How can the development of financial resources improve the company’s profitability?
When the economic downturn occurred, the focus shifted from the operational strategy of “massively pulling out tons of ore” to selective extraction of high margin ore. In the era of high commodity prices, a focus on production can provide the desired fiscal results and did so largely for Australian operations. During this period, it was not necessary for operational mining professionals to be sensitive to the elements of cost versus financial return, which has created a culture of spending and a generation of mining professionals who are unfamiliar with managing the financial results for which they are responsible. The basic economy teaches us that for every dollar spent on business, a return of more than one dollar must be obtained to justify the expense as a rational decision. This raises the question of whether or not mining industry professionals have the knowledge of mining costs and finance to consider the value proposition when approving expenditures in their area of responsibility. In the current context, are they assigned the task of realizing cost savings by fixing the value or simply cutting costs without considering the highest value proposition?
For those fortunate mining operations that are not in survival mode, the challenge is to use the present to prepare for the next boom. There were many challenges across the industry that were not anticipated or adequately prepared for before the unprecedented boom. This became an obstacle to increase and efficiency and included, but was not limited to, infrastructure capacity, system implementation, leadership development, water management and socially responsible taxation of the minerals sector.
For Australian mining to remain globally competitive in the future, it will require significant commitment and the integration of finance professionals into operations and the empowerment of operations leaders with the knowledge to make value-generating decisions. It is therefore important that the sector has comprehensive teams of professionals with multi-disciplinary skills.
Build a bridge between tonnage, metal and bottom line through mining costs and finance.
Leaders within the mining industry come from diverse backgrounds, have diverse experiences and skill sets. They are often promoted because of their high level of competence in the chosen professional field. Once in the leadership role, they are responsible for an entire segment of the business and effectively become business managers who are responsible not only for an element of production but also for the human resources, health, safety, environment and financial performance of their department.
If leaders coming from technical disciplines or from an operational background have not previously received professional development in the entry-level financial skills (costs and mining finance) required for efficiency in the office, it will be a challenge in today’s world to ensure success. It is not uncommon for operational leaders, particularly in the mining industry, to struggle with literacy, computer use, and financial management skills. Overcoming this means that financial literacy has to be easily understandable and highly relevant to transcending challenges (and the general aversion that some managers have towards all financial issues).
Financial training must differentiate between different knowledge requirements appropriate to the multiple levels of the organizational structure. A cost center manager does not need in-depth knowledge of profit and loss, balance sheets, cash flow statements or valuation techniques. To fulfill their responsibilities, they require practical knowledge and skills in budgeting, forecasting, cost control, production, purchasing and value creation for every dollar they spend. In addition, mid-career technical and operational professionals need to know how to interpret financial information and reports.
Most of the financial training available to technical and operational professionals in the mining industry is provided by suppliers who focus on mine valuations and evaluating alternative investment options but omit the fundamentals of financial management.
Ensure that finances are easily understood and interpreted by operating personnel so that they can return to their current positions.