Mining Productivity Australia 2008

Productivity in the Mining Industry:
Measurement and Interpretation

Productivity Commission Staff Working Paper
December 2008

Vernon Topp Leo Soames Dean Parham Harry Bloch

The views expressed in this paper are those of the staff involved and do not reflect those of the Productivity Commission.

¤ COMMONWEALTH OF AUSTRALIA 2008
ISBN 978-1-74037-271-8

This work is subject tocopyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial use or sale requires prior written permission from the Attorney-General’s Department. Requests and inquiries concerning reproduction and rights should be addressedto the Commonwealth Copyright Administration, Attorney-General’s Department, Robert Garran Offices, National Circuit, Canberra ACT 2600. This publication is available in hard copy or PDF format from the Productivity Commission website at www.pc.gov.au. If you require part or all of this publication in a different format, please contact Media and Publications (see below). Publications Inquiries:Media and Publications Productivity Commission Locked Bag 2 Collins Street East Melbourne VIC 8003 Tel: Fax: Email: (03) 9653 2244 (03) 9653 2303 maps@pc.gov.au

General Inquiries: Tel: (03) 9653 2100 or (02) 6240 3200 An appropriate citation for this paper is: Topp, V., Soames, L., Parham, D. and Bloch, H. 2008, Productivity in the Mining Industry: Measurement and Interpretation, ProductivityCommission Staff Working Paper, December.
JEL code: D, Q

The Productivity Commission The Productivity Commission, is the Australian Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians. Its role, expressed most simply, is to help governments make better policies, in the long term interest of theAustralian community. The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by consideration for the wellbeing of the community as a whole. Information on the Productivity Commission, its publications and its current work program can be found on the World Wide Web at www.pc.gov.au or by contacting Media and Publications on(03) 9653 2244

Contents

Preface Abbreviations Key points Overview 1 Introduction 1.1 Background 1.2 Objectives and scope of the paper Mining and its measured productivity 2.1 Australia’s mining industry 2.2 Measured productivity of mining Understanding productivity in mining: natural resource inputs 3.1 The input of natural resources 3.2 Optimal extraction, depletion of deposits andproductivity 3.3 Evidence of depletion 3.4 Measuring the resource input in productivity estimates 3.5 Results Understanding productivity in mining: purchased inputs 4.1 The structure of mining costs 4.2 The nature of mining capital 4.3 Capital investment and MFP changes Other factors influencing mining MFP 5.1 Increased effort and changes in the quality of inputs 5.2 Technology changes 5.3 Workpractices 5.4 Poor weather 5.5 Infrastructure constraints 5.6 Putting the pieces together

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CONTENTS

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The big picture: mining, productivity and prosperity 6.1 The contribution of the mining industry to Australia’s productivity growth 6.2 The mining boom and national prosperity 6.3 Impactof global economic developments and falling commodity prices Sub-sector results Methodology and data Estimating the contribution of yield changes to mining MFP

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References BOXES 2.1 The regional dimension of mining 3.1 Mining productivity and natural resource inputs 3.2 The ‘Hotelling rule’ for non-renewable resources 4.1 Estimating production lags...