Australia’s Imdex has flipped the script on local mining technology and service enterprises being only targets for larger international groups, rather than acquirers and builders. CEO Paul House spoke with InvestMETS.com editor Richard Roberts before heading to the US for the giant MINExpo show in Las Vegas.
Richard Roberts: I’m looking at the top 50 mining tech businesses in the world and most of them are parts of mining original equipment manufacturers (OEMs) or larger tech firms, or larger services and product companies, in the case of Orica. The market is not really getting a look at many independent, large-scale mining tech companies, but that is the ambition that you have for Imdex, right?
Paul House: Yes, absolutely. We feel very clear about what our core capabilities are and how we need to position in order to make that available to the industry or the market more broadly, and so that we don’t put ourselves in a position of conflict with what some other competing core competency might be. We understand how a lot of these mining tech initiatives complement those [larger manufacturing and services] businesses, and why they would have chosen to invest in them.
But from our perspective we think that that independence, and the ability to service the entire market, is a really important part of our strategy.
Richard Roberts: Fleet Space Technologies’ CEO Flavia Tada Nardini said at an AusIMM conference earlier this year that mining needed a large, integrated tech and services company. And she said, like one of the oil and gas service and tech majors. Now, I know we talked about this previously, but she said it publicly, and I haven’t heard too many people say it publicly. My question to you, I guess, is, is there an appetite from investors for such a company at this stage, and is that appetite evolving?
Paul House: Look I think the return for investors has been demonstrated in other industries and so therefore the opportunity should present itself in the same way to mining as one form of a resource sector type industry. So I think the answer is, yes.
In terms of potential, of course, we need to demonstrate it and the end customer markets, aside from the investor markets, need to also want it and accept it. And I’d still advocate that whilst I do think that market space exists, we are still at the early stages of our industry understanding how we can use technology to change the way we might have done things in the past. And by that I don’t mean little individual areas where we adopt innovative solutions or new technologies in a silo or in a segment, but how do we apply it more broadly in the way we think about larger-scale mining processes that run through whole organisations. And, you know, I think that kind of opportunity is only just starting to emerge. You can hear a number of innovative resource houses starting to be aware that actually some of the changes they’re looking to achieve are going to need some of that larger thinking, or that larger-scale thought.
I think that’s pretty exciting, but there’s no doubt we’re at the early stages.
Richard Roberts: McKinsey put out its fourth technology trends outlook report and a podcast at the start of this month. They talked about 15 trends, and I think we know what they are. One of their experts said there were four things that he saw CEOs consistently doing, and the first was that they were going to regularly stress-test the company. They’re looking 5, 10 years out to assess what challenges they may face, what scenarios they may encounter, and then they work backward from that to adjust plans and build in more resilience for the organisation today, something that you no doubt are very familiar with.
How challenging is that exercise for a mining tech company CEO given what you just said? You said to me before – and I think I’m paraphrasing – the industry was “in the foothills of mining’s climb up the technology adoption mountain”, or something like that. How challenging is that?
Paul House: Look, it’s immensely challenging. I recall a spokesman for BHP stood up a few years ago and said that the typical timeline for new technologies or new innovations being adopted and crossing the chasm into mainstream in the mining industry is 12-plus years.
Imdex’s own history says that it takes six-to-seven years for that similar kind of maturity. So relatively speaking, we do quite well. Obviously, it’s our focus and our core competency. Having said that, we have an R&D investment horizon that’s anchored around five years and then the expectations from investors sometimes come into that sort of two-to-three-year range. And so it is quite challenging moving through that adoption curve.
It will only be successful if the value can be demonstrated. Once the value is demonstrated and we have those early adopters … I think that becomes the accelerant and it pulls through more innovations and more adoptions.
If I go back to your first question, the thing at Imdex that we like the most is that forward-looking curiosity around, well, where do we think the industry is going to land or needs to land, and what can we do, not just in stress testing our business, but investing a small amount of capital. And we’re fortunate that our business model necessitates taking a portion of revenues and reinvesting it in testing those ideas and then working out if the ideas resonate with the industry. So we’re not just stress testing our business, we’re stress testing our customers’ business as well. And that’s actually a pretty fun exercise. It’s a good place to be.
