From the time I started reporting on the mining industry in the 1980s people have said big changes are around the corner. However, they’ve not landed heavily or swiftly enough to disrupt the status quo. Industry leaders are still the companies that are best at doing what they’ve always done. Is that all finally changing?
The cartels running the supply of major commodities – iron ore, aluminium, even copper – and vital industry supply chains (traditional plant and equipment) are indeed being buffeted by high market winds. And internal ructions in the case of miners: the securely licensed mineral reserves and grades underpinning safe income and profits are eroding fast.
While the size of the incumbents is seen inside the industry as being key to their longevity, there is a view outside mining that their relative scale makes them replaceable. That is, they are sellers of materials into transport, power and technology supply chains headed by much, much larger enterprises with greater political, social, financial and intellectual capital.
Already, new global market forces have broken up the traditional Western energy coal cartel.
Yesterday’s coal majors are looking for durable replacement profits at the same time as they invest massively to decarbonise their core operations and secure their place at tomorrow’s commodity trade table.
To paraphrase 100 industry leaders speaking at mining forums this year alone: “Something’s gotta give!”
‘We’ve seen it all before …’ Maybe not
Mining’s wisest talking heads repeated often in the 1980s and 1990s – when former Western Mining Corporation boss Hugh Morgan talked about new technology possibly disrupting a “dinosaur industry” – that they had seen it all before when it came to possible disruption of mining’s staid models. They were repeatedly proven right.
But Morgan was prescient about technology. And hardly anyone saw coming the early-21st century China-led commodity boom, nor the exponential growth in tech company values and the impact of their products on Earth citizenry.
The former sped depletion of the world’s so-called tier-one mineral deposits and increased the spotlight on inadequate replacement discovery rates and waste handling, among other things (such as limitations of the industry’s conventional capital management levers). It also showed up yet again kinks in mining plant and equipment supply chains.
These inherent weaknesses are now writ larger than ever by the world’s new-energy prescription, technology revolution and geopolitical reset. The “smart money” in the hands of the world’s biggest fund managers, banks and private investors is very much aligned with these new economic and social settings, as you’d expect.
All of which means miners are staring down a road with some unfamiliar signs.
“The mining industry is at a crossroads,” says a 30-year industry veteran and former head of innovation and technology at the world’s largest mining house.
“For the past 100 years, the industry has relied on increasing the scale of its operations to meet demand. However, this approach is no longer sustainable,” says Grant Caffery, who recently joined US-based advisory firm Clareo after a long career at BHP.
Caffery says megatrends putting pressure on the mining industry include:
- The decarbonisation of the economy, which is driving demand for critical minerals used in renewable energy technologies.
- The declining quality of mineral resources, which makes it more difficult and expensive to extract them.
- The increasing remoteness of mineral deposits, which makes it more challenging to develop, transport and process them.
- The growing demand for ESG compliance, which requires mining companies to operate in a more sustainable way.
“To meet these challenges, the mining industry needs to move away from an incremental approach to innovation and begin to hyper-innovate,” Caffery says.
“This means developing new technologies and processes that are radically more efficient and sustainable.”
Clareo is helmed by Peter Bryant, who has been an advisor to companies such as BHP, Rio Tinto and Anglo American, and also major industrial groups such as Baker Hughes. He co-founded the Development Partner Institute with former Anglo American CEO, Mark Cutifani. The DPI says it exists to “accelerate the delivery of a new future for the mining sector”.
“We imagine an industry that is deeply connected to the values of tomorrow’s generation; transparent and fair, equal and inclusive and a genuine partner in global development,” says its charter.
Bryant thinks the global capital flow into mining has stalled while the industry, its investors and other stakeholders – and potentially outside disruptors – get a more precise fix on the real cost of energy transition, and on the technologies that can underpin future, sustainable growth.
“The most alarming consideration is the upstream impact is likely to wipe out any downstream gains if miners continue to apply current methods for extraction and processing”
“Miners will face a world of contention as they pursue responsibly sourced materials, creating a dual challenge: how to produce the volume of minerals necessary for decarbonisation and electrification, and how to produce the volume of minerals with ESG requirements in mind,” Bryant says.
