Even as the mining industry languors, change is afoot. And when the next rally is in high gear, it’s a sure bet some companies, practices and even conventional mining logic will have changed. We’ll still need a commodities comeback to make it happen, but it won’t be a carbon copy of the last boom. Here’s our look at five areas of fresh thinking that will define the next cycle.
By Jim Middlemiss
March 4, 2016
Michael Johnston says one thing he has learned in his 20-plus years of mining is that “you can’t manufacture grade. The ore body is what it is. Generally, it is something you have very little control over.”
But what mining companies can do is push new frontiers and come up with innovative ways to identify, extract and process high-grade ores, even if, as in Johnston’s case, they are located on the ocean floor.
Johnston, a New Zealander who has worked for Canadian-based companies much of his career, is using a blend of advanced technology, data and adapting know-how from other industries to pioneer deep-water mining as president and CEO at TSX-listed Nautilus Minerals Inc. (TSX:NUS).
Nautilus plans to start production at its Solwara 1 copper-gold project, in 1,600 feet of water on the Pacific Ocean floor off Papua New Guinea, in 2018. We don’t know how successful it will be. But we can confidently predict that ventures and companies like Nautilus, pushing new geographic boundaries—because of new technology, shifting supply curves or changing climate—will be a recurring, defining feature of mining’s next growth wave.
Did we just say growth wave? Yes. Not when or how big, only that a rebound at some point is as certain as the market’s current half-decade slide is now. And when it arrives, that era—like every new up-cycle—will be marked by an array of trends, innovative companies and approaches that set it apart from the last.
What might they look like? Companies pushing new physical boundaries undersea and towards the poles won’t be the whole story, just one category. Listed spoke to mining executives, market analysts, industry consultants and researchers and came up with examples, opinions and topic suggestions rooted in everything from transformational clean tech to collaborative resets with local and indigenous communities.
Judging by the people we interviewed, no one is anticipating a disruptor on the order of an Elon Musk. “I don’t think that person exists within the industry,” says Peter Bryant, managing partner at Clareo, a business strategist firm that works with miners. “Innovation [in mining] takes place slowly and cautiously over time,” agrees Richard Ross, program director and Inmet chair in global mining management at Schulich School of Business. “We don’t see the Elon Musk kind of rocket ship. The industry doesn’t lend itself to that.”
Perhaps not. But it’s also an industry ripe for renewal and desperate for a fresh way forward. And based on that, the research says that what emerges and takes hold is likely to arise from these five potentially disruptive areas.
1. Frontier expansion
Some of this, you might be familiar with: “The easy discoveries have been found,” says Schulich’s Ross. That’s pushing miners to search in more unconventional locations, such as Nautilus is doing underwater.
Zooming in: Nautilus’s challenge is to bring seafloor deposits into commercial reach
On that front, the International Seabed Authority has granted more than two dozen undersea mineral exploration contracts, covering more than a million square kilometres of sea floor. Questions remain about its economics and environmental impact. So there’s a lot riding on how Nautilus fares.
Getting this far has been an effort. Nautilus has worked with companies such as Siemens, General Electric and Rolls Royce and specialty manufacturers, such as Machine Dynamics Ltd., to rewrite the rulebook on mining. It is in the throes of building a special vessel that is 220 metres long and 40 metres wide. It has had to develop unique underwater drilling technology and also needed to build unique seafloor production tools, large underwater cutter-and-collection vehicles that will be used to remotely mine the seafloor, as well as lifting and rail systems for retrieval.
It was also hard securing approval under National Instrument 43-101, which deals with disclosure for mining projects. “We were doing something no one else had done,” says Johnston, from his operations office in Brisbane, Australia. “The regulators were really good. They took the time to sit down and look at what we were doing.” His prediction: within 20 years, 20%-30% of the world’s mineral production will come from the ocean floor.
Ironically, a big challenge to that claim might come from the other looming physiographic boundary-buster: climate change. Retreating ice, especially in the North, will impact the industry by creating opportunities and opening up deposits for miners in remote, previously ice-locked locations. It’s already happening around glaciers in Chile and Argentina, Alaska and B.C.