Richard Roberts: I recently put out a Q&A I did with Mark Frayman of Orion industrial Ventures. He is ex-BHP ventures. Orion Industrial Ventures is part of Orion Resource Partners, a PE firm out of New York.
He said a few interesting things. He said the breadth of the deal and/or opportunity pipeline on a global scale was as promising as Orion had seen for some time. He cited his drivers as a mix of factors, including advances in platform technology such as generative AI, cloud compute, advanced electrochemistry, even synthetic biology, any he talked about the increased market appetite for certain tech and certain companies that had seen them, in his words, cross the Rubicon and become entities of some scale and substance.
Of course, this has helped draw more attention to the place that tech has in critical minerals, energy value chains. He talked about increasing awareness among entrepreneurs, academia and investors, of the scale of the opportunity in industrial decarbonisation and the role of critical minerals in that, and the relative underinvestment in this area to date compared to other more crowded areas of climate tech.
And he also talked about the capital pullback across the tech space generally, but made the point that the mining metals tech space was an under-invested in domain which, presumably, for them, at least spells opportunities.
Mark said he was seeing traction in technologies that could plug and play in existing operations, sometimes displacing an outdated approach, and had a relatively low risk of disrupting operations. These include companies taking available mine site data and plugging them into an advanced software platform to draw insights, etc, etc.
He mentioned a Chilean company they had invested in would which you’d be familiar with, TIMining, which has raised a modest amount of capital in recent years … Again, to put the opportunities in this space into some sort of perspective.
But generally he talked about relatively low interference, near-term-impact software and sensors.
So from my point of view, not a huge amount of change there in terms of the tech that miners are actually buying rather than talking about.
Software and sensors is probably 70-80% of the US$10 billion smart mining tech segment … $10 billion is based on some of the forecasts that are out there. And by those forecasts, that sort of smart mining tech segment grows to $30-or-40 billion in the next decade. I’m not sure what you think about those numbers, but to me, that supports the emergence potentially of several multi-billion-dollar a year mining, tech businesses. That’s my thesis. What do you think about that?
Paul House: Yeah, I reckon you might have undershot it.
Richard Roberts: In terms of those forecasts?
Paul House: We’ve seen a number of … I think Orica was talking about 18 months ago about a $27-to-$30 billion smart mining tech market in a much shorter time window.
There are a couple things you’ve said that I think are really interesting. Things that we think about quite a lot.
We think about that that initial adoption of low-interference sensors a couple of ways.
I’ve got a new product; I’m not creating a huge market risk. So I’m performing an existing task slightly better. I’m not changing workflows. I’m changing a segment in a workflow. If you change a segment in a workflow, all you’re doing is tackling product risk. You don’t have market or process risk. You’re not saying, I want you to totally rethink how you do things. I just want you to do this bit differently.
That is always the early stage, or the first stages of adoption and change.
A good example of that is Chrysos. [With] Chrysos, you get a sample, you send it to a lab, and it used to go in the front door of a lab, and inside the lab was wet chemistry, and then the chemical results came out the other end. With Chrysos, you still prepare the sample and it gets to the front door, but when you go in, it’s no longer wet chemistry it’s that PhotonAssay machine, and then the same mineral elemental analysis comes out the other end.
So all you’ve done is unplug wet chemistry and plug in Chrysos. That’s an integrated hardware technology spec solution, but it makes the same point. It’s low interference in terms of the rest of the mining workflows.
So you’ve got product risk, but you don’t have market risk or process risk.
You take something like [Imdex’s] Blast Dog, which you’re asking to collect a heap of data upstream at a point in the mining cycle where it currently doesn’t exist, and then you’re saying, well, if I illuminate this data, what then will I do with it at all of those steps downstream in order to unlock its value, which necessitates changing a lot of processes.
So you’ve got product development risk and process risk and market development risk.
And so the size of the prize is greater, but the risk that’s attached to it is also greater. And so you’ve got a Chrysos which has got a technology or a product risk, but not a market adoption risk. And then you’ve got a Blast Dog or a Fleet Space, for that matter, which are sitting at the other end of a total holistic way you might think about processes or markets more broadly.
