Updated: Apr 14, 2021
Wikistrat's CEO, Oren Kesler spoke with Mining and Digital Value Chains expert Dr. Alan Bye to discuss the future of the mining industry in light of increased social awareness and rapid technological developments. This podcast took place as part of Wikistrat's "Digital Mining in the Age of Social Awareness" simulation which recently concluded.
Prof. Alan Bye is the Director of Digital Value Chains at Curtin University and founder of Imvelo Pty Ltd. Alan has 22 years of operational and executive experience focusing on the innovation and integration of the mining value chain. Alan was most recently Vice President Technology at BHP, in his global role he was accountable for the execution of major innovation programs across 5 commodity value chains covering both digital and extractive technologies.
Hi everyone, my name is Oren Kesler, Wikistrat’s CEO, and this is a podcast recording with Alan Bye who is the co-founder of Imvelo, which is a company that mobilizes a capability ecosystem to deliver business transformation. Alan is also a Professor & Director of Digital Value Chains at Curtin University. He has more than 20 years of experience in the mining industry, and most recently he was the Vice President of Technology at BHP. And we are very, very happy and excited to have him in this podcast with us. Alan, thank you for joining us.
Good morning, Oren. I'm very much looking forward to our discussion.
Perfect. So, Alan, the first question I have for you is a question that is related to a simulation we recently ran, in which we looked into the future of the mining industry. And one of those alternative futures that we have seen crystallizing from all the scenarios and the stories looked into how regulation and public opinion will force the industry to change. And the question is how, in your opinion, will changing environmental regulation, and the pressure from the public impact the mining industry in the upcoming 10 years?
Oren, I think this is a megatrend that you've picked up in your analysis. So, it's a good topic to talk about. And the first impact that I think we are already seeing is greater transparency, or a drive for greater transparency, around mining supply chains, and particularly the provenance of the raw materials and how they end up in consumer products. So I think we're going to see more and more pressure for that transparency.
The second thing we will see is increased operating costs. If we look at this, the regulations that are in place for environmental reasons is requiring a higher standard across the mining industry. And some companies are doing this exceptionally well, but as a whole, the industry has probably got some more work to do. And that's going to require investment in infrastructure, technology, and capability to achieve that standard.
What will also drive increased cost is we're likely to see a carbon price at some point come into the global markets, and this will add a cost to the operating business. And so mining companies will need to improve their productivity to be able to carry this additional cost that is going to come from social, political, and investment pressures around environmental performance.
One of the questions I have, because it also was apparent during the simulation that we ran, that there is kind of a gap between the requests from the public for more information on where and how their commodities are being extracted, delivered, and who has been involved in it to the end product. There are so many stations along the way of the supply chain, all the way from the producer or the extractor, so to speak, to the producer of the final good, which is delivering it to the consumer.
How are they going to do that? How are they going to provide that information to a public that is requesting it on the one hand, but on the other hand, there are so many stations along the way, which makes it very difficult to do?
Oren, one of the hard things to talk about is the mining industry in ‘general terms’, it's a very diversified industry. It's geographically diverse. The resource endowments are quite different. And so for some of the supply chains, like copper, for example, or diamonds, being able to track the provenance of copper or diamonds is relatively easy, you can look at the inherent mineral properties, isotopic properties of these minerals, and you can actually track them through the stages of the supply chain and have reasonable confidence of the source of that material. There are other commodities like uranium or rare earth, which go through much more extensive and complicated supply chains. There is blending of the materials along the way, and it's more difficult to unequivocally prove the provenance of those materials.
In saying that, there are a number of platforms that are being developed using blockchain technology that are already being used to track and verify the provenance of materials. So, I think we will see it coming through in many of the supply chains, but some will be extraordinarily difficult to prove.
There are a number of platforms that are being developed using blockchain technology that are already being used to track and verify the provenance of materials. So, I think we will see it coming through in many of the supply chains, but some will be extraordinarily difficult to prove.
