The Complex World vs. Mining

It has been a while since I’ve posted something substantial on LinkedIn and, with the dread of hearing the same old catchphrases at this year's PDAC convention, I thought I’d put together a thought-provoking post that would perhaps kickstart some alternative dialogue within the mining community.

I’d like to touch on two topics that are somewhat interrelated and really came to the fore in the comments section of a post by the Intelligent Miner (thanks Carly Leoneida!):

1. Why innovation in mining is stagnant.
2. The context within which mines operate is changing rapidly.
3. We have alternate strategies to deal with mining in our new complex world.

I’ve tried to keep a very complex topic concise but, as will all systems, there are many moving parts that need to be understood.

Why Mining Innovation Is Stagnant

Types of Innovation

It’s important to understand the differences in types of innovation to understand what is happening in the mining context:

• Incremental Innovation = This type of innovation is aimed at increasing the efficiency of a unit operation but not needing to change the configuration of the system. The improvement can be easily understood and measured because you can draw a neat box around it. E.g., Finding a better horse to draw a cart. Examples of this in the mining industry are HPGRs, vertical milling, and coarse particle flotation which have slowly (over decades) been adopted into the mainstream.
• Disruptive Innovation = This type of innovation creates a reconfiguration in several parts of the system which achieves a stepwise performance improvement and unforeseen benefits elsewhere in the system. It may even make parts of the system redundant. These types of innovation are often quite difficult to understand as they require cross-discipline skills to understand the impacts. E.g., Replacing the horse with a train. Now there’s big system-wide changes because the route is fixed, maintenance, emissions, fuel supply etc. and we don’t have to worry about vets and feeding. In the mining context, there is a very close correlation between system innovations and ESG impacts and this is why we haven’t seen much massive change in the environmental and social impacts of mining projects because we’re still designing the rest of the system the same. An example of this type of disruptive technology in the mining industry is Novamera’s mining-by-drilling where large bore reaming drills (~3m diameter) are able to extract ore from steeply dipping narrow veins from surface in a very precise manner. If viewed through the lens of incremental innovation, the unit costs of using this mining method seem much higher than conventional methods as it might appear that this technology is not feasible. But when the impacts on the broader system are considered, we start to account for the removal of all the infrastructure and complexity of mining, the removal of the need for crushing and some milling, the large reduction in waste stockpiles and tailings, the huge reduction in power and emissions and a huge reduction in footprint. On this basis, the new system may be an absolute slam dunk but it requires multi-discipline teams to evaluate.

Past Context For Mining

Put very simply, until recently, mining operated in a quasi-static world where uncertainty was minimal which drove an economies-of-scale approach to unlock efficiency gains to maximize profits. Innovation, in this context, was focused on these efficiency gains and, thus, incremental innovation. That is why technologies have all been commercialized and accepted into the mainstream (although quite slowly) but disruptive innovations have not. The adopted innovations are all unit operations that increase efficiencies but don’t change the system configuration. This is why mining still looks very similar to what it did 100 years ago and why environmental and social impacts are still the same too.

So why is mining still so inefficient and produces so much waste? Consider how much energy and emissions are created by mining a typical strip ratio of 4:1 where for every tonne of ore mined and processed, 4 more tonnes of waste is mined, hauled, and dumped somewhere. Where is the innovation?

Mining Innovation Is Stuck In A Vicious Cycle

The answer to this question has eluded the mining industry for decades and many failed attempts by mining companies, start-ups, and collaborative groups have seen disruptive innovations fall at their feet. But in reality, they were always doomed for failure because the structure of the mining industry is set up like that. Not purposefully, it just is that way. Once we understand the ‘system’ of how the industry works, only then can we contemplate unlocking the step-wise improvements from disruptive innovation.

How does the current system work? The historic operating context globally was very static compared to what it is today and even more so looking into the future. I’ll get into more about how vast this is in the next section. Coupled with this was an era of abundantly large deposits of commodities in relatively minable locations (low-hanging fruit). Chasing higher profits, these two factors drove the strategy to use economies of scale to increase efficiencies. This was a hallmark of the industrialization period. The fixation on large single assets created a low tolerance for risk. You wouldn’t want to tinker around with unproven technologies on the scale of these projects or you would risk sinking an entire organization for very little perceived benefit. If the investment for the project is sourced externally, then this approach is reinforced by the low-risk appetite and the desirability for tried and tested planning. For these reasons, the system designs were kept to very ‘proven technologies’. We’ve all heard this phrase before!

