With a new Mining 4.0 paradigm potentially taking shape, the mining technology supply landscape has evolved quickly in the past five years or so. US$4.8 billion of mining-tech M&A is a key measure of this.
Ivan Gustavino, who has closely watched heavy industry technology trends over 40 years and heads one of the world’s top mining tech advisory firms, says it’s a fascinating time to be involved in the space.
As it is in other industries, the speed of technological change is making the future of mining harder to predict (if it ever was easy).
There are few people as well equipped as Gustavino and his team at Atrico to provide a measured view of what might lay ahead.
“We’re obviously seeing incremental gains from Industry 4.0 point solutions at various stages in the mining value chain,” he says.
“However, a lot of the potential value of these changes remains trapped behind constraints upstream or downstream of that process.
“Until we know enough to fully re-engineer the mining process to take advantage of a new Mining 4.0 paradigm, the true productivity benefits won’t be fully realised.”
Gustavino says industrial revolutions are “slow, creeping things”, especially when it comes to seeing actual productivity gains.
“The parallel is the Industry 2.0 revolution and the need to change factory layouts from steam-driven linear power layouts to more efficient layouts enabled by electricity. It was only then that the productivity gains of Industry 2.0 were fully realised.
“Also, it seems to take 25-30 years … About how long it takes for key patents to expire, greenfield mines to get from discovery to production, and next-generation discipline leaders to get to senior decision-making positions.”
The unprecedented mining tech M&A wave of the past five years has clearly shifted the positions and the posturing of manufacturers and service companies likely to figure prominently in mining’s move to a more digitally enabled, automated future.
Most of the 250-plus companies Atrico has advised on growth and exit strategies have been sensor and/or software firms exposed to heavy industry digital and automation-led transition.
Gustavino believes delivery of the first true, highly automated, electric and optimised mine could involve suppliers in strategic alliances.
“However, it’ll be the mining company taking the risk and, in my experience, they’ll only do that when it’s the only option that makes the project economic.”
Atrico executive director Jason Price suggests the industry is seeing the emergence of “loose unions” between different types of mining service and tech companies keen to take on larger automation and other technology projects, along with the M&A aimed at building capability.
“There are probably two competing solution architectures for the all-singing, all-dancing automated mine,” Price says.
“[They are] the vertically integrated [proprietary] solution stack and the open integration stack.
“The big vendors seem keen on the former and the mining companies are more keen on the latter.
“To be fair, it’s probably easier to pull together a proprietary solution via acquisition and strategic partnering than hoping to create an open integration standard.
“Standards are also easily passively sabotaged by non-aligned participants.
“As noted by [famed theory of disruptive innovation creator] Clayton Christensen, most groundbreaking innovations rely on a vertically integrated solution stack so the vendor can control the design and specifications of each significant component and ensure they work together as a complete solution.
“The acquisitions required to pull this off have been core to our view of the mining tech M&A landscape for the past 15 years.
“However, both paradigms will continue to exist.
“The mining companies will not easily surrender their power in the value chain to the solution vendors.”
While large, incumbent companies across industries are more prone to Christensen’s Innovator’s Dilemma, Atrico’s Kheong Chee suggests there are relevant precedents for the sort of disruption that might occur in mining in future.
“Based on what we’ve seen in the way of oil and gas technology innovation, I’d guess that the driver of change will be a mining company with a greenfield stranded asset that only works if they can fully capture the benefits of automation,” he says.
“This will require them to assemble a solution stack of willing parties.
“The mining company doesn’t have the addressable market to shoulder all the costs, so it will concede some IP advantage to the key vendors.”
The door out into left-field always seems to be ajar. Without discounting what might come through it, Price says there are probably “several candidates” to drive delivery of a complete, workable automation solution that leads a “true shift in the value proposition”.
They include the mining companies themselves, “whose power derives from owning the asset”.
As mentioned previously, large miners have resisted forces conspiring to create an overly-powerful sole-supply vendor.
“If they succeed they would want to keep the formula for themselves as much as possible,” Price says.
“This gives them a competitive pricing advantage when securing other assets to which they can apply the same model.”
Large mining machine makers profit from selling equipment but “would love to differentiate and position to get more value share from mining operations”.
“If they succeed in deploying such a model they will want it proprietary to their equipment,” Price says.
Candidate number three: mining contractors “who are increasingly wanting to participate in the whole of mine-life cycle, standardise their operating platforms, internalise the benefits of adoption of advanced technology, and get exposure to value-share arrangements on mines”.
“If they succeed, they will want it proprietary to a contract with them.
“That in turn would be leveraged to out-compete any contractor competitor who couldn’t pull together a comparable offering.”
Price says industrial automation software vendors, which generally already have a mindset for end-to-end optimisation, are perhaps the “natural allies” of mining companies because of their scale and range.
Their challenge tends to be a lack of domain expertise. They also have to overcome fundamental complexities inherent in mining value chain optimisation: fragmented resources, mining methods and variable feedstock among them.
Price says AI-based exploration companies that move to production might represent “a bit of a wild card”.
“These guys aren’t locked into old paradigms and can hire or engage with disruptive thinkers,” he says.
“They will likely keep [any] solution stack proprietary.
“Which companies are leaders and which remain in relatively commoditised positions really depends on which scenario plays out.
“In any case, there will probably be two or three proprietary players at the top of stack, and then a broader push by everyone else to open integration standards.”
Price says there is a “massive gap” in what he calls the mid-size marketplace for integrated “out-of-the-box” mining systems that deliver real value.
Contract miners are businesses with the balance sheets, domain knowledge and supply chain clout to perhaps be more important players in a future landscape.
“Existing contracting businesses will become more tech savvy and will start to morph, or transition, their business models to being tech-led and will create new and more profitable revenue streams,” Price says.
“We assume there are more nimble groups with a clean sheet of paper able to design this new company from the bottom up.
“This can be the surprise segment that appears in the next 3-5 years.”