So I think what you quoted to me around how they’re thinking about that initial entry point is bang on. At some point what that does is it illuminates all this data. You say, well, if I’ve added sensors into this part, great; I’ve introduced a product and I can now see all this data. What am I going to do with it?
If you’re the cost centre owner – let’s say you’re running a particular cost centre in that mining workflow – if you’re spending the money and you get the benefit, you’re likely to have ownership and drive it through. But if you’re spending the money and it illuminates data that has to be accessed by some other cost centre owner, then how do you go to that person and say, I have this information; how would you like to act on it?
“And I think the next barrier to unlocking those multi-billion-dollar-type mining tech or sensor led opportunities or companies is going to be solving that riddle”
The complications of unlocking that value just go up manifold at that point.
I used to be a management consultant and we used to have a saying that if you put good data in front of good managers they will eventually make good decisions. The absence of data essentially means an absence of that curiosity. But really good people, if you put the data in front of them, I guarantee you they want to do something with it. They can’t ignore it.
Richard Roberts: So does that growth in the smart mining tech market – whichever number you believe – does that support the parallel emergence of multi-billion-dollar mining tech firms?
Paul House: One hundred percent. And the one thing that you haven’t covered in your precis, which we think is particularly important, is the need for a better emergence of partnerships. If you look at other industries that have gone before mining – agriculture, oil and gas, medical healthcare, and so on – all of them have found ways in which to partner.
And really that partnering is a case of, I have a core competency but for me to unlock the full value I need to partner with someone else’s core competency. I can’t do it all myself.
So what you’re finding with some of these larger [mining] OEMs investing in capabilities, to the extent that they’re illuminating data inside of their workflows, it’s enormously valuable. To the extent that they think they can then extract value from someone else’s processes, they run into conflict and resistance.
And so what does an adult conversation look like that says, here’s my competence, here’s your competence; one plus one should equal three. Can we do that together? And I think the next barrier to unlocking those multi-billion-dollar-type mining tech or sensor led opportunities or companies is going to be solving that riddle. You know, how do we actually get better at partnering?
Richard Roberts: What form do those partnerships take? You know, presumably, the maturity of the market has played some part in stopping those partnerships from emerging. But if they don’t already exist, why don’t they exist? What form are they likely to take in the mining space?
Paul House: There’s a few different reasons. If you look at other industries, often you have, in oil and gas, for example, you’ll have farm-in agreements, and so you’ve got multiple owners of the asset, and that necessarily creates a tension for transparency and awareness or improvement. I’d call it a positive tension that then lifts the way you think about what each party brings to that farm-in arrangement.
Structurally it exists that way to share the asset cost but it has the accidental byproduct of then making all the workflows around that asset better, because there’s some real tension in it. Without that tension, you know, you’re all under the same umbrella; there is no conflict.
What’s the motivation or the driver to think about things differently [in mining]? I love that – I think it’s BHP that has got that innovation group called TAD: think and act differently … That’s a wonderful way to badge a group that has got permission to go and rethink the way they do things. So I think if you listen to some of the interviews that [BHP’s] Sonia Scarselli has done, she’s ex-oil and gas exploration, and you can see some of that mindset coming across into the way BHP thinks about what mining needs to look like in the future. Again, we’re at the foothills of that conversation, and it’s going to take more than one to get us through that change curve, but those are the right kind of leaders that we need; setting that bar and setting that tone.
Richard Roberts: I think we’ve seen maybe 20 or 25 M&A and financing transactions in the mining/metals tech space this year. They might be collectively worth US$1 billion dollars, only. So things have slowed down. Do you have a view of the mining tech M&A space at the moment? Do you see it changing much in the next 12 months?
Paul House: Yeah, we’ve been very public around the role that M&A can and should play, I think, in the longer term future for Imdex’s strategy, and that M&A takes two forms. One is that emerging technology landscape, and the other is the more mature and established landscape. We’ve seen a lot of assets change hands in the more mature space a couple of years ago. And so it’s probably a little early to see how those are performing, or whether you see some rationalisation or another stage of that [consolidation].
