*This is an abstract only. No full paper is available for this abstract.*
The decade-long mining boom saw the price received for Australia’s mineral commodity exports increase more than threefold. At the same time, investment in new projects and project expansions in the minerals sector increased from two per cent of gross domestic product (GDP) to eight per cent. The flow-on benefits to the Australian economy were substantial with significant increases in both real per capita household disposable income and real wages, and a lowering of the unemployment rate.
The increases in commodity prices, however, were not necessarily reflected in a corresponding increase in margins for producers as the cost of key inputs of energy, labour and consumables increased. At the conclusion of the commodity price boom, this meant that companies in the mining sector were faced with the substantial challenge of reducing costs and lifting productivity in order to remain competitive.
In response to these challenges, Newcrest embarked upon a program called ‘Edge’ to safely drive greater efficiencies at all of its operations, reduce costs, enhance free cash flow and strengthen its balance sheet. This program involves a relentless focus on safety, operational discipline, cash and profitable growth and is grounded on a number of critical ‘people practices’ that are driving employee engagement. This includes encouraging all employees to take a business owner’s mindset to a publicly listed company. The approach is helping the business identify and realise opportunities for efficiency improvements and value creation in every corner of the business.
The operational discipline inherent in Edge has sharpened the organisation’s focus on a strong safety culture. It also contributed to an approximately 27 per cent reduction in Newcrest’s average all-in sustaining cost between financial year (FY) 2013 and FY 2015, and enabled the company to strengthen its balance sheet, reducing net debt by over US$1.3 billion in the 22 months to 30 April 2016. The Lihir gold mine in Papua New Guinea has been a major focus for Newcrest and a new operating strategy and improved plant availability have delivered a marked increase in milling rates.
Whilst the business improvement strategies were initiated in response to a major shift in the external environment, they are establishing themselves as the way Newcrest manages its business. They are also underpinning the company’s renewed focus on both organic and greenfield growth. The significant challenge of value creation through major M&A transactions is well recognised and for this reason, early-stage project entry is Newcrest’s preferred method of growth.
The presentation will provide the author’s reflections on the Newcrest transformation journey and some of the essential ingredients for realising a company’s full potential.
Biswas, S, 2016. The owner’s mindset, in Proceedings
International Mine Management Conference , pp 3-4 (The Australasian Institute of Mining and Metallurgy: Melbourne).