Analysts warn mining skills shortages will flow into earnings hit
Analysts are warning the growing skills and labour crisis in Australia’s resources sector could start eating into returns in the coming earnings season.
The growing skills and labour crisis in Australia’s resources sector could start eating into returns in the coming earnings season, amid a growing impact on production and cost from skill shortages, analysts warn.
Ramelius Resources this week joined the growing list of WA miners blaming the state’s skills and labour shortage for operational shortfalls, saying it had missed annual and quarterly output guidance partly as a result of “periodic” labour shortages at its Edna May hub.
In May, St Barbara flagged a production downgrade for its flagship Gwalia gold mine in WA because its mining contractor, Macmahon Holdings, was struggling with staffing and skills issues. Other WA gold miners such as Northern Star Resources, Regis Resources and Red 5 have also said they are facing labour and skills shortages.
While the gold price is still strong in historical terms, hovering above $2400 an ounce in Australian dollars, it is well below highs of close to $2900 an ounce hit in August 2020.
But the growing industry skills shortage, particularly in WA, throws the shadow of rising costs over the gold sector, analysts say.
“Notwithstanding our current forecasts, we are increasingly becoming wary of producers, with rhetoric from multiple companies outlining a skills shortage in the state,” Canaccord resources analyst Reg Spencer said in a client note on Thursday. “It does not appear to be limited to either white or blue-collared workers, and we believe this will be an ongoing issue until borders reopen.
“We have not increased our unit costs for WA assets at this juncture, but highlight the risk to elevated costs versus our forecasts as a result of this fact.”
The office of the federal government’s chief resources economist, in its quarterly report last month, dropped its output expectations for the Australian gold sector, citing the skills shortage along with other factors.
“The primary risk to the Australian gold production forecast is a continuation of the labour and skills shortage that Australian gold mine producers are currently facing,” the report says.
“Australia’s gold mine production for 2020-21 has been revised down to 332 tonnes (down by 25 tonnes or 7.0 per cent) from the March 2021 Resources and Energy Quarterly, reflecting unplanned maintenance, lower ore grades, unexpected flooding, and labour and skills shortage at some gold mines.”
The skills shortage is also casting a shadow over projects about to push the button on mine development, and hoping to cash in on strong commodity prices.
BCI Minerals, which hopes to begin the main body of construction at its Mardie salt and potash project in the Pilbara by the end of the year, has been at pains to note its strategy of locking in fixed-term contracts for construction work in recent corporate presentations.
In May, following a site visit to WA hopeful Bellevue Gold’s project – where mine development began last September – Macquarie analysts noted WA’s skills shortage represented a “key risk” to Bellevue’s ability to deliver on development costs and timelines.
“A key risk to our base case assumption, in our view, is the widely reported skilled labour shortage in Western Australia, which is placing upward pressure on costs and staff availability,” Macquarie analysts said.
“Bellevue management commented on the site visit that any such cost pressures have potential to be offset by the relatively conservative mining productivity assumptions (compared to WA gold industry averages) which were assumed in the stage one study,”
Analyst warnings about skills-related cost pressures have also spread beyond the mining industry, with Macquarie analysts noting last month that shortages in key trades – along with regulatory changes – were helping push up building costs and were likely to even flow into the insurance industry, inflating claims payouts as a result.
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