The Mining sector is not often thought of as a Technology play, however the reality is that most mines exist today because of the application of technology, acting to reduce costs in both mining and mineral processing.
Take Aluminium for example, despite its abundance the pure form of Aluminium could not be produced until 1825. In fact, it was so rare and expensive that Napoleon honoured guests by providing Aluminium eating utensils, instead of gold and silver utensils, something that today would be considered close to an insult even below stainless steel in quality or prestige.
Aluminium’s price was US$12.00 a pound in 1880 but had dropped to US$0.20 a pound by the 1930s. Today the product can be used to wrap lunch and then thrown away, such is its commonality.
Technological development allowed for the increase in the availability of cheap Aluminium and this has been the case for most other metals. The important thing for investors to note is that the application of new technologies over the next ten years into the mining and mineral processing sectors could be a significant driving factor in increasing margins in the sector particularly for large miners with existing mines, processing facilities and resources.
The Future is Already Here
“The future is already here — it’s just not very evenly distributed” [William Gibson] this is very true of many sectors, but particularly the mining and mineral processing sectors. For example, outside the sector in container port logistics, there are already major container ports in the EU and China where no human is allowed on the port because container movement is fully automated. In mining, there are already automated trains and HaulPaks, but this is likely to be just the start of automation in the industry. It is not inconceivable that in future entire mines could be run on an autonomous basis, just as advanced ports are today. Artificial Intelligence and robot developers are already setting their sights on the mining industry.
Rio Tinto launched 2.4km-long trains, in 2019 that cross 1,700km of tracks. The trains are operated from a control room in Perth 1,500km away and have no driver. Electric HaulPaks are being developed that can recharge as they descend back into an open cut or underground mine.
A recently released report by consulting firm McKinsey & Company found that automation will take a toll on remote mining areas, stating that by 2030, automation will have a “considerable impact on local communities”, that the impact could vary from 21% in city centres dominated by professional services to over 30% in mining regions like the Pilbara, in Western Australia.
While some alternative jobs will be created, a good analogy in regard to an automated future is that of the car and the horse. The bulk of the change from horses to cars only look 10 years. At the beginning of this change ironically one of the reasons given that the car would not take over from the horse, was that the car needed regular distributed facilities to fill up with fuel, while the horse could just graze on the side of the road. What do they say about electric cars today? That they will not succeed because of the range and the need for charging facilities.
Yes, ultimately the car did create new jobs, but not for the horses who were literally and figuratively, history. While on the face of it for investors this move towards increased use of technology will likely act to increase margins in the mining industry. The industry will also face challenges created by this technology.
Accounting for Externalities
While the increased introduction of technology into mining will help to increase margins, it is also likely to reduce labour. Reduced labour in the industry will see the industry’s political importance decline.
Thus mining faces both a decline in political importance and global political pressure to internalise mining externalities, such as the carbon footprint from coal production.
The mining industry will need to better link its activities to wider community benefits in future, or it will find it increasingly difficult to gain approval to open new projects. To this end, the market should favour established operators, that are already mining and will, therefore, capture more of the benefits of increased technological implementation.
One possible way to do this would be to lobby the government to develop more of a social benefit directly to the community out of existing royalties and taxes paid.
Once again for investors the importance of management being able to move strategically with the times is evident. There could be potential for large, established miners to increase dividend payments as margins expand with increased technology and reduced labour.
Another technological threat to mining is the use of composite materials which can in some cases be used as substitutes.
While it has always been the case, today it is truer than ever. Everyone is in the technology business, effectively a technology race. This is clearly true for the mining sector.