselves. And that is an important factor for mining companies to retain the staff that they have and attract new employees. This may help to address the labour shortages issue as well.'
Escalating costs, supply chain and logistics challenges
Inflationary pressures are increasing the costs of doing business in the mining sector. Cost escalation is a significant issue dominating boardroom discussions. Wage escalation, supply chain and logistics, diesel, raw materials and 'access to all the things you need to build a mine', are leading to big blow outs in capital expenditure and eroding profit margins. Survey participants noted that 'everything has gone up in price' – and the data backs this up. Unfortunately, for many, there is no easy end in sight. 'In terms of supply chain impacting inflation, I'm not very optimistic about that sorting itself out – and this is largely talking to shipping,' one respondent said.
Exploration cost growth is driven by commodity prices, wage growth and changes in exploration expenditure across Australia. Cost inflation is estimated to have increased by 9% in FY22.
This at a time when, as BIS Oxford Economics puts it, elevated commodity prices are likely to encourage producers to take on higher maintenance spending.
