Mining Markets


Commodities downturn poses opportunity for Canada

In the face of the global commodities downturn, mining companies are facing increasing pressure to maintain profitability. Investment in exploration has contracted, indicating a negative trend in project development. For Canada, this global downturn represents both a challenge and an opportunity. If Canadian mines can lift their overall productivity relative to the global community, they could enhance their global competitiveness. Traditional productivity and cost levers are only part of the solution. New levers enabled by technology can be used innovatively to create significant advantages for the Canadian mining industry. These levers require less upfront capital investment than some of the traditional ones. Furthermore, there are now sufficient industry examples of how these levers are being used and how mining services providers are motivated to help mining companies adopt them.

Mining a major contributor to Canada’s economy

Canada has been bestowed with considerable mineral wealth and produces more than 60 minerals and metals. As per industry estimates, nearly 400,000 people are employed in mining and mineral processing related jobs in Canada and, on average, they earn more than their peers in other natural resources industries.  Miners and mining also accounts for a sizable contribution to the Canadian GDP from exports, royalties and taxation. More than half of the world’s publicly listed mining companies are listed on the TSX and TSX-Venture exchanges, making Canada a true world leader in mining investment. In fact, many executives and bankers use mining activity on the TSX as an important barometer for global investment.

Globally, the mining industry is strained from a severe softening of commodity prices, particularly bulk commodities. We have just enjoyed an unprecedented price boom that was longer than any previous “up” cycle; commodities were in more demand than ever before and that was reflected by high prices.  Mining companies invested significantly in new projects to increase their output and as a result, the industry grew significantly over the last 10 years. In general, the overall cash costs of mining grew alongside the increasing volumes and while prices were high, this was seen as acceptable. With the softening of prices, margins got squeezed and a manic race to reduce cash costs ensued. Cost reduction measures such as project deferrals, job cuts and contract renegotiations have been the constant agendas of monthly management meetings in mining companies.

Remaining competitive

Increasing profitability is a core focus of mining companies intent on successfully navigating their way through the current painful downturn. It is clear that most mining companies understand this but is immensely challenging because it involves making hard choices and following through with discipline.

The fundamental demand for natural resources remains positive, fuelled by mega-trends such as global urbanization. However, the global mining industry is undergoing a shift as it responds to lower commodity demand and countries that rely on mineral exports need to find ways to remain globally competitive. One way is to “ride it out.” The resources industry is cyclic and this downturn many believe is just another down cycle, which will eventually turn around. However, riding it out is not an option for all assets, especially those that are high on the cost curve. They need a different answer.

Another issue that has been widely debated but needs to be addressed in the Canadian mining industry is productivity. Currently, there are two main schools of thought when it comes to increasing productivity. One way is through a de-bottlenecking process which typically requires trade-offs between capital and operational strategies. The other way is to reduce resources used and almost always focuses on waste elimination followed by business process reengineering. However, it’s not one or the other, it’s actually both and the only way to do this in a sustainable way is to do things in a new way. We need more innovation in mining. We need to use new methods, new business models and lean on technology.

Canada has already seen itself slip into the number two spot in terms of exploration spending. This is a worrying signal as exploration spending is a leading indicator of project development. Less exploration means fewer projects and fewer new mines producing revenue-generating exports. This could lead to production volumes of key commodities in Canada declining, relative to other countries. A number of economic incentives such as tax concessions and offsets have been proposed and created to attract investment in Canadian mineral exploration and mining infrastructure projects. However, investors in mining projects are more cautious and less patient than before. They will not invest in projects that deliver high-cost production.

The obvious answer is to only initiate projects that will deliver low-cost production but it is widely acknowledged that this is not possible. A deposit’s geology is the ultimate driver of the cost of extraction. Most of the “easy” to mine deposits have come online already and due to declining productivity, most of them have been climbing up the cost curve. In Canada, there is an additional challenge with deposits in the north of the country. The remoteness and inaccessibility of these potential mines push project implementation costs far higher than in most other places due to enormous infrastructure requirements.

So how does Canada attract investment in these circumstances? By demonstrating to potential investors that projects will be able to maintain their value over time. In other words, feasibility studies without detailed plans on how they will adapt to changing commodity prices over the mine life will be less compelling to investors than feasibility studies that do address those details.

 Innovative levers to improve profitability and productivity

The big cost items in mining operations are labour, excavation, material movement and comminution. These areas almost always get priority focus during operational improvement initiatives. The traditional levers of productivity and cost take-out have therefore centred on physical aspects. Increasing equipment size and standardizing the equipment used at multiple mines are productivity strategies that had some success in the 1990s and early 2000s. Standardizing the availability and utilization measures is another traditional lever for operational improvement. Waste elimination and capital investment are well-established strategies for improving productivity.

However there are some new levers that miners can use to improve profitability and productivity. These new levers are more abstract in nature and are enabled by advancements in wireless telecommunications, computing, analytics, automation and robotics. Improvements in wireless telecommunication infrastructure and systems have allowed mining companies to drive the concept of “location independence” through their businesses. Rio Tinto has pioneered the way with Excellence Centres that collect data from their mines all over the world in near-real-time and can assist with expert decision support in operational timeframes. These centres reduce the expense of having to transport experts to remote locations. They also enable the company to monitor processes as they happen and help alert the operators of any anomalies before they become detrimental to mineral recovery. Moreover, they enable the use of another powerful new productivity lever: data analytics. Using advanced data science and technology, it is possible to predict equipment breakdowns before they happen and in so doing, avoid unplanned downtime. Adding autonomous and robotic systems enables the company to remotely operate equipment deployed in mines that are hundreds of kilometres away from the control centres, avoiding the high costs of remote migratory workforces. This is a lever that is steadily being adopted across the industry.

Remote operations, autonomy and data analysis are some of the innovative levers that Canadian mining companies can use to enhance their global competitiveness in the current economic climate. They are capable of generating significant profitability and productivity improvements by both increasing overall mineral output and reducing the overall input mix of resources required. The barrier to these levers being widely adopted has been cost and the pioneers like Rio Tinto have invested significant capital in them. The current appetite for capital investment in mining is low. However there are some mining service and technology suppliers that, through their own need to remain competitive, are devising innovative business models that allow mining companies to access technology and systems at commercial terms that do not require mining companies to commit upfront capital.

Increasing profitability and productivity are critical factors for mining companies in order to remain globally competitive in this time of depressed commodity prices. Advances in technology have created innovative new levers like location independence, advanced data analytics, autonomy and robotics, which have demonstrated tangible improvements.  There are mining service and technology providers that are designing innovative commercial models for mining companies to access these levers. Canadian mining companies have access to these models and can use them to enhance their competitiveness in a challenging economic climate.

— George McCullough is a Consulting Partner in Wipro Ltd.’s Mining Advisory Services. He has over 15 years in mining and metals and has worked in senior technical consulting roles in systems analysis, design and implementation of software systems in MES. He also has varied experience of operational roles in ultra-deep and open pit mining, exploration, resource management and mine planning.

Xavier Diniz is Wipro Ltd.’s Country Head for Canada. He has over 20 years of experience in the Canadian IT industry and he has had a very successful track record within Wipro, where he has been pivotal in building ties with government and positioning Wipro to manage government IT infrastructure. Prior to joining Wipro, Xavier held multiple senior roles within IBM Canada.

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