Article by Perry Williams, courtesy of the Australian.
10.09.2025
Australian mining producers are spending 60 per cent more to generate the same output as a quarter century ago due to falling construction productivity and rising regulatory hurdles, consultancy Alvarez & Marsal says.
Jim Chalmers’ economic reform roundtable drew scepticism for its lack of concrete recommendations and ability to address the nation’s productivity woes at a time when miners are facing increasing pressure to bring on replacement volumes in the next decade.
Mining companies at the turn of the century spent $3.50 to get $1 annually in returns, but now spend $5.50 to get the same result, research shows.
“For many, this has meant that the capital required to replace or upgrade ageing infrastructure is growing faster than the returns on these investments, intensifying pressure to address rising construction costs,” Alvarez & Marsal’s Nick Reid and Ryan Smith said in the report.
“At the same time, production expectations are intensifying, and the demand for reliability is higher than ever. Global inflation, escalating input costs – particularly labour and raw materials – and intensifying competition are collectively putting pressure on margins and highlighting operational inefficiencies.”
Australia is in the midst of its worst labour productivity levels on record, falling 1.2 per cent in the last year with average productivity growth over the past decade hitting its lowest levels in 60 years.
Analysis of Bureau of Statistics data from within the mining industry shows the cornerstone of the economy has not escaped stagnating productivity growth.
The mining sector’s multi-factor productivity (MFP) has declined over four consecutive years, including a fall of 2.3 per cent in 2023-24, the latest ABS data reveals.
BHP said in August that the nation faced a difficult balancing act to remain a competitive exporter amid high energy prices and net zero emissions pressures, with its rivals looking to pounce on any vulnerabilities.
Its Australia president, Geraldine Slattery, said any “meaningful conversation about productivity” needed to focus on making the nation’s tax settings more globally competitive and help unlock new investment and growth across the private sector.
The consultancy said miners had implemented a string of strategies to combat the productivity challenge with different delivery models, commercial arrangements that seek to allocate more risk to the contractor and more stringent contractual terms and strategic procurement levers.
However, the report noted that productivity was declining and capital costs were trending up, with Pilbara majors now each spending 35-70 per cent more for every tonne of incremental capacity compared to 2015 levels.
“All of this ultimately means that commercial models used by mining companies are no longer able to protect owners from cost or schedule overruns,” it said. “Consequently, cost blowouts in major capital projects will likely continue if resource companies don’t pursue other means to combat these headwinds.”
Still, the consultancy pointed towards a range of measures including new delivery and commercial models, better project management and standardised work design that could cut between 25 per cent and 40 per cent of capital costs.
“It is common to see construction tooltime of 20-25 per cent on WA projects, due to clashing work groups, missing parts, lack of tools and lack of work methods,” the report said.
“Both engineering, procurement, construction and management and contractors often adopt a ‘we’ll address it as we go’ approach. There’s a growing need for a new set of daily and weekly practices to bring the same level of discipline seen in high-performing maintenance teams, where tooltime typically exceeds 55 per cent.”
The ABS numbers represent the worst consecutive falls since the beginning of the global financial crisis in 2008 and subsequent mining sector bust from 2011 that led to thousands of job losses.
According to ABS data, underlying labour productivity in the mining sector has also declined since the Albanese government came to power. While Australia’s average labour productivity (across all sectors) fell by 0.31 per cent between 2021-22 and 2023-24, in the mining industry productivity fell by 3.14 per cent.
Woodside Energy said earlier this year it was increasingly frustrated that it had not yet been able to formally secure a deal to extend the life of its North West Shelf gas operations, highlighting what chief executive Meg O’Neill described as the urgent need for Australia to streamline environmental approvals to boost productivity.