As history has shown us, innovation does not come easily to the mining sector. That is not to say that mining is apathetic to innovation or that it treats it like a pariah. Rather, in this already risky and expensive business, true and novel innovation can be quite difficult to justify, with proven technologies a much easier sell to boards and investors. In short, when it comes to innovation, many mining companies elect the safe and tested option.
|The need for innovation in mining is real|
But being ‘first to be second’ is no longer a viable choice for the sector. A 2015 study by McKinsey has shown that the mining industry experienced a 30 per cent decline in productivity in the preceding decades. With commodity price fluctuations squeezing profit margins or eliminating them entirely; operational costs being on the rise; social, regulatory and environmental pressures mounting for cleaner operations; and deposits becoming increasingly difficult and expensive to access, companies are being forced to address inefficiencies in their operations to stay competitive, while ensuring they maintain their social licence to operate.
Innovation comes in many guises. Deloitte defines ‘innovation’ as “the creation of a new, viable business offering”.
The International Institute for Sustainable Development (IISD) – one of the world’s leading centres of research and innovation – in its 2018 report Innovation in Mining, stated that innovation in the mining sector can take the form of “core innovations that optimise existing assets, products or services; adjacent innovations that incrementally expand a business in new areas; and transformational innovations that represent new breakthroughs and inventions for the industry”.
IISD does not see innovation as a continuous improvement nor being restricted to technology and changes in the way companies mine, but also applicable to “a company’s operating structure, management, communications strategies, stakeholder engagement and a number of other areas central to the business”. In short, representing a “viable conduit for the mining sector to increasingly develop and implement new approaches, technologies and processes to realise mineral resource opportunities while improving environmental performance and meeting social expectations”.
DRIVERS OF INNOVATION
One of the major drivers of innovation in the mining sector is the necessity to remain competitive across all facets of operations – from reducing operational risks to recovering metals and minerals of higher quality, and everything else in between.
Additionally, with recent commodity price declines and reduced profit margins, there is an urgent need for many companies to reduce the costs of developing deposits and operating mines, in terms of labour, capital, energy and other expenses. Also, as new and significant deposits become increasingly remote, deep and difficult to access, new innovative approaches are required.
Service providers and junior companies appear to be well ahead of the innovation curve when compared to majors. Perhaps this is due to necessity, not being entrenched in long-applied practices or even being driven by lack of capital that is commanded by the majors, that forces smaller junior companies to embrace dexterity and become more adept at leveraging external partnerships for problem solving.
It is usually these mining supply and services companies that, as pointed out by Deloitte, play a “key role in the diffusion of new technologies, particularly through the proving of pre-commercial technologies”.
As has been evidenced over the years, clean technologies, for example, often reach large mining companies after their installation and deployment by engineering, equipment, supply and services companies. Many of these mining suppliers and service providers view themselves as key channels for the diffusion of clean technology in the sector, particularly given the industry’s widespread aversion to risk.
SOCIAL AND ENVIRONMENTAL FACTORS
Strengthening the business case for innovation, the social and environmental benefits are also significant, from increased safety on mine sites translating into fewer injuries and less downtime, to reduced environmental footprints and greenhouse gas emissions resulting from the adoption of new technologies and techniques.
With more governments around the world continuing to emphasise innovation as an important conduit for securing a healthy and robust economy, as well as ensuring social progress and environmental sustainability, many resource rich nations will demand that the mining sector adopts innovative approaches in support of achieving the governments’ development agenda.
The international community has embarked on the most ambitious global development programme ever conceived, with the adoption of both the 2030 Agenda for Sustainable Development – which defines, through 17 goals and 169 targets, the global development agenda for the next 15 years – and the Paris Agreement on Climate Change. Achieving both ambitions – the Sustainable Development Goals (SDGs) and limiting global warming to 2oC – will require concerted efforts from countries, communities, civil society and the private sector.
With mining playing a very important role in the achievement of these two targets, it is safe to say that the sector has been put on notice.
|Rio Tinto’s Mine of the Future, Pilbara, Western Australia|
BARRIERS TO INNOVATION
Deloitte points out that the sector’s innovation track record is quite weak, and barriers are quite significant.
With mining being already inherently risky, investing in innovation and its perceived uncertain outcomes are seen by the largely conservative industry as being an additional risk.
According to Deloitte, within mining companies there is often a focus on short-term, bottom line improvements, rather than longer-term growth. In addition, allocating resources to innovation research is difficult, “particularly in periods of depressed prices, as those resources would typically come out of operational budgets”.
Innovation also thrives in a climate of collaboration. Unfortunately, competitiveness within the mining sector can inhibit breakthroughs “due to the interoperability of original equipment manufacturer systems and related company fears of jeopardising the security of their intellectual property”.
Another detrimental effect of the mining sector’s reputation as being slow to embrace and foster a culture of innovation, is its incapability to attract, recruit and retain the type of staff needed to drive innovation forward.
