The Great Divide between the world’s oil and gas services giants and their peers in the mining space now seems traversable. Australia’s Imdex, which has got itself in a position to make the jump, believes stiffening market tailwinds can accelerate its progress.
By any measure the gulf – in revenues, profits, market value, total R&D spend – between energy service gorillas such as Schlumberger, Baker Hughes and Halliburton, and their contemporaries in the minerals arena, is vast.
Schlumberger, now known as SLB, was formed nearly 100 years ago in Paris. The “Electric Prospecting Company” was a pioneer in well-logging technology and, later, geo-steering of drills.
Despite falling a long way from its peak about a decade ago, the now Texas-based company still has an equity value above US$80 billion and, with its immediate contemporaries, addresses a market variously estimated to be worth more than $4 trillion.
The International Energy Agency says “energy transition minerals” might constitute a $320 billion market. If even half the next-generation copper, nickel, lithium, vanadium, graphite, cobalt and rare earth deposits being talked about as “essential” to a global energy shift in the next 25 years somehow become mines in that time, we can pick probably pick a multiplier between five and 10 and apply it to the IEA estimate.
The World Bank said in 2019 production of key minerals could increase by 500% by 2050 to meet demand for clean energy technologies. It’s fair to say transition settings have changed in only five years and amped up pressure on faster new raw material supply.
“Whether by accident or by design, the mining industry has wound up exactly where it’s said it wants to be,” says Imdex CEO Paul House.
“We may have lamented the lack of acknowledgment of the industry’s positive role in meeting society needs in the past. Recently – and I mean recently – through a drive towards decarbonisation, net zero emissions and better stewardship of the planet, society has now figured out that mining is essential to delivering that goal.
“So now it’s a case of being careful what you wish for.
“Not only is there now a realisation that mining is going to be critical, there is going to be the expectation that we rise to the challenge and deliver, and do so in a responsible way.
“I think it’s going to be a pretty exciting 10-to-15 years, to be honest, but it won’t be without a lot of people starting to shine a spotlight into the industry in an increasingly critical way compared to the past.
“And so, to the extent that we don’t make changes as an industry and don’t step up to meet society’s challenge, it’s going to be a bumpier ride for some than others.”
House sees fundamental changes being technology-led, and specifically geoscience technology led, mirroring the longer-term evolution of the oil and gas services sector. Technology-enabled compression of mineral discovery and project development horizons is seen as a potential game changer for the mining industry of today, and maybe a disruptive pathway for new entrants. An experienced US-based industry advisor says some mining leaders are increasingly cognisant of a “fracking moment”, in reference to the hydraulic fracturing method described as the most important innovation in the world energy system in the last half century. “It’s added [in the US] circa eight million barrels a day of oil production and exponentially increased gas output just in eight years. You can’t get an offshore platform done in that time,” Clareo founder Peter Bryant tells InvestMETS.com.
“Nearly everything we do has at least some origin from oil and gas,” House says.
“One of the key differences is scale. In oil and gas they’re dealing with $100 million holes and in mining we’re dealing with million-dollar holes. So making technology economically available to mining is the challenge.
“Today there’s an imbalance between the role of the geoscientist having custody of the orebody, versus the role of mining engineers in liberating it”
“We see, for example, advanced directional drilling technologies being used for nearly 100% of oil and gas holes, but today it’s only used for about 4% of minerals drill holes. That will grow.
“There are fundamental differences from a geoscience perspective in optimising an oil and gas reservoir versus optimising a orebody seam. What you’re looking to do to separate hard rock mineral strata from a reservoir is quite different.
“But you’re still measuring material rock properties and a lot of the other orebody elements in a subsurface environment.
“The reservoir, and optimising how you extract out of that reservoir, is the prize. It’s the Holy Grail. And so it’s actually cared for in a way that means you can then execute engineering-wise to get the best possible extraction.