It won’t be a cakewalk. Melting permafrost will damage and disrupt communities, wildlife and economic development in the North. Warmer temperatures might also mean shorter ice road seasons, affecting project access. On the flip side, it also means increased marine transport through the Arctic.
A second related barrier to expansion into remote areas—lack of infrastructure, especially access to the power grid needed to drive projects—is at the same time being overcome by the rise of affordable, transportable renewable energy equipment. Look for solar and wind to drive off-grid projects in remote locations.
There are examples out there now. Iamgold Corp. (TSX:IMG) is already championing renewable energy and its CEO Steve Letwin has stated that by 2019 he hopes that 15% of power generated at his company’s mines will come from renewables.
He’s not alone. In mid-2014, Glencore installed what was described as the first industrial-scale wind power and energy storage facility at its Raglan nickel and copper mine in northern Quebec. The 3 MW wind turbine is saving the company 2.4 million litres of diesel per year, according to engineering firm Hatch, which worked on the project.
John Gravelle has seen a lot in his 30-plus years of hanging out with miners. Now he’s staked his future on technology that he thinks will play an important role in moving the industry forward once this commodity cycle turns.
Zero emissions: Mining veteran John Gravelle calls underground electrification “a disruptive technology”
Gravelle, PwC’s former global mining leader, is now working for Artisan Vehicle Systems Inc., a Camarillo, Calif.-based outfit that specializes in heavy-duty batteries and electric, zero-emission powertrains for heavy-duty equipment used underground in mining operations. It’s not the only company competing in this space, but its business case and rationale is representative of its entire category—and compelling in its appeal.
“The technology allows you to reduce or even get rid of your diesel fumes underground,” Gravelle says. He explains that diesel engines powering industrial, heavy-duty equipment are only 25%-30% efficient. Much of the energy is spent creating heat, fumes, noise and water. Artisan boasts that its battery-driven powertrains are 96% efficient, produce zero emissions and zero noise, creating a safer work environment. It means that most of the energy used to power the vehicle is going towards the task at hand, moving and busting rock, rather than producing emissions.
It’s not just the cost savings of operating a fleet of electric vehicles, Gravelle says. The returns go far deeper into the mine operations themselves. Combustion engines produce heat and fumes, which underground is deadly for workers. “All that requires you to have significantly more ventilation.” That means a mine must operate bigger fans and cooling systems. The power plants needed to run those systems add further to the costs.
Moving to electric and battery-powered equipment, he says, can lead to “substantial cost savings. This is definitely a disruptive technology.”
3. Predictive analytics
While some companies will define the next wave by doing something new, a great many more will have the chance to leave a mark by doing what they’re already doing even better.
Enter big data. It promises companies that by knowing more about their operations and connecting events they will be able to fundamentally change the way they explore and operate. Lee Hodgkinson, national industry leader for mining at KPMG in Toronto, says mining companies are “producing an infinite amount of data.” However, he says, their ability to leverage that data is still “very limited” but presents an “untapped opportunity.”
Take fleet management. Mines rely on large excavators and trucks to haul tonnage. IBM Research says that the mining industry operates US$5 trillion of equipment on a 24-hour basis. It pegs the loss of an excavator at US$5 million a day, while losing a long-haul truck costs a mine US$1.8 million.
IBM notes that most natural resource companies have a “fix-it-when-it-breaks” or scheduled maintenance mentality, which results in unnecessary downtime and early replacement of components.
IBM has collaborated with Australian contract miner Thiess to build a “vital signs” computer dashboard that monitors the health of Thiess’ fleet. A range of information, such as vehicle sensor data, payload info, weather and ground conditions, inspection history maintenance, repair, operational and environmental data has been collected and integrated into software. It is being used to assess and predict the life of various components to allow for early detection of defects based on actual wear and tear on each vehicle. That allows for a machine to be moved into maintenance before it conks out and disrupts operations.
It’s no major leap from this to embracing the Internet of Things—where common devices are connected to the Net and send or receive data—in order to drive increased productivity and operate smarter mines with things like on-demand ventilation and fleet management.