INNOVATION, MINING AND THE GOVERNMENT FACTOR
Changes relating to innovation, particularly around automation and digitisation, are seen as potentially contributing to reduced greenhouse gas emissions and improved worker health and safety.
They could also have significant impacts on employment levels, skills creation, and local content. As low-skilled jobs become increasingly lost to automated machines, communities could see declines in economic activity, governments could see reduced revenues and companies could see an erosion of their social licence to operate. As a result, government’s engagement with innovation across all industries, not just the mining sector, is paramount.
Governments can engage through the creation of incentive programs for innovation, by directly supporting research and development, and by establishing mining innovation hubs that foster collaboration. KPMG believes that governments should support a culture of communication and coordination among stakeholders that “minimises duplication of efforts and builds trust among innovators”. They should also “leverage existing public innovation funding opportunities, tools, and expertise to support the efficient sharing of resources by mining stakeholders, and to reduce risks for first movers to accelerate the adoption of green technologies”.
The IISD, in its 2018 report, postulated that governments should create “stable political and legislative contexts for mining investments, promote the adoption of renewable energy through policies and incentive programs, and ensure that the technological, financial and societal benefits of mining innovation were shared among companies, communities and the state”.
|The estimated mining energy intensity and three most energy intensive operations for coal, metals, and minerals. The energy intensity in metals ranges from 13kWh/tonne to 210kWh/tonne, due to differences in on-site beneficiation operations. Image ©SunSHIFT|
According to a White Paper released by SunSHIFT, titled Renewable Energy in the Australian Sector, the mining sector accounted for approximately 10 per cent of Australia’s total energy use. In real terms, this translates to 500 petajoules per year – a 6 per cent per annum increase over the last decade that has been driven predominantly by increased mining volumes.
The mining sector in Australia derives most of its energy from diesel (41 per cent), natural gas (33 per cent) and grid electricity (22 per cent), with the remainder supplied by a mixture of other refined fuels, coal, LPG, renewables and biofuels.
In response to price fluctuations and improved infrastructure, the energy mix in Australian mining is slowly changing, with diesel use in decline and uptake of natural gas and grid electricity on the increase.
Fitch Solutions, in their report Shift to renewables to become a growing trend in mining, predict that share of renewables powering the mining industry is set to rise due to an “increasingly favourable regulatory environment in key mining markets, combined with fast-falling renewable energy costs as well as a growing strategic importance given to reducing costs and improving ESG (environmental, social and governance) standards among miners”.
The credit rating agency believes that countries and companies operating in the Americas are best positioned to lead the way in the adoption of renewables in mining, aided by carbon pricing measures and an already significant integration of renewables in key operations.
“We expect that Solar Photovoltaic (PV) and wind capacity will dominate the share of renewables favoured by miners moving forward”, said Fitch Solutions.
COST - THE MOTIVATOR
The most economical source of electricity depends on a mine’s proximity to electricity or gas infrastructure, life of mine, electrical demand, and mine production schedule.
Mining operations with a high electricity demand and a long life can support the capital investment required to extend electrical or gas pipeline infrastructure. Remote locations and uncertainty favour the lower capital cost option of establishing self-contained, off-grid electrical generation and distribution infrastructure.
According to Fitch Solutions, current energy and mines research estimates that energy costs “account for up to 30 per cent of miners’ balance sheet costs”. The agency expects this to increase over the coming years as ore reserves are depleted, forcing companies to adopt more energy intensive mining methods.
“In an environment where miners will remain committed to keeping costs down, the use of renewables offers significant cost-reduction potential ahead as technology improvements and larger scale being achieved among equipment manufacturers lead to falling prices, while maintenance costs are negligible compared to conventional generation”, commented Fitch Solutions.
SunSHIFT believes that key economic metrics are levelised cost of electricity (LCOE) and capital cost.
“On-grid large-scale solar PV and wind are the lowest cost electricity sources on a LCOE basis (<AUD$80/MWh) and their capital costs are becoming competitive with diesel or gas generators”, reported SunSHIFT. “Further decreases anticipated, with PV module costs falling 80 per cent since 2008 and onshore wind costs falling by 50 per cent since 2009. The combination of low LCOE and comparable capital cost is making wind and solar PV increasingly attractive in short-term economic metrics.”
THE FUTURE IS HERE
|Recent large-scale hybrid systems in the global mining sector. Image ©SunSHIFT|
There are a number of mining companies that are already utilising renewables to partly power their operations.
Newcrest’s Lihir gold mine in Papua New Guinea draws a significant portion of its energy from geothermal sources.
IAMGOLD’s Rosebel gold mine in Suriname has installed a solar grid on site, which will be transferred to local communities to meet their energy needs once the mine closes. Glencore’s Raglan nickel mine in Quebec and Rio Tinto’s Diavik diamond mine in Canada have installed on-site wind turbines to offset some of their reliance on diesel.
Although every mining operation will have a unique set of requirements and variables that may prevent the site from having renewables meet its full energy needs, the sector is seriously considering renewables as a viable and important component of a mine’s energy mix.