From a point of view of reduction of costs, versus... Which is what the industry is always aiming for, versus the need to improve processes in order to fit, to meet those regulatory concerns and regulatory demands that the government and the public will have, what kind of a change will the industry go through from a technological point of view in your opinion?
To simplify this, there are two ways to look at it. There is a huge range of digital technologies, digital and automation technologies that are available to the mining industry, and the mining industry is adopting these technologies. I would say, for the most part, those sit in the efficiency category. So, we can use our data. We can make more efficient decisions. We can use remote operations, we can put automation on our haul trucks. And we're seeing the improvements of those in the 10% range from a productivity and cost perspective.
And then the other category is the fundamental physical processes that involve changing how we extract or process minerals. And the breakthroughs in this area are potentially more significant. They could have a step-change in how we process and extract minerals. And again, there's work and adoption going on around the world in those processing technologies, which I think are fundamentally important to driving the productivity of the industry.
One of the alternative futures that we have seen also crystallizing in this simulation was the idea of the industry being disrupted by external actors. One example that came up in quite a lot was Tesla entering into the mining industry and disrupting it, or companies from an oil and gas sector sliding into mining. Or technological giants such as Google entering into mining.
My question here is how likely do you think this kind of scenario is possible? How much do we see those kinds of companies posing a threat to the traditional mining firms that are operating in the mining industry today?
Oren, I really like this question, and it's topical. But first, let's define what disruption is so that everyone understands what we're talking about. Disruption is the radical change to an existing industry or market due to technological innovation. So, the emphasis there, it's a radical change to an existing industry where technology is driving that change. And so when you frame it in that way, the mining industry has a number of barriers to entry. And so while we'll see some disruption to different parts of the industry, it's difficult to predict that there's going to be a wholesale disruption of the entire mining industry. And part of the reasons is that geographically, the resources industry has different endowments in the ground in terms of quality of resources. There is varied ownership of the tenements to access those resources, and also mining licenses, and these licenses are awarded for long periods of time. The legislative environment is quite onerous if you want to actually operate these mines. And it's a very capital-intensive industry.
And so when you think about those aspects of the industry, and you compare it to the media industry where there's been massive disruption through digital technology in the last 10 or 15 years, that the barriers to entry are quite different. And so while we can definitely expect disruption. I wouldn't forecast that it's going to disrupt the whole industry and all parts of the industry. I will say though, that I think we can expect more change in the next 10 years than we've seen in the last 50 years, because of all of these megatrends that are coalescing around the mining supply chain at the moment.
We can expect more change in the next 10 years than we've seen in the last 50 years, because of all of these megatrends that are coalescing around the mining supply chain at the moment.
Do you think it's plausible for a company that is very strong on the technology side, let's take for example, Tesla, or Google, will look into getting into the mining industry doing it through mergers and acquisitions? So an approach in which they will purchase tier two or tier three companies that are struggling financially and use that kind of joint operation in order to push them to a tier-one status by using the technology that they bring to the operation. Do you think that's a plausible scenario to see in terms of a disruption, or is that something that's less likely?
It's definitely plausible, Oren, but I think that is an extreme case. So if you look at the OEMs and companies like Tesla, who are manufacturers of batteries and electric vehicles and so on, what we're seeing them do is reach back down the supply chain to set up off-take agreements with mining companies directly. And so what they're doing is they're leveraging their commercial muscle to establish the terms under which they will buy those raw materials. And they're doing it both from an environmental sustainability perspective, but also for the security of supply. So I think that's a more obvious mechanism where we're seeing a change in the behavior, and we're seeing different companies actually starting to, I guess, work directly with mining operators, and step through the sales marketing, supply, logistics, and get all the way back to the source. That's one potential pathway we are seeing evolve.
