Shortage of skilled workers poses hard-hitting challenge

Behind the commodity super-cycle facade, mining company executives across Canada are struggling to address a surprisingly severe bottleneck, a critical skills shortage.

While a baby boomer retirement skills drain was expected, what has most stunned many mining leaders and observers is just how quickly it reached its current costly proportions.

For 20 years, data pointed that a lack of appropriately skilled graduates would soon have a negative impact on technical and management capabilities of the mining industry.

But during the doldrums, commodity pricing of the 1980s and 1990s, workers were retrenched, students were not attracted to the sector, classes shrank, and the average age of the mining workforce rose in all major western mining nations.

Marcus Randolph, group executive and chief executive of the ferrous and coal group at BHP Billiton said “the industry was suffering a depression, and the best and brightest didn’t join.” Now these shortages have extended to tradesmen such as welders, boiler makers, electricians, and mechanics, without whom no engineering or construction project can be completed successfully.

A recent research report from S&P noted that “the high level of mining and other natural resource activity in Australia has added increased capital costs to projects and delayed commissioning timetables. In addition to shortages and increases in prices for raw material, the cost and supply of skilled labour has added significant capital costs. In some cases, proposed projects have been postponed to ease pressure on the construction market.”

Indeed, the risks attached to the skills shortage have escalated with Xstrata’s Mick Davis having gone so far as to note that the labour situation now directly impacts growth; acquisition presents a lower risk than new projects.

Mining companies in the US and Canada are facing similar staffing pressures. As mining has declined in the US over the last decade and more, the workforce has not been replaced. According to the US-based Society of Mining Engineers, 58% of its members are over the age of 50 and are forecast to retire at a rate of 4% to 5% a year over the next 10 years. And half of the workers in the Canadian mining industry are between 40 and 54 years in age, with 40% planning to retire in the next eight years, and the supply of graduates barely covering retiree loss.

At the operational level, the stark truth is illustrated by Fred Stanford, President of Vale, Inco’s Ontario operations,”More than 900 people, one-fifth, could retire today if they chose. We are extremely thankful they have decided not to. It would be very difficult to lose 900 people with 30 years experience.”

Solutions cannot come fast enough. While investing in retraining programs, university scholarships and technological advances such as automation are underway, comprehensive solutions from these programs are years away. However, real solutions that substantially reduce the skills-deficit can be implemented today.

Immediate management response

There is an immediate opportunity for management to critically examine how many people are really needed for key tasks and manage staffing in line with real need. Organisational “right-sizing” will not only achieve absolute cost reduction, it also provides an opportunity for the reallocation of scarce resources to other productive functions. In combination with ensuring effective operator and supervisor skills training, shortened learning curves make these positions more effective.

Contractor management

While using contractors is commonplace, the value of contractors as supplementary resources and community partners can be much improved. By providing transparency and visibility to contracting policies, process and expenses, implementing local contractor forecasting systems, and closely monitoring and auditing contractor usage, financial and service level improvements can be achieved.

Additional benefits, and perhaps the most critical enhancement in the skills drought, can be gained when the client facilitates the transfer of complementary supervisory behaviours and systems into the contractor work environment. Not only do the benefits include reduction in service cycle times, improved work quality, and reduced wage costs, they ensure that transparency and fairness is demonstrated and communicated into local communities.

Execution and effective measurement is the key to success

As with all good strategic intentions, execution of the plan remains crucial. In mining and related processing functions, there is almost always an opportunity to do this by developing better skills at the supervisory level and introducing management operating systems that are consistent with business objectives. Better planning, reporting and monitoring processes, coupled with the right management and supervisory behaviours ensure that supervisors supervise and operators operate. This may appear obvious, but few mining firms have the sufficiently detailed understanding of their business processes to enable effective control. Working to achieve this will reduce time to identify and complete processes and tasks thus increasing throughput and lowering cost.

Careful assessment of position locations pays real dividends

Locating people on-site often in remote locations is expensive. Necessities like fly-in, fly-out travel, on-site accommodation and catering services, away-from-home allowances, site specific safety measures, additional leave requirements, add to costs. Some lateral thinking about where employees really need to be located could not only reduce costs substantially but also provide the additional benefit of creating better quality of life for many and draw more suitable applicants. How many administration functions currently performed on-site can be readily carried out from a city or regional community? How many other non-operational functions could be located in head office with employees flying in as necessary? These types of policy can be implemented while we await the arrival of new university graduates and advanced technologies like ‘driverless truck’s.

Take a fresh look at your operations, it will benefit everyone

Margin pressure and the shortage of skilled labour in the mining industry requires a fresh look at organisation size and structure. Rightsizing labour in operations reduces the costs to those operations and effectively increases the skilled labour pool. More effective use and skills transfer to contractors and challenging where non-operating people are physically located and how they work can add significantly to the cost savings, employee attraction, morale and safety.

And while the skills shortage issue won’t evaporate in the short term, mining companies and their leaders can take some relatively simple steps toward optimising their businesses for stakeholders while making the best use of our increasingly limited pool of skilled labour.

John Wylie is Managing Director, Mining & Metals Practice and Cay Mimms is Manager, Mining & Metals, for the

Management Consulting firm of Proudfoot Consulting.

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