Loss of Innovation Skills

This focussed most innovation activities on the improvement of these efficiencies through incremental technology changes which in turn created a high dependence on equipment vendors developed to spread the expensive technology R&D expense across multiple customers. Essentially all of the innovation skills that did exist, have been transferred to OEMs that now carry the full burden of generating incremental innovation. Any system-level innovation skills became obsolete within the entire mining industry and this is why we have so few technical generalists in our industry that can actually piece the puzzle together from end to end. This bias of skills only serves to strengthen the static operating context and we have seen very few disruptive, system-level changes occur over the last few decades.

So now you know why we see some of the quirky behavior from our mining colleagues with regard to innovations and why they are perceived to be so risk-averse. What you might think is a problem with people (being so risk averse) is actually a problem with the system that the industry operates in. The system is designed to attract those individuals that are risk averse and protect the interests of the system. So don’t take it so personally! The gradual reduction in grades and the resulting increase in the size of projects has only served to amplify this effect and drive that risk aversion to new heights. This has and still is the biggest hurdle to disruptive innovation in the mining industry.

What About The Small Projects?

Understanding all of the above, the route to achieving disruptive innovation should be obvious… new systems thinking applied to small projects. The lower risk of small projects will allow more disruptive innovations to be tested out in real-time (some will fail but the impact is much less) and the lessons from those projects could be applied back to larger projects to scale up those benefits. This is the only path forward for disruptive innovation. But why hasn’t this happened before?

But this is where another structural inhibitor comes into play… money. It should be understood that the different channels of funding impose different constraints on a project with regard to innovation:

• External Investment – These investors are typically in the game of maximizing profits in the short-term and minimizing risk. Due to these objectives, only ‘proven designs' are accepted. In addition, many of these transactions require a NI 43-101 compliant design. The NI 43-101 standard literally has a statement in it’s guidelines that only allows the use of ‘proven technologies’. Consequently, any disruptive innovations die at this point immediately.
• Internal Investment – If an organization is large enough to be able to self-fund a project, there is a much higher tolerance for risk. The limit of this is whether a company is listed or not. Listed companies have a fiduciary duty to reduce risks and this results in a lower risk tolerance. The exception is private companies which can essentially take on as much risk as they prefer.

Then we need to understand the difference in behaviors between the scale of organizations and how this applies to innovation:

• Major Mining Companies – These organizations are chasing high-value assets to drive shareholder returns. They only have the ability to manage a finite number of large projects and the small projects are seen to create relatively minor additions to profits against adding much higher complexity to the organization. However, they do have money to self-fund projects and are generally not beholden to external investment which gives them some autonomy in terms of the type and size of project that they can pursue.
• Mid-Tiers and Juniors – These smaller organizations are typically focussed on the development of the smaller projects but they are almost always reliant on external investment. This means that they are always slaves to their investors appetites for risk and, again, only ‘proven designs’ are accepted at this scale. Unless they are lucky enough to be privately funded (very few are), there is no chance for any disruptive innovation to happen within the junior mining market.

In summary, the only opportunity for disruptive innovation to occur is within the major mining companies where they can test out disruptive innovations on smaller projects and then scale these benefits up into the bigger projects within their portfolios. It requires the major miners to take a really mature approach to a long-term strategy to enable an environment for disruptive innovation to prosper. There is additional motivation in the spin-off reductions in environmental footprint and integration of the social aspects of projects into the design.

We can already see glimmers of hope in this thinking. I was fortunate to have been involved in a project with OZ Minerals and Inspire Resources where they were building an understanding of these constraints and started down the path of applying different systems architectures to a small mine. The results of their ‘Scalable and Adaptable Challenge’ were published as a white paper:

https://www.ozminerals.com/ArticleDocuments/440/ScalableAdaptable_Challenge%20Whitepaper.pdf.aspx?Embed=Y

However, recently BHP has put in a bid to buy OZ Minerals and that pocket of highly-innovative thinking will no doubt be eradicated by the BHP ‘risk-antibodies’ within a year of the acquisition.

The only other way that I see disruptive innovation happening is if further structural change in the industry is brought in by vertical integration of the supply chain and companies outside the sector (like Tesla), who can understand this challenge, can bring about their experience to force the industry to change themselves.

Read further about how the operating context is rapidly changing and affecting the balance of this existing system and how change is almost inevitable. I’ll also discuss how an emerging alternative strategy change can be used to counter the effects of a rapidly changing context.