Oil and gas companies have to be looking at different futures and how they leverage their capabilities and, their technology base. And so it's possible that they could see the resources industry, or the mining industry, as a way to generate new businesses for themselves. We can also see the oil and gas service providers, who are extremely advanced in their technology solutions, looking to diversify across into the mining industry. That's not new news. I think that's been spoken about for a long time, but we haven't really seen the penetration happening yet.
We're seeing different companies actually starting to...work directly with mining operators, and step through the sales marketing, supply, logistics, and get all the way back to the source. That's one potential pathway we are seeing evolve....it's possible that they could see the resources industry, or the mining industry, as a way to generate new businesses for themselves.
Now, you have said that we're expecting to see in the next 10 years more changes to the mining industry than we have seen in the last 50 years, and that's a very interesting comment. Following that, what are the technologies that you think will have the most impact on the mining industry in the upcoming decade in terms of operations?
Oren, I think this is another topical question and there are many opinions out there, so I'll share my thoughts on it. So ACE, which is short for automation, connectivity, and electric, is I think a good way to frame some of the major technologies that are being adopted by the industry. So I'll start at the back end of that. So electric, I think we're going to see a big shift in the type of energy that's used by the mining industry, and shifting from diesel to electric-based power sources, both from an equipment perspective and also the supply of renewable energies into mining operations. And we're seeing it already with major mining companies renewing their contracts and putting them onto a renewable source. So, electric, I think, is a big factor.
Automation, we're seeing that come into the industry. People tend to think about automation, and it's very visual, as these large haul trucks that are operating without people inside them, and that's the automation. But it's fair to say, that's only one piece of the supply chain that can be automated. And where there's more automation happening is around the processing plants and the logistics supply chains. There's a lot of automation there that's happening, not just of equipment, but processes that support the business. And so automation, I think, is going to be a big factor. And we will hopefully see in the next 10 years, a fully automated open-pit mine, where we've got mixed fleets of haul trucks and drills and shovels all interacting under a single automation platform. So we have a fully automated mine because that's going to unlock significant value. Trucks alone unlock a small amount of value, but when you can automate the entire movement of material and ore feed to the mill, then there's enormous value to be unlocked.
Communication or connectivity. There's 5G technology, there are satellite communications, like the Starlink technology that's coming. That's going to enable all of the connected worker, connected sensor, industry 4.0, lower the cost barrier for smaller operations to start leveraging industry 4.0 technologies because the cost of connectivity and availability of connectivity is so much better.
From the perspective of the mining industry investing in technology. So we spoke about a potential scenario in which technological firms are going to disrupt the industry from outside by acquiring tier two or tier three firms. But what's the possibility of mining companies starting to invest in technology by acquiring technological firms in order to help them in their day-to-day operations, and in order to become technological hubs themselves?
Look, Oren, it's possible. It's fair to say we haven't seen much of that. There are definitely cases where mining companies have invested directly into technology companies. And mostly that's been to enable them to grow and scale and to improve their service offering and to make them a viable entity to contract with, rather than a competitive advantage capability that they house within the mining company.
I almost feel we are going to see the other trend, where mining companies are going to move more to... As a service model, where instead of investing the capital on the communications infrastructure, they will contract a company to come in and install and maintain and support the entire communications infrastructure for their mining business. And they will then make sure that it's world-class and it's maintained to the right standard and availability.
And that could extend to things like automation as a service, where you'll have companies come in and they will automate parts of the fleet or the business, and they will do that on a contractual basis. So I think rather than mining companies becoming technology companies, we're going to see mining companies go more and more towards service models and leverage their procurement and the economies of scale to leverage those technology businesses.
Rather than mining companies becoming technology companies, we're going to see mining companies go more and more towards service models and leverage their procurement and the economies of scale to leverage those technology businesses.
Fascinating. And from the perspective of mining companies looking into technologies on fields, such as, like you said, communication or automation, and those kinds of technologies, do you think mining companies are going to look for partnerships with universities or with organizations that are working into that as a way to maybe look into those developing technologies and to understand what can be used? Do you think that's something we're going to see more of?