“A primary example of this tension is copper.
“The energy and water intensity of current processes, coupled with current miners’ capital discipline and the challenges presented by the 15-to-20-year permitting and development cycles, makes the feat to mine millions of [new] tonnes of copper highly unlikely.
“The most alarming consideration is the upstream impact is likely to wipe out any downstream gains if miners continue to apply current methods for extraction and processing.”
Bryant says to strike a sweet spot at the intersection of ESG and the energy transition, miners have to tackle two challenges. First, they must address an innovation challenge to shift from miners to materials providers and become bigger players in the circular economy. Second, miners must address an engagement challenge, “expanding the universe of inputs by taking a multi-sector, multi-stakeholder approach to increase understanding and collaboration”.
“One impediment is mining’s persistent underinvestment in innovation,” he says.
“This innovation deficit creates instability in the industry as the world shifts its energy systems from being fuel-intensive to materials-intensive.
“The good news is a growing awareness exists about the inadequate supply of key minerals to satisfy the rapid demand for transport electrification and the growth of renewable energy.”
Incentivising change
Cutifani, who has taken on a new role with Vale’s future-facing metals arm, was credited with re-engineering Anglo to significantly improve its free cashflow margins and returns on deployed capital. After he’d worked to right the ship, he had a licence to “modernise” the miner’s approach to innovation and redefine its purpose.
“It was a big restructure. In the beginning the vision, mission [and] values conversation was a little bit formulaic, but it was an engagement around the need for change. It was around a burning platform,” Cutifani says.
“You can’t build an organisation for the long term off a burning platform.
“After we addressed the immediate issues … we morphed from a burning platform to a burning ambition, and that was when we started the purpose work.
“In 2019 I sat down with Jeremy Oppenheim of Systemiq and when we talked about what we’re doing for customers and society he said, it strikes me that you’re a material solutions provider. And I said, that’s exactly it. In the end, we’re about providing raw materials to make the world work and how we source them, whether we mine them, or recycle stuff … in the end it becomes academic.
“You remember the Cobb & Co story [in Australia) when they had to decide if they wanted to build the best stagecoaches, or be a transport company? In the end they thought they were a stagecoach company and they disappeared. If they’d have been a transport company I suspect they might have been still around today.
“We [Anglo] decided our purpose was to reimagine mining to improve people’s lives and we connected that to being a material solutions company. It was about making a difference in the world.
“And that I think put a spring in everyone’s step.”
Anglo American has become one of the mining industry’s biggest investors in innovation. The company said in 2020 innovation was the key to mining leaping ahead “20 years in the next five”.
Yet as Bryant says, “the magnitude of the [industry’s current] complex challenges is beyond any single company or industry”.
“To overcome the contention within the minerals ecosystem, the mining industry cannot forge it alone.”
As indicated earlier, the way minerals are found, mined and processed has changed little for decades.
A major factor is the supplier ecosystem in the industry’s orbit.
RCF Jolimont director Charles Gillies says, similar to mining’s entrenched cartels, dominant suppliers “are not very good at disrupting themselves”.
“In fact, they’re terrible at it, because that’s not what they want to do. They are successful because they’ve got well understood products and services which is something they’ve got very used to selling,” he says.
But he says miners have become more willing to engage with smaller suppliers, which has been a factor in their proliferation in the past decade.
As with financing for new copper and nickel supply, there is currently a disconnect between the level of funding for new technologies and processes, and the apparent opportunity. While new mining discovery, clean and digital-transformation tech companies are attracting investment that wasn’t available only five years ago, the funds are still a drop in the proverbial ocean of wider tech financing.
A real key to boosting the level of interest and investment in the space is how successfully the industry’s second, third and fourth tier companies scale this decade.
Companies such as Imdex, Plotlogic, First Mode, Jetti Resources, Ideon, Fleet Space Technologies, MineHub, K2fly, Kobold Metals, Chrysos Corporation and SafeAI really do have more than their individual investors’ stakes in their hands.
They are potential game changers.
*To receive a copy of our August 2023 Mining Technology Report, ‘Game Changers’, contact us at editorial@investmets.com.