“Mining companies are heading that way [but] … today there’s an imbalance between the role of the geoscientist having custody of the orebody, versus the role of mining engineers in liberating it.
“KPMG did a report in about 2017 that showed you can extract 10-times more value from addressing spatial and orebody factors than you can out of physical activity drivers, which is … the trucks and the plant – all of the engineering-led activities. Yet mining-tech investment in addressing those geoscience opportunities lags the rest of mining tech investment.
“Increasingly today we see recognition that orebody knowledge is the Holy Grail in our industry that can better inform all downstream elements of the mining value chain. However, the tools – the mining-tech – to better define orebody knowledge have not been there until now.
“To address it, many parts have to work together. Mining engineers today are highly trained surgeons, however, we’re asking them to operate in the dark with a butter knife. We want to turn the lights on and give them a scalpel.
“If you have better orebody knowledge, if you have an X-ray of the patient, you’ll be a better surgeon all the way. Our job is to give them the X-ray, the MRI and all the tools, and then they can actually perform their mining operation better. That is precision mining.”
With its US$230 million acquisition of Norway’s Devico earlier this year, Imdex has added the mining world’s most advanced directional drilling technologies to a mature rock-sensor and drilling information management tool-box.
The deal also expanded the group’s global reach – an area where Imdex has only a handful of true peers in the mining tech space. It estimates it has a presence on about 70% of sites worldwide running more than 3000 mineral drilling rigs.
Strategic M&A and new product penetration have underpinned a more than doubling of annual revenues in the past five years to circa-A$400 million while EBITDA margins have climbed above 30%. The growth has been achieved against a backdrop of choppy mining industry investment in exploration and new projects before and after COVID, reflecting geopolitical uncertainties, project delays and an inflationary cost environment.
The latter factors have contributed to ongoing, significant project cost blowouts at a time when the industry is on a high-wire juggling investor demands for standout returns and a multitude of competing margin pressures.
House says the sector continues to fight for a mix of speculative capital, mainly at the explorer end, and the patient capital traditionally cut to suit mining’s standard development cycles. Surprises, in the form of asset writedowns, can put that capital at risk.
“This reporting season we’ve already seen a number of significant asset writedowns,” House says.
“They typically occur because of cost overruns, time delays or the geology wasn’t what it was thought to be.
“That’s orebody knowledge.
“We pay a lot of attention to the first two and surprisingly little to the third one … because it doesn’t sit at an elevated level of awareness with either the investors or the industry participants themselves. Or governments for that matter, who have a role to play in this. They’re ultimately the custodians of natural resources before they license it to a resource company.
“Clearly, though, the write-offs are a blow to investors and to investor confidence.
“And I think that is absolutely addressable.”
How does the industry address broader – potentially existential – questions around sustainable investment, social and environmental returns? Happily for companies such as Imdex, the answer seems to have technology at its core.
“We keep thinking of significant [very large] resources as tier one deposits,” House says.
“That is the opposite of precision mining.
“I presented a list [at a recent conference] of the 25 largest stranded copper assets in the world, and they’re stranded for any one of a dozen things; about half of those dozen things are orebody-related.
“If you can solve your understanding of the orebody … those orebodies may become accessible.
“They might be a tier two resource by today’s definitions, so they don’t operate at a scale that has 300-tonne dump trucks. But if you know exactly where the orebody is you can actually be much more precise in how you engineer the extraction of that ore.
“This shift in the definition of resources is key. Do you have the largest resource? You might not, but you might have the best resource. It might be something that’s smaller but economically valuable if you can fully assess the orebody knowledge and then extract the ore with precision.
“The technologies available now to provide that orebody knowledge, to enable more precise engineering, are the same tools that can be used to compress the return-on-investment cycle for larger projects.
“If you can shorten the development of a copper mine from today, somewhere between 15 and 20 years, to 7-to-10 years, or you can unlock stranded assets that are known today, then you might actually elevate the return on investment and be able meet the expectations of all the stakeholders in your project.”