Oren, the notion of collaborations that solve technological problems, and de-risk them, and bring them to commercial maturity, have been around for a long time around the mining industry, with variable success rates. I think what we'll see is that mining companies will get better at being participants of these collaborations, and perhaps being more open around who's involved in those collaborations. And also, perhaps more commercially focused collaborations. The collaborations that have been done so far are often in early-stage technology problems, or research, pre-commercial stage. Whereas I think we're probably going to see a shift to the commercial side of collaborations, where you're bringing together a range of technologies, integrating them, de-risking them having a number of partners, or a consortium, that could potentially provide a whole service, once that's been de-risked and worked out.
So, yes, I think we're going to see more of that. The constraint of doing it is capability. it requires very skilled people to manage collaborations effectively, and you need those people inside mining organizations to be able to orchestrate and coordinate these collaborations and make sure they are a win-win for all participants. So that's where the challenge lies, how do we get more of those skills and skilled people working inside the mining industry?
You're touching on a fascinating point, that we were just discussing among ourselves about the topic of our next simulation, about the future of work within the mining industry. And one of the issues that have been obviously dominating is the demographic change.
We're going to see an aging population, which is hard to replace because of their experience, and there are fewer people who are essentially going into the mining industry. That's another phenomenon we have seen surfacing in the simulation. And on the other hand, that aging population within the mining industry would be expected to go through training, or to be acquiring a certain specific skill set in order to adapt to the new technologies that are going to be impacting the industry.
How do you think that's going to happen? Is that going to be something that's going to be smooth, is that something the mining industry is currently doing? Or is that going to be something that's going to be extremely difficult, which is going to be a massive challenge for the mining industry?
Oren, this is one of the areas that I am most excited about. I think we're going to see teams brought together to solve problems that will involve for example young Computer scientists who have just graduated, and 60-year-old operators, people who are nearing retirement, but have a wealth of knowledge and experience. And you're able to put them together, in a team, and solve problems
So I think it doesn't have to be a challenge. It doesn't have to be a difficult transition. I think the ability to bring teams together and focus them, bring diverse teams together, and focus them on these problems will unlock enormous value for the mining industry. And again it's a platform and a capability question. We need those collaboration platforms, and we need the people who are able to coordinate these diverse teams in an effective way. That's what will unlock the opportunity.
We're going to see teams brought together to solve problems that will involve for example young Computer scientists who have just graduated, and 60-year-old operators, people who are nearing retirement, but have a wealth of knowledge and experience. And you're able to put them together, in a team, and solve problems....It doesn't have to be a difficult transition.
How do you think the mining industry is likely to adopt new environmental regulations, and how will it impact it? Meaning, are we likely to see an industry that is fighting against the change, trying to slow it down, or adopting it, trying to observe it within their operations and hence making it something that they can flourish and leverage from it? Which kind of approach do you think the mining executives will choose to take?
So, Oren, we need to frame a few things here. Firstly, how diverse the mining industry is. And secondly, what's driving these environmental regulations. What's driving the change? Who's actually instigating them? Because it's not the mining industry themselves. And so, let's start by saying that the tier one players within the mining industry are very likely to be at the front end of adopting best practice, leading the environmental and responsible management of resources, because they're very visible, and they tend to have contracts with the premium consumers and customers for their products. Now, there are three aspects to this. There is a commercial driver for these environmental regulations, and these are groups like the EU who are very much setting high standards around what they will commercially procure, what they will allow to be shipped into the EU.
So, that's one aspect of the regulations. The second one is compliance. And these are government environmental agencies that are continually raising the standard of approvals and operating requirements. And it's fair to say that in first-world jurisdictions, these environmental standards are very high, and they're onerous and the companies work very hard to make sure that they achieve them. It's also fair to say that there's more of a compliance issue than a regulation issue. So tailings dams are a good example. The problem there is not regulations, the problem is around compliance, and quality assurance in terms of achieving those regulations.
