Mining-tech ecosystem is growing, and so is deal pipeline

‘[We have seen] the success of some start-up companies in crossing the proverbial Rubicon to become unicorns’

The global mining and metals technology space has been a relative hive of activity in the past four years, with circa-US$10 billion of financing and M&A – depending on how you cut the numbers – unprecedented for the sector. Mark Frayman, managing partner at US-based Orion Industrial Partners, gives Richard Roberts his views on the current landscape.

Frayman, who previously spent time at BHP in senior management roles, including head of BHP Ventures, is scheduled to speak on a panel at this year’s Resourcing Tomorrow in London focusing on the recent surge in mining and metals technological innovation and commercialisation, and its potential to reshape industry value chains.

And give investors more to think about, vis-à-vis tech companies tethered to energy transition megatrends and potential fundamental shifts in mineral exploration, mine development and mineral processing.

Richard Roberts: How would you describe the current market environment?

Mark Frayman: The breadth of pipeline, on a global scale, is as promising as we have seen for some time.

New companies targeting each step of the critical minerals value chain are emerging, and from ecosystems beyond the traditional mining ones. That is, Silicon Valley, Boston, Tel Aviv, London, as well as, of course, out of Toronto, Perth and Chile.

It’s difficult to definitively identify the drivers for this, but it is likely a mix of factors that include advances in platform technologies, such as Generative AI, cloud compute, advanced electrochemistry, synthetic biology, that can also be applied to the specific opportunity in metals and mining.

There is also 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 of this area to date compared to other more-crowded areas of climate-tech.

And then there is the success of some start-up companies in crossing the proverbial Rubicon to become large-scale unicorns. Examples are KoBold Metals, Jetti Resources, etc. This attracts the next wave of companies targeting similar opportunities in mining, where the size of the market and the implications of winning just a few contracts from large end customers can make for a very large company.

Investors are, however, cautious, the impact of which is clear in the market today.

We’ve seen declines in capital deployed across the spectrum, from seed to growth, with total capital invested across the climate-tech space in the first half of this year down 20% relative to the first half of last year, and down over 40% relative to the second half [source: Sightline Climate].

This pullback is unsurprising, in part reflecting a return to normality from the frothiness in the market from late 2021 to late 2023, along with the current contraction in the broader macroeconomic environment and regulatory uncertainty in the lead up to the United States election.

We are also perhaps seeing the impact of the Valley of Death for several high-profile companies graduating from the seed and series A rounds of 2022 and 2023. The valley refers to the gap between funding early-stage bets on lab-scale technologies and later-stage debt, equity or hybrid finance for de-risked technologies. There is early-stage venture capital backing early-stage companies to achieve an initial proof of concept, and growth-stage PE capital backing large scale-ups, but a gap in between for companies at a series B to C-stage, looking for funding for a first-of-a-kind [FOAK] plant.

More generally, possibly due to the pullback in financing and valuations, we are seeing companies defer priced rounds, seeking bridge finance – and/or finance under SAFEs – from their existing investors.

For our own due diligence we have an increased emphasis on runway and ensuring our companies have adequate access to capital to survive an extended dry period.

Richard Roberts: Which market segments present the greatest appeal?

Mark Frayman: It is difficult to identify just one, but I would break down the market in the following way.

Firstly, we have companies developing new solutions solely targeting mining. For example, a new comminution technology, or a new approach to leaching that can recover copper from sulphide ores.

Companies in these areas tend to attract capital from investors that understand the sector, and typically, we would be interested where (a) they are targeting a large and hitherto unmet need; (b) there is evidence of true customer traction; (c) the technology has some field hours; and (d) we believe the team is capable of building a sales pipeline and raising sufficient capital to become a sizeable company.

We have three companies in our portfolio in this category that are making exciting progress in trials with multiple ore types, namely Jetti and Ceibo in copper and Alta Resource Technologies in rare earths.

Then we have a second group of companies applying somewhat derisked technology from an adjacent sector in the context of mining, such as a new approach to automation or fleet electrification.

We find these companies interesting where they can demonstrate an ability to create and sustain a competitive edge, as often the technology itself is already widely available or an incremental improvement on an existing technology. We also want to see customer traction and product-market-fit, as well as an ability to overcome entrenched customer-supplier relationships, as often the risk-reward for a miner in replacing an offering from a large, ‘safer’ OEM in favour of a ‘riskier’ start-up doesn’t stack up.

Third, there are companies pursuing decarbonisation solutions that apply across multiple sectors, including mining. For example, carbon capture, long-duration energy storage, high-temperature industrial heat.