For example, Goldcorp Inc. (TSX:G) worked with networking equipment maker Cisco Systems to set up a wireless network in its Éléonore underground gold mine in the James Bay region of Quebec. Using Wi-Fi and radio frequency identification tags attached to miners and equipment, Goldcorp knows their location in real time and can measure air quality. Operators can then adjust the ventilation system to increase or decrease airflow to the mine. A conventional system would require a constant airflow of 1.2 million cubic feet per minute (CFM). The on-demand system cut that in half to almost 650,000 CFMs, according to a case study.
4. Process improvement
Mining’s environmental impacts are still massive. That’s unlikely to change in a big way for several cycles. But there will be a lot more at- tention in this area and breakthroughs will be a big deal.
Consider the potential of something like Barrick Gold Corp.’s (TSX:ABX) efforts at its Nevada Goldstrike mine to perfect a way to produce gold using non-toxic thiosulfate, rather than cyanide, which has been used for 120 years.
Reports indicate that as much as 60% of the world’s gold is produced using cyanide, which can contaminate ground water. However, the ore at Goldstrike was cyanide-resistant. Barrick worked with scientists at Australia’s Commonwealth Scientific and Industrial Research Organization to develop the new process, announced last year. Barrick spokesman Andrew Lloyd told Bloomberg, “cyanide is a concern for some stakeholders. The potential to use alternatives to cyanide at certain operations in the future may help to address those concerns.”
Andrew Kaip, a mining analyst at BMO Financial, says he expects that “cyanide will be used less and less,” calling the Barrick development a “cutting-edge implementation of technology that reduces the inherent danger” associated with cyanide.
From a different process improvement perspective, meanwhile, expect robotics to start showing up in all kinds of new places. For larger companies on larger projects, at least, “robotics may be a game changer,” says Rod Thomas, president of the Prospectors & Developers Association of Canada.
On that front, one can look to Australian mining giant Rio Tinto, which today manages its entire Pilbara iron ore network, including a fleet of remote mining vehicles and driverless equipment, from an operations centre in Perth, some 1,300 kilometres away. There, 400 operators analyze data and synchronize an integrated system that oversees 15 mines, 31 pits and four port terminals and a 1,600-kilometre rail network.
This sophisticated set-up is a product of a company research program that is pushing automation to improve employee safety, increase productivity, lower energy consumption and reduce environmental impact. It started in 2008, when the company tested an automated rail system, followed by automated truck and drilling tests related to its Pilbara surface mines. Further uptake elsewhere is expected.
5. Social licence
Environmental, community and social responsibility already extends well beyond mining processes—a reality that’s equally fundamental for one-shot, junior explorers as it is for the majors.
Schulich’s Ross notes that mines have a permanent impact on the environment and there is a large segment of the population that believe the “industry has not behaved responsibly in the past with respect to stewardship. There is a responsibility as an industry to en- sure that we are behaving in the most responsible fashion.”
He says when it comes to obtaining and maintaining a social licence, “the bar is increasing.”
BMO’s Kaip adds that “stakeholder concerns have to be addressed.”
Shareholder groups, regulators and even the courts are weighing in, too. Hence the potential for a full, collaborative rethink between companies and communities and indigenous peoples.
On that front, the Kellog Innovation Network has been developing what it calls its Development Partner Framework to help the mining industry create sustainable value.
It’s calling for a “reset” in the way mining companies operate to work more collaboratively with mining communities, indigenous peoples and businesses that depend on its product to create prosperity and eliminate poverty.
One of the companies driving it is Anglo American under CEO Mark Cutifani. The company is leading an initiative in which forums are created to work with many stakeholders, including peers, research institutions and suppliers, to collaborate and address challenges related to mining, processing and sustainability.
Nautilus’s Johnston understands the importance of social licence. His company’s efforts stalled at one point following a dispute with Papua New Guinea over its interest in the Solwara project and intellectual property rights, which he describes as “the lowest point” in the company’s quest to mine the ocean floor and one that “should never have happened.”
But he also believes that offshore mining has many social licence advantages that set the industry apart from traditional miners. It’s a really good project in terms of the environment, says Johnston. It happens at depths of the ocean where there is not much life. ”We don’t impact fresh water. We don’t have tailings, which is a huge issue for mining generally. It’s a great story for showing how technology has opened up a whole new area.”