Now, the third driver for the adoption of these regulations is investors. So, we're definitely seeing investors being vocal around their expectations. If they're going to provide capital, they want to make sure that it's being invested into resources that are going to be sustainably operated, that have environmental credentials, and that take care of climate change impacts. And so these are the three drivers that are pushing the mining industry to adopt the regulations around environmental and sustainability standards.
Do you think there's a chance that we're going to see those kinds of regulations separating even more the tier one companies from the tier two and tier three? Meaning, in their ability to comply to them? The strong will get stronger, so to speak, because of their ability to comply with regulations that will force out or to kind of quit or join forces because it's going to be asking too much of them?
I definitely think it's going to cause an even bigger spread of performance in the mining industry. And the reason for that is the consumers are quite different. A consumer in Europe and the US will have very clear requirements around their off-take agreements, and the tier-one miners will supply that. There are other consumers, in other parts of the world that don't have those standards or expectations, and they effectively buy products on a price basis.
And so, for a long time, there'll be space for companies to participate in supply chains that don't have the same level of regulation or quality assurance around those products. So there'll be a very uneven application of the impacts of these environmental regulations over a long period. And so to your point that the tier ones will have an even higher performance standard, and there'll be a long tail in terms of performance and timing with the rest of the industry.
And I think there's also a perception that there'll be a price premium to be had for those companies that have the best performance in this area. I'm not sure that's necessarily the case, because the market is big and diverse and price generally dominates transactions. I think what you might see though is a greater spread in the prices. So for those companies that have very low performance, they may only be able to get a low price for their product because the market is smaller. And for the bigger companies, it will be an expectation that if they're going to sell their product, they meet these requirements. This is why improving productivity is so important for the mining industry to be able to fund these additional expectations.
For a long time, there'll be space for companies to participate in supply chains that don't have the same level of regulation or quality assurance around those products. So there'll be a very uneven application of the impacts of these environmental regulations over a long period.
Fascinating. And from that perspective, I want to actually ask you a final question to conclude our interview here. And that is, what are your prospects and what is your view as to where the industry is going to be heading in the next decade? How do you see the future of the mining industry?
Oren, my family was in the mining industry and I've also been privileged to work in the mining industry. And I've never been more excited about the amount of change and opportunity that sits in front of the mining industry. And that's why I think the next 10 years are going to be extremely exciting because we've got these incredible technologies that are available to an industry that has struggled with its productivity, that has struggled with its achievement of environmental standards, and now has the ability to rapidly adopt available technologies to bring on productivity-improving processes and technologies to really move the industry forward.
And just to put this into stark contrast, over the last 30 years, the mining industry has gone backward in its multifactor productivity. It's actually less productive now than it was in the 1990s. And when you measure that against the manufacturing industry, which has rapidly adopted these technologies, they've progressively improved the efficiency of their businesses. The mining industry has not. And I think we're going to see that change. I think we're going to see a big shift in the productivity of the mining industry by building partnerships, adopting technology, growing capability.
And it is a necessity because we have to fund the expectations of our communities and of the environmental regulations. And we're going to have to drive that through productivity. Don't believe we're going to get a price premium, we're going to be paid to improve our act. We're actually going to have to perform better to be able to fund those improvements. And I think that all means that over a short period of time, there's going to be a big shift, and the industry is going to transform.
Over the last 30 years, the mining industry has gone backwards in its multifactor productivity. It's actually less productive now than it was in the 1990s.
That's a very optimistic kind of way to conclude our discussion, and I'm really happy that we had the chance to conclude it in, I would say, a happy note for how we see the mining industry heading forward. And thank you so much for joining to our podcast, Alan. Thank you so much for those very interesting insights and perspectives on the future of the mining industry. Thank you.
Thank you, Oren. It was my pleasure.