Mines closing on ‘iPhone moment’


Richard Roberts

Editor in chief

Does this start to dial up technology investment?

Despite headwinds the golden age of global technology investment rolls on. The nascent mining and metals tech sector is a relative laggard, but is coming off a record 3-4 years of financing and M&A. We asked a host of industry leaders for their perspectives on where 2024 fits in the longer-term picture.

While some see commodity price weakness and economic uncertainties taking some zing out of technology sales and growth, and hence investor enthusiasm for mining and metals tech firms, there is no loss of belief in underlying expansion drivers.

Moreover, says an executive director at a leading global mining-tech advisory firm, there are clear precedents that suggest accelerated ingestion of many foundational technologies in mining and metals value chains is fundamentally changing the industry’s tech settings.

That, along with broader techno-economic disruption and geopolitical trends, increases the potential for mining to experience its “iPhone moment”, according to Atrico’s Jason Price.

“There are so many different technological changes impacting and potentially impacting mining right now that it is difficult to disentangle them.

“Individually, many of these technologies have discrete value propositions, but as they come together, and greenfield mines are designed to take full advantage of them, we can unlock next-order value propositions.

“It’s worth noting that the iPhone depended on 19 other technology innovations before it was even feasible.

“Perhaps our step-change in mining productivity is close to having all the key enablers in place.

“This is a great environment for visionary investors to place some big bets.”

While there are certainly short-term headwinds for mining and metals tech investment, this idea of a Mining 4.0 tipping point that coincides with generational leadership and culture change in the industry and precedes a shift to so-called smarter mining approaches and practices, is a powerful undercurrent influencing strategic positioning by serious buyers of technology companies and the still comparatively small number of long-term investors with an intimate understanding of mining’s relationship with tech and tech deliverers.

“The underlying demand for technology is there and it’s not going backwards”

The fund-raising lead at one of these investment firms, who asked to remain anonymous, suggested basic themes remained in play.

“The pressure is on for the industry to, first of all, scale up and secondly to meet the challenges of decarbonisation,” he said.

“Then you have the mines getting deeper, with less grade; the social licence to operate is getting worse.

“We’ve just seen a major copper mine [Cobre Panama], more than 1% of global copper production and something like 2% of Panama’s GDP, shut down. That’s staggering.”

But beneath the superficial themes defining some new mining-tech investment theses there were “these currents”.

“It’s probably more like a rip at the moment,” he said.

“There’s cross-currents, there’s undercurrents … If you’re not careful [as an investor or a supplier] you can be pulled under.

“But if you paddle around – look closely and pay attention – you can see the currents are still broadly moving the right way.

“You’ve got to be careful. It is not going to be steady state in terms of momentum. It’s too early to tell if this year is going to see more or less [new mining tech investment activity] than last year.

“But the underlying demand for technology is there and it’s not going backwards.”

InvestMETS.com’s exclusive data on mining and metals tech financing and M&A has highlighted a US$10 billion-plus surge in activity since 2021. The sector didn’t see that level of investment in the previous 20 years.

Indications from small and larger investment firms are that deal flow in the space remains strong.

“We’re seeing no diminution of interest,” said the fund-raising lead introduced above.

“The market is pretty healthy.

“Since the start of this year, if anything, our deal flow has probably accelerated. Not by a lot, but we’re still seeing lots of deals coming in.”

At least three significant (circa-US$100 million or more) mining services and tech-focused funds are seeking capital in different parts of the world: in Europe/Middle East, Canada and Australia. Other small funds are also taking shape or taking on board new investment.

“There’s a lot more capital that is looking for deals,” said Vivek Salgoacar, founder of five-year-old, Vimson Group-backed Prospect Innovation, a Singapore-based investment firm. In five years, “there’s been a big shift in terms of capital and interest”.

Vimson is a privately-owned iron ore miner, property and financial services group in India.

Prospect Innovation has worked with about 30 start-up companies, and invested in several of them, since its inception. Salgoacar said it was currently eyeing two further investments.

“If I compare the amount of deal flow that we’re seeing now versus earlier, it’s tremendous,” he said.

“The quality of companies is also higher. The quality of entrepreneurs, the quality of start-ups and technologies, is also higher.”

“We’re seeing an increasing number of funds being set up with an explicit mining tech focus”

In the US, the cofounder and managing partner of a small venture fund said: “We are seeing more mission driven investors and foundations, including environmental organisations, pay attention to improving the mining industry given the important role the industry plays in the clean energy transition.”

Nomadic Venture Partners’ Batchimeg Ganbaatar said she was also seeing new generalist investor interest in transformative mining and heavy industry technology. However, the flipside there was the risk of failure deterring long-term investment, which was needed.

“I do think the industry has more pressure,” she said.

“I think there’s more scrutiny from different stakeholders. I do think innovation is going to help overcome some of the challenges that the industry is faced with.

“There are a lot of opportunities ahead.”

Atrico’s Price said: “There certainly seems to be increasing appetite to invest in mining tech, as investors can see the swirling technological potential and strong tailwinds for the industry in the medium-to-long term.

“We’re seeing an increasing number of funds being set up with an explicit mining tech focus.

“There’s also a good pool of exciting technology start-ups and scale-ups in this space.

“However, those groups that invested in mining tech chasing hyper-growth have probably learned some important lessons about how hard it is to scale tech in the market [due to] long sales cycles, long implementation times, relatively small addressable market size, and inherently fragmented markets.

