Ten-million-dollar and $100 million annual revenue levels are critical markers for small technology companies on the rise. Australian Securities Exchange-listed K2fly is over the first hump. The climb to the next stage, and potentially beyond, is likely to be steep.
“From the beginning K2fly took the view that ESG was a forever trend, not a fad,” says 30-year mining tech sector veteran Nic Pollock.
“That trend has now become necessity.
“K2fly is the pioneer ESG-first mining software business.”
The company’s CEO, Pollock has been around mining and technology long enough to understand the pros and pitfalls of being a pioneer.
How much have 21st century technology, geopolitical and financial market shifts changed the innovator risk-reward equation for a mining tech SME?
K2fly shapes as an important part of the answer to that. In fact, its fortunes over the next few years could reverberate more than most across the mining corporate landscape and the nascent mining tech space.
“One key driver of the change in mining ESG focus is the dramatic increase in reporting and disclosure requirements from regulators,” says Pollock.
“But what has taken this to exponential levels is increased community expectations for what is being called radical transparency; that is, the requirements of all stakeholders especially in communities, shareholders and financiers.
“This impacts all industries, but mining is particularly pertinent because it already suffers from a poor reputation and lack of trust amongst the community and the industry continues to attract negative headlines.
“The world needs 300 new mines in order to enable the energy transition so meeting the social license to operate and gaining more license, and quickly is a massive challenge.
“Mining also has a number of distinctive and unique reporting requirements that are critical to good ESG performance alongside standard sustainability metrics.”
It is these areas – including mineral resource and reserve reporting and disclosures, heritage and tailings – that K2fly has addressed first with a software-as-a-service product offering designed to support relevant global governance and disclosure standards.
“This is what we define as resource governance,” Pollock says.
“Leading in this area, rather than just putting ESG lipstick on something that has been done for many years, is one of the things that distinguishes K2fly in the market.
“It’s why most of what we provide the industry is in blue ocean space with little or no real competition.”
The number of top-50 miners on K2fly’s customer list, including BHP and Rio Tinto, corroborates its leadership claim. Its products are currently being used across more than 500 sites on all continents. An experienced Australian stockbroker analyst says: “The Resource Disclosure solution gave it initial access to global miners at corporate level. Now, as ESG expectations become more demanding, regulations more stringent, and reporting more prescriptive, it puts K2F in a strong position to sell its other solutions across its existing client base. The signing in recent quarters of longer term, higher value contracts with existing clients continues to validate software that has a strong ESG bent and limited competition.”
Pollock has been at K2fly for nearly five years, leading its transformative software acquisitions and, for the past 18 months, helming its progress into mining’s “reg-tech” blue ocean. He says: “We’ve been in the ESG software business in earnest since 2019, so what we’ve managed to do in three years, in terms of the [customer] names and the consistent adding of these names, is quite extraordinary. Last fiscal year our price increased five-fold on average, so our average ARR has gone from about $70,000 to $347,000.”
A leading US-based technology sector M&A advisor suggests the rise of new environmental, social and governance requirements and regulations going into effect worldwide has put regulatory-technology systems vendors in the spotlight.
“We were already living in a world where regulations were getting to the point where compliance was only possible by way of technology, and now that regulatory bodies know that this sort of automation is possible, more and more of it is being directly or indirectly mandated,” Corum Group says.
“What we’ve managed to do in three years, in terms of the names and the consistent adding of these names, is quite extraordinary”
“Software companies quietly enabling real customer success … without getting caught up in the hype, are of special interest [to investors and buyers].”
New York Stock Exchange-listed Blackstone’s US$1.4 billion acquisition of US ESG software company Sphera in 2021 was one manifestation of this trend. Blackstone management said: “The ESG software and data market currently stands at just about $1.2 billion in total. That is orders of magnitude smaller than, for example, the market for financial software and data, but it is growing rapidly as companies, and in many cases their investors, are increasingly recognising the importance of incorporating climate change and other ESG factors into their decision-making and reporting. This has led to huge and growing demand for services that help companies measure and track their ESG footprint.”
Mining’s projected $450 million market for enterprise-level ESG reporting systems means it is niche but potentially lucrative. There is a strong likelihood all-important “live” 3D resource, reserve and other core asset models will increasingly become embedded in corporate cloud-based reporting architecture. This has implications for the scale of transactions, and vendors, in the space.
Faster, simpler two-way exchange of core data within mining organisations is, not surprisingly, seen by them as a major win.
The integration gives Maptek’s 2022 cornerstone investment in K2fly a clear strategic dimension. Maptek, more than 40 years old, is the world’s largest privately-owned mining software firm.
The depth of so-called domain expertise in the combination is another key differentiator for K2fly.
“We’ve invested very heavily in our products, but we’ve also invested heavily in subject matter experts inside the industry,” says Pollock.
“We’re talking 20-30-year veterans coming out of the mining companies who choose to come and work for K2fly. They appreciate how important mining is to the energy transition and still want to work in mining and value mining, but they want to contribute to making mining better through a company like K2fly.”
Pollock is not alone in seeing strong parallels between the growth in awareness, action and positive results around ESG transparency with the 20-year evolution of health and safety initiatives in the industry.
“Safety thinking is now embedded into all behaviours and systems in the industry and the industry’s record has improved significantly,” he says.
“Similarly, some big miners will now say that mine planning begins with heritage.
“That is not something you would have heard 10 years ago.
“Many large institutional investors are now basically compelling mining companies to do more and disclose more about their ESG efforts.
“And we are currently seeing a once in a generation investment by global mining majors to enhance their public disclosures and strengthen their ESG credentials in response to this.”
Behind the scenes an army of industry professionals is literally moving mountains to try to ensure the investment delivers returns that haven’t been seen in the past.
The International Council on Mining and Metals (ICMM), through the Committee for Mineral Reserves International Reporting Standards (CRIRSCO), is working with many regional industry groups to try to standardise market-related reporting definitions for mineral resources and mineral reserves.
A recent K2fly-sponsored forum heard from several leading figures involved in this work that convergence of new mineral reporting codes and related securities exchange regulations was vital to the industry’s efforts to better meet investor expectations now and in the future.
“If you want the money … from investors, we’ve got to talk about ESG and our codes have to help us do that,” veteran mining consultant and former Australian Securities and Investments Commission (ASIC) national advisor, Ivy Chen, said.
ESG elements, already part of a range of project valuation and resource and reserve estimate “modifying factors”, must be embedded in new protocols guiding estimation of those fundamental indicators of mining enterprise value, the forum heard. A clear “golden thread” linking ESG – and ESG reporting – and mineral inventory reporting, is how one industry leader put it.
Pollock says K2fly has carefully tuned its market research and product development efforts to the CRIRSCO work to enable it to create the gold standard for regulatory reporting in the sector.
“Our success is predicated on our ability to sign customers in the resource disclosure space, which is a foundational part of mining company transparency and governance,” he says.
“The core solution was originally specifically built to solve that one problem.
“But we have built a cloud-first platform that extends seamlessly across the different governance and transparency use cases of heritage, ground disturbance, tailings and rehabilitation.
“We’ve built a mining governance platform, not just a resource disclosure platform.”