MINING PRODUCTIVITY:
WHY HAS IT FALLEN?
WILL IT RECOVER?
John E. Tilton
Pontificia Universidad Católica de Chile
and Colorado School of Mines
Email: jtilton@mines.edu
PUC Department of Mining Engineering
Santiago, Chile
April 26, 2013
LABOR PRODUCTIVITY 1985-2011
CHILEAN COPPER INDUSTRY
(Tons per Own Worker)
160
140
120
100
80
60
40
20
0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: Cochilco
SIMILAR GLOBAL TRENDS
•Australia, Canada, US, and other mining
countries
• Coal, iron ore, and other mineral
commodities
• Both labor and multifactor productivity
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
• Falling productivity is mostly cyclical
• Result of high prices and efforts to
expand output rapidly
• Productivity likely to rise if prices fall
RECENT RESEARCH
• 2012 RioTinto request
• Interpretative survey of the literature
over the past several decades
• Copper, aluminum, iron ore and coal
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
• 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
• Government regulations
•
•
•
•
Worker quality
Economies of scale
Capacity utilization
Unplanned stoppages (eg, strikes)
CYCLICAL DETERMINANTS
•
•
•
•
•
Innovation
Resource quality
Worker quality
Unplanned stoppages
High cost and inefficient mines
close when prices decline
• Cost control vs output
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 Worker)
160
140
120
100
80
60
40
20
0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: Cochilco
CHILEAN LABOR PRODUCTIVITY
AND THE COPPER PRICE, 1985-2011
(Tons per Own Worker, 2012 US$ per Ton)
160
$10,000
140
120
$8,000
Productivity
100
$6,000
80
60
Price
40
$4,000
$2,000
20
0
$0
5 87 89 91 93 95 97 99 01 03 05 07 09 11
8
19 19 19 19 19 19 19 19 20 20 20 20 20 20
Sources: Cochilco, UNCTAD, World Bank
CHILEAN LABOR PRODUCTIVITY
AND THE COPPER PRICE, 1985-2011
(Tons per Own Worker, 2012 US$ per Ton)
160
$10,000
140
120
$8,000
Productivity
100
$6,000
80
$4,000
60
Price
40
$2,000
20
0
$0
5 87 89 91 93 95 97 99 01 03 05 07 09 11
8
19 19 19 19 19 19 19 19 20 20 20 20 20 20
Sources: Cochilco, UNCTAD, World Bank
CHILEAN LABOR PRODUCTIVITY
AND THE COPPER PRICE, 1985-2011
(Tons per Own Worker, 2012 US$ per Ton)
160
$10,000
140
120
$8,000
Productivity
100
$6,000
80
$4,000
60
40
Price
$2,000
20
0
$0
5 87 89 91 93 95 97 99 01 03 05 07 09 11
8
19 19 19 19 19 19 19 19 20 20 20 20 20 20
Sources: Cochilco, UNCTAD, World Bank
PRICES AND PRODUCTIVITY METAL ORE
30
MINING, CANADA, 1989-2006
Chart 12: Prices and Productivity, Metal Ore Mining, Canada, Index 1989 = 100,
1989-2006
250
200
150
100
50
Implicit Price Deflator
Labour Productivity
Total Factor Productivity
0
1989
1991
1993
1995
1997
1999
2001
2003
2005
Source: Appendix Tables 5, 15, and 17.
Sources:
Bradley
& Sharpe,
2009 real GDP per worker is calculated for
mining industry,
silver ore
the gold and
For
the 1997-2006 period (Appendix Table 14a). There is a clear upward trend in the price of
LABOR PRODUCTIVITY IN THE U.S. COPPER
INDUSTRY, 1975-2001
Source: Tilton, 2003
COPPER HEAD GRADES
US COPPER INDUSTRY, 1971-1993
Source: Tilton and Landsberg, 1999
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)
Source: Ellerman and Berndt 1998 as cited in Darmstadter 1999.
PRODUCTIVITY IN THE U.S. COAL
“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
• 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
• 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
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. MITCEEPR 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 RECOVER?
John E. Tilton
Pontificia Universidad Católica de Chile
and Colorado School of Mines
Email: jtilton@mines.edu
PUC Department of Mining Engineering
Santiago, Chile
April 26, 2013
LABOR PRODUCTIVITY AND PRICES FOR
ALUMINUM, VARIOUS COUNTRIES, 2000-2010