“Their appetites might be cooling.”

Cian Caffrey, executive director at RFC Ambrian, said mining’s traditional response in cyclical downturns to cut “nice-to-have” items off expenditure lists – including exploration geologists and novel technologies – would see fairly predictable developments in sectors such as nickel and lithium.

“I think the blowback from the lithium market weakness may be that … some nascent DLE [direct lithium extraction] technologies might find funding extremely hard to come by, and the onus on more established DLE technologies to demonstrate commercial readiness will be heightened,” Caffrey said.

“It’s hard to say what the knock-on effects of this will be on the mining technology space as we are early in the broader mining technology uptake cycle, but if I had to guess I would expect there to be far less money flowing through to mining tech this year and a harder environment for emerging technologies to get funded and to get onto mine sites in a trial capacity.”

M&A outlook

In terms of the deeper drivers of mining and metals tech adoption, no investment indicator has been stronger than the record M&A in the space in the past few years.

That has been driven by major mining machine original equipment manufacturers, or OEMs, and technology companies such as Hexagon, Bentley Systems and Constellation Software. Also busy at the mining/metals tech deal table have been ASX-listed Imdex and Orica.

Dylan Webb, CEO of Constellation’s Datamine, said year-to-year transaction levels would remain hard to predict, however, “the overall picture will continue to support consolidation”.

“There is a constant process of new and innovative businesses targeting a niche problem, establishing a proven solution and reaching a meaningful size, often within a particular geography,” said the experienced industry tech leader.

“These businesses face a challenge when it comes time to scale globally, meeting the service expectations of global customers requiring local language and time zone support. Do you invest in the product or in distribution and support?

“How can you seamlessly integrate into the broader operational processes at a mine site?

“Do you have the expertise to handle international tax, import and export, labour laws, customer contracts and myriad other challenges beyond the product itself?

“This inflection point has been the driver for many of Datamine’s acquisitions, and we enjoy the process of taking a local success story to a global audience.

“Oftentimes the relief of the founders is palpable when they can return to focusing on the technology and solving problems for customers, which is where the passion usually started.”

Webb said the best success stories in mining were often “boot-strapped, profitable and funded by paying customers from the outset”.

“The mining companies don’t receive enough credit for the support they provide early-stage companies with experimental solutions,” he said.

“There is actually a good track record there.

“Even as a larger supplier, Datamine has a number of jointly funded projects with customers to develop new solutions.

“The big-bet, cash-burn approach to develop products and achieve scale is more applicable to extremely large addressable markets, and I don’t believe it is suited to a market with a limited customer base like mining.

“Partnering with an established equipment OEM or technology supplier with expertise in the mining domain makes more sense, and there are quite a few examples of these firms taking minor equity stakes, partnering on distribution, co-funding product development, etc.

“The ideal investor should be bringing expertise and not just a cash injection that dilutes the founders’ equity.”

Datamine peer Maptek’s executive chairman Peter Johnson agreed on the consolidation theme.

Maptek is the largest privately-owned mining software in the world and one of the few significant independent players left following a spate of acquisitions. It has built a dominant shareholding in ASX-listed K2fly over the past two years.

“I do expect this will continue to be quite an active area,” Johnson said.

“Mining tech is gaining in popularity as an investment space, and any company that can demonstrate consistent revenues appears to be fair game.

“Being a small mining tech company is hard work. That is not to say many of them do not have very good and valuable solutions and capable people, but the work to sell and deliver to global giants in the resources industry creates severe overheads that impact on these companies’ ability to grow revenues and IP assets.

“The [relatively] small flow of equity into mining tech is a key barrier to faster innovation in this space.

“The reasons for this relatively low flow of equity are obvious and well justified. It is a high-risk game with many years required before the returns appear in any meaningful way.

“Fortunately, I’ve seen a shift in the level of quality being achieved by smaller mining tech companies. This is no longer a place where immature and essentially unfinished tech products can be sold.

“Small tech companies are investing seriously in infrastructure and people to ensure they are providing a very high-quality product to end users. There is a sustainability and profitability dividend for those companies and the industry will benefit overall in the long term.

“M&A activity in the sector has seen some very large transactions in the past few years and there are simply less companies available to buy at that scale. The good smaller companies which can demonstrate reliable revenues and sustainable technology and business infrastructure will remain very attractive to acquirers, I think.”

Price said the rising potential for a technological step-change in mining and the fact that there were numerous incumbent and new players that saw themselves in the core of a new paradigm supported strong ongoing M&A.

“There are fewer large players on the market for those seeking to establish a critical mass position, so that might reduce overall volume,” he said.

“And several of the aggressive strategic acquirers probably have some indigestion, temporarily reducing their acquisition appetite.

“However, there is constant innovation amongst small-to-mid-sized companies in critical enabling technology areas.

“Anybody trying to assemble a larger solution will need to acquire those companies and competition will likely be strong.

“So, plenty of continued activity, but volume [near term] will depend on whether or not one or two large deals are done.”

Caffrey said consolidation invariably occurred during mining equity market strikes.

“The expectation is that this would be mirrored in the tech space,” he said.

“Not necessarily true distressed M&A yet, but more defensive and strategic M&A.

“On the flipside of this we see a lot of private money sitting on the sidelines and I expect to see some PE-type firms get quite active and being able to dictate terms to mining tech companies starved of capital this year too.”

 

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