Despite all the talk about automation and innovation, a modern day mining operation looks very much like a mine did 50 years ago. Admitted, everything is bigger, but fundamentally we have seen big shovels load dirt into large trucks for many decades. The mining technology has not evolved rapidly, and very few step change improvements have been realised in mine operations. Is the mining industry this conservative?
It is important to realise that innovation has happened to some extent, but that most of the major innovations in mining technology are invisible to the unknowing spectator. Integrated resource modeling, sampling, and ore and grade control enable optimisation of plant feeds. Although we are still digging a hole in the ground, we know much better where to dig and at what moment than we did a couple of decades ago. Some innovation is visible too: increased size of equipment has allowed economies of scale to be realised, and, especially in underground operations, automation and remote control has improved the efficiency and safety of operations.
Still, mining appears to be innovating at a much slower pace than many other industries. One of the most important underlying reasons is the capital intensive nature of the mining business. As a result almost every mining company is stock-listed or government-owned. Public investors and governments do not have much in common, but for varying reasons both are not very interested in fundamental research in the companies they own. The investment horizon for most public investors is only a couple of years. Fundamental research to come up with a new way of working for part of the value chain in mining has lead times much longer than this investment horizon. Governments often hold the mine ownership because of strategic supply considerations, being more interested in production capacity than in the long-term competitiveness that could potentially result from innovation.
A second underlying reason for the slow pace of innovation in mining is that the miner’s products are typically commodities, sold at slim margins. Product differentiation is not a viable business model for most mined products, making cost leadership the only way to survive in the business. Mining is by definition a marginal business, and in a world in which every penny is counted, a research project with a low probability of success is seen as a waste of money. The income statement of a mining company might often list a serious R&D expense, but those items normally are exploration and project study costs. Fundamental R&D expenditure as a percentage of net income is much lower than in most major industries.
Most of the recent innovation in the industry has been driven by a scarcity of resources. Rio Tinto’s ‘Mine of the Future’ programme, the industry-leading automation programme of this moment, is driven by the shortage of skilled personnel in remote areas of Western Australia. Implementation of alternative processing methods in Latin America is in some cases driven by the lack of water in the high Andes. Increased use of solar power and electric haul systems is driven by the lack of affordable diesel fuel or reliable grid power supply. Just like all investments, innovation requires a clear business case, and in a ‘business as usual’ situation this business case for a fundamental research project hardly ever exists.
How could the mining industry expedite the widespread adoption of promising technologies such as biotechnology, 3D imaging, renewable energy forms, augmented reality, alternative forms of communition, in-situ mining, infochemistry, haultrains, et cetera? While some of the largest mining companies can build a business case for some applied research, product development for which fundamental research is required is too high-risk for any individual mining company.
A setup in which a group of major mining companies supports a mining incubator with a seed fund investing in a range of mining technology startup companies could be a feasible construct to stimulate innovation. This would provide entrepreneurs with the access to the capital, knowledge, network, and pilot clients needed to develop their business concepts. At the same time, the companies would spread the risk of their R&D investment across a range of projects, with the ability to acquire a larger stake in any of the participating technology companies developing technology of specific interest. Getting an initiative like this going would require strong central coordination, a long-term vision, and above all the support of some of the major mining firms.
Mining is not so much a conservative industry; it is an investor-driven, rational industry. Research will only be conducted if there appears to be a clear business case. A key innovation might be to provide the industry with a framework in which realisation of this business case becomes more likely.
By Wilfred Visser
Wilfred Visser works in the M&A group of a mining company included in the S&P500 and has a background in strategy consulting. He holds both a MSc. Mining Engineering from Delft University of Technology and an MBA degree from a top tier business school.