This is a strong focus area for us but one where caution is required as there is often customer adoption risk sitting on top of the technology, team and operational risk that is evident with all start-ups. We tend to look for ‘green alternatives’ that have a near-term pathway to cost parity with a fossil-based approach, uncomfortable relying on ‘green premiums’ and/or regulatory subsidies in the med- to long-term.

We again look for signs of early adoption and where pilots are in place we want these to be paid pilots, with companies that could unlock a deeper project pipeline. We also look for business models that can scale and do so at robust margins. If a start-up’s core technology is capital-intensive, do they intend to license it out, or do they intend to build-own-operate? And, if so, is project-finance available? We want to see evidence of commitments.

Richard Roberts: Where are you seeing the most market adoption readiness?

Mark Frayman: We are seeing traction in technologies that can plug and play into an existing operation, sometimes displacing an outdated approach with relatively low risk of disrupting operations.

These include companies that take existing, available mine site data and plug them into an advanced software platform to draw insights to make operations faster, better, cheaper or cleaner.

For example, a portfolio company of ours, TIMining, plugs into existing data sources such as fleet despatch systems, block models, drilling data, etc, and allows an operator to see real-time compliance to mine plan, mid-shift, and take remedial action immediately. It does so with an easy-to-understand user interface and has a library of case studies of unlocking efficiency gains for its customers, with minimal corporate friction to adoption.

We are seeing other companies in our pipeline now that are looking to apply existing data – be it data from the block model, or images collected from on-site cameras – and apply an AI model that analyses that data to drive site productivity gains. These are relatively low-interference ways to deliver near-term impact.

In the decarbonisation space we are seeing traction in technologies where the fundamental science is de-risked – first in a lab and then with a field pilot, or pilots – and what primarily remains is engineering scale-up.

An example here is our portfolio company, Rondo, which has received a €75 million project financing package backed by the EIB and Breakthrough Energy Catalyst – an organisation that provides critical FOAK financing – to commercialise three industrial heat batteries in Europe.

One other area where we are seeing interest is waste-to-value, or solutions that take ore or waste that otherwise has limited or no economic value and attempt to recover valuable metal product while dealing with a liability.

This something-from-nothing has clear appeal, but our experience suggests it is often far more challenging than it seems and hence we are particularly selective when assessing opportunities in this area. Accessing waste deposits often requires navigating complex regulatory and permitting regimes and overcoming specific technical challenges. Waste is hard to transport and the processing of waste can’t displace higher-value product if logistics infrastructure is already constrained.

It is also not homogenous, which can impact scale-up plans for certain new technologies.

Mark Frayman

These plays require operational and logistical expertise to succeed, which we screen for.

In this area our portfolio company, SiTration, is making exciting headway in a paid pilot with Rio Tinto, utilising its porous silicon membranes to reduce the cost of separating metals from fluid streams.

Richard Roberts: Large mining customers are renowned to be slow in adopting new technologies. Is this changing?

Mark Frayman: In a word, yes … Sometimes!

One clear change I’ve noticed over my time in the space is the willingness today of C-suites at major, mid-tier and junior miners to not only sponsor new innovation, but also to look externally for it, jettisoning the ‘not invented here’ mindset that would otherwise have made end-customers closed doors for the external innovation ecosystem.

Senior sponsorship alone, however, is not enough. Successful corporate adopters want a first-mover advantage, and empower mid-level management to take risk on new companies. Successful solutions that are sourced externally are celebrated as much as solutions developed internally, where in yesteryear the former may have signalled poor in-house performance.

The companies that will ‘win’ here are those that drive both a top-down innovation agenda but also foster a bottom-up innovation culture. They will be the ones that fund their teams with risk-budget to try – and fail at – new approaches, taking a portfolio approach to trialling new technologies. They will have a long-term lens for measuring results, but with clear short-term milestones that if not met, will be signals to focus efforts elsewhere.

Richard Roberts: Do you think we’ll need to wait for a non-miner – such as a large tech company or automaker – to disrupt mining processes, or can the sector innovate itself?

Mark Frayman: As I’ve mentioned, I think the building blocks are in place for innovation today, and it is happening. It doesn’t happen overnight, but if you look at the proliferation of start-ups and of successful corporate/start-up partnerships in the last five years alone, I think you’ll see the trajectory is positive.

I personally find it exciting to see the interest in our sector from downstream customers, including automakers, and from large technology companies. This to me reinforces the scale of the unmet opportunity in critical minerals.

But I believe these players will cause the greatest impact working in partnership with the incumbents, who have decades of experience in sourcing, testing and applying technologies to deliver the foundational materials our world needs. They have seen technology cycles come and go, and understand the nuances of the sector, or regional regulatory regimes, or social value/license, etc.

I do believe a new player can disrupt or jolt thinking, but I am not so bearish that I see the only hope for true innovation being an outsider coming in totally fresh.

 

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