Change In Operating Context

There are a number of major changes that are happening in the world which are driving the mining industry:

• Declining Grades – The ‘low hanging fruit’ of large, easily accessible deposits have almost all been mined and economic grades are gradually declining. What’s left are they deposits that are considered uneconomic using today’s mining paradigm. These are either small deposits or large ones that are largely inaccessible / complex / risky.
• Technology, Globalization and Interconnectedness – Outside of the (stagnating) technology used in the mining industry, the developments in the rest of the world are staggering and are changing how we do business across all industries. Enabled by communications technologies, supply chains, infrastructure, homes, cars and many other assets are being connected to the grid to share information and ultimately unlock previously unattainable efficiencies through ‘the network effect’. It is very difficult to understand how these new networks will behave and we only have to look to the example of how covid brought the global supply chain crashing down. The world markets are equally networked and equally exposed to disruptions. The war in the Ukraine is also an example of how rapidly impacts of disruptions can spread through the entire system and create unforeseen problems globally.
• Resource Nationalization – Countries and regions are starting to realize some of the negative effects of globalization which affect the security of natural resources and raw materials. In response, several jurisdictions are setting up ‘critical minerals strategies’ in an attempt to secure the supply of these resources and keep them local. This is also shifting the landscape for mining companies.
• Vertical Integration – As supply chains are impacted by various other changes they are becoming more volatile. To counter this volatility, manufacturers are looking to vertical integration and secure access to raw materials.
• Social and Environmental – As we start to understand the ramifications of living in a world with constrained resources and higher complexity, people are starting to place much emphasis on the impacts being made to their lives and the environment around them. This too is creating uncertainty as the dynamics of this are quickly evolving.
• Post-Colonialism – With the world now acknowledging that colonialist behaviors were far from admirable, the world is trying to be more inclusive and make reparations to those that were wronged. The global adoption of UNDRIP is especially expected to change government policy and the mining industry globally but how is very uncertain.

From all of the above, we can see that uncertainty of what the landscape for mining operators looks like in the future is very high and will continue to increase as the world becomes even more connected.

Strategies To Deal With The Complex World

What Does This Mean For The Existing ‘Economies of Scale’ Mining Strategy?

All this uncertainty and changing context are creating an environment where massive projects that need to operate for 20 years, with relatively static inputs, are just too risky to even contemplate starting. We are seeing several of these major operations succumbing to these uncertainties and failing before they break even. We don’t have to look further than First Quantum’s Cobre Panama project which has been stopped by the local government after operating for only 4 years. The same applies to Rio Tinto’s Oyu Tolgoi mine in Mongolia.

Coupled with this uncertainty are the reductions in discoveries of the large ore bodies that majors need to survive.

So what next? Those overlooked smaller projects are starting to look awfully attractive if only we could find a way to make them economically feasible. The reason that they are not perceived to be feasible currently is that we’re trying to use the tools from an existing paradigm to design these mines. They are still be thought of in a singular context and economically evaluated in the same way.

Unlocking Disruptive Innovation

If we start to look at smaller mines with a different set of skills, we can start to see ways of making these economic and perhaps even less risky than the current paradigm. The clues to how we do this are all around us... networked, complex systems.

If we start to evaluate groups of smaller mines together we can start to apply some different logic and types of designs. We can choose to start with one, make it mobile and then relocate to rest for effectively zero capital per subsequent mine. That thinking alone will unlock the economic feasibility of many mines.

We can start to share infrastructure between mines to leverage the network effect and drive down unit costs. We can start to modularize and standardize across mines and drive benefits out of innovating on one module and implementing successful trials onto other modules in the system. We can enable an entirely different supply chain that innovates on functional modules rather than unit operations.

The benefit of a portfolio approach to mining is that it also reduces risk through the concept of diversification. Much the same as our trading colleagues spread their bets on investments, the same will apply to mining where if one mine fails, it will make a marginal difference to the entire system. As a result of this change of behavior, the mining company of the future will not be singularly chasing efficiencies of unit operations but efficiencies in the behavior of the entire system. All this will serve to unlock disruptive, system-wide innovation and attract the systems-thinking skills needed to derive this.

The place to interrupt the existing paradigm is at the strategy level. There is a massive opportunity for the strategically savvy major miners to start to test out this strategy at a small scale now and leap-frog the rest of the pack in the coming years. The prize is an ability to tap into an abundance of resources that have been overlooked in the past and make stepwise changes in resilience, costs, environmental impacts, and social integration. All it takes is someone in the higher echelons with some logic, some vision and the courage to challenge the existing paradigm.

Special thanks to Inspire Resources and OZ Minerals for helping me piece together portions of this logic over the past few years.