Because of some of the pressure the industry has been under for the last two years, a lot of the early-stage tech has found it difficult to get funding. And I think the numbers you’re quoting speak to some of that challenge to find funding, which is therefore leading them to having to be re-homed -which is an interesting word – or they find another way to keep their ideas moving forward. And those deals are probably being done at more sensible values, which is why the aggregate is less than a billion to your point, than it was, say, two or three years ago.
Richard Roberts: You may not want to comment on specific companies, but I’m just interested, why is a company like Universal Field Robots, which has supplied bespoke equipment to Imdex: why is it being acquired at this time by a major OEM? I mean, I presume it’s got to do with the maturity of its technology, underground automation and semi-automation, etc, that is ready, or almost ready to be scaled?
Paul House: Look, I think what [founder] Jeff Sterling and UFR have created is wonderful. Now, to bring any product to market, you go through product start-up and then market start-up, or start-up to scale-up. And there are different skill sets you need in any industry, by the way, as you go through those growth curves. So what Jeff has is an outstanding team of people who can solve engineering problems and develop solutions for market applications that was needed. What Sandvik has is a global network through which you might be able to distribute that, harden the product, harden the service network, which are not assets that a UFR has. And so inevitably UFR was going to have to cross that bridge, and Sandvik provides a way for them to do that.
So if you think about it logically it was probably an inevitable outcome. It was a question of timing. I think the UFR team have developed a wonderful suite of products that speak to a really emerging need in the market. And hopefully – I mean, that deal was unpriced – but hopefully they were well compensated for what I think has been a great journey for those guys.
Certainly, they’ve been critical to helping Imdex get validation of our core competency, around the Blast Dog logging solution. You know, you can have the tool, but you’ve also got to be able to put it into the market. They certainly solved that problem for us.
So them partnering with Sandvik now creates that, you know, access to a global market; a reliable service network. I think it’s just a very logical outcome for where they were heading.
I think you’ve spoken at length around, you know, why can’t there be those billion-dollar mining tech companies emerging as Australian-innovated? They become offshore-owned at some point.
So the sad part here is that I think we see yet another wonderful Australian innovation being owned offshore and the question has to be asked, what does a regulatory environment look like in Australia, where we have a core competence around mining, we have a core competence around mining tech innovation, and yet the life cycle tends to be supported by those assets being owned offshore?
I think that’s a real challenge for us. If you really want to think about our industry 20 or 30 years on: what role does Australia really want to play in that space?
Richard Roberts: So in a nutshell, what needs to fundamentally change there, if it’s possible to encapsulate it?
Paul House: I think it’s a multifaceted answer, because it has everything to do with the corporate incentives and structures that encourage innovation spend and the ability to scale out globally without having to go and find offshore partners. So whether it’s our cost of capital and some of the incentive structures … I think we have a wonderful startup culture, we really do, but the real value unlock comes from having a wonderful scale-up culture. And there’s a big difference between infrastructure that supports start-ups, including regulatory infrastructure, and regulatory infrastructure that supports scale-ups. There’s no shortage of money for start-ups. There is a lack of support for scale-ups.
Richard Roberts: Well, it goes without saying that Imdex is looking like one of those world class scale-ups that is coming out of this jurisdiction, so breaking new ground …
Paul House: Hopefully, and certainly the success of Devico, taking their technologies and putting them through Imdex’s, scaled-up network, is an exemplar of that. We’re really delighted with how that went. I’ve done M&A for 30 years, Richard, and this is easily the most compelling M&A deal I’ve been involved with. [It is a] a pretty significant investment: it was a third of our market cap. So for us to execute that significantly-sized transaction, and then unlock that value in less than 18 months when the rest of our market has declined substantially – close to 25% over that period – we’re very happy with how that’s gone.
Richard Roberts: You’ve also got exposure to high-quality companies in Datarock and Krux. How many companies would you have looked at in the past two to three years, and how many in the current pipeline?
Paul House: We maintain a watching brief. It would be a couple of dozen companies in total.
Richard Roberts: How many of those companies would be in the sort of sub-$50 million valuation range, and how many would be in the sort of plus-$150-to-$200 million valuation range. Is there much of a spread between those two ranges?
Paul House: Look, easily the majority, by volume, are in that emerging tech; that small start-up to scale-up phase, definitely.
Richard Roberts: Thank you very much for your time, Paul.
