Massif Capital: Mining Innovation Could Surprise Real Asset Investors

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Massif Capital: Mining Innovation Could Surprise Real Asset Investors
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As minerals become increasingly difficult and costly to extract, innovation has become an absolute imperative for mining companies. Finally, the industry seems up to the task.

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A Genuine Focus On Innovation

Historically, mining firms have been slow to adapt. Innovation simply meant more trucks and more shovels, bigger trucks and bigger shovels, with little thought to the operational efficiency of those trucks and shovels.

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But times are changing. We see promising technological development from select mining companies, and a genuine focus on innovation from management teams. Their willingness to adapt may be the key to unlocking shareholder value in the decade ahead.

Miners are innovating in part because the operating environment has forced their hand. As demand for commodities and minerals increases, ore grades are declining, ore body replacement rates are falling, new mine development times are increasing and fundamental cost drivers are rising.

We explore the idea deeper in an investment brief on the sector’s innovation, but an excerpt on the state of the copper industry serves as an example of the challenges miners are up against:

“The average ore grade of a copper mine has decreased 25% between 2006 and 2016. Total energy consumption at those mines increased 46% over the same period, while production only rose by 30%. The depth of deposits is also increasing, adding further operational challenges. From 2002 to 2007, the depth drilled by mining firms to find new deposits increased by 64%, a trend that has continued to this day but at a slower rate. New deposits are increasingly difficult to find, are of lower grade, and are harder to extract.”

Promising Innovations Under Way At Mining Companies

Against this backdrop, the response has been impressive. Below are a few of the promising innovations under way at companies:

  • Automation at Rio Tinto: The company is using automation to centralize command and control of mines, ports and rail systems at a single location for its massive iron ore operations in Australia. Management hopes that by centralizing command and control of mines and automation, the company will realize further opportunities from shared data and real-time oversight. The automation efforts include the world’s first fully automated long-distance railway system, operating on 1,700 kilometers of track and connecting 16 Pilbara Iron Ore mines to four port terminals, and the use of autonomous trucks to haul away ore and waste.
  • The Intelligent Mine: One of several data-driven concepts in place at Anglo American, the intelligent mine relies on real-time data and machine learning to optimize excavation. The end goal is to digitally twin the operation of a mine allowing for real-time testing of operational changes on a digital mine model before deployment in the real world, reducing unknown risks and speeding up the deployment of incremental process improvements.
  • The Concentrated Mine: As mine grades continue to decline, Anglo American is also using technology to maximize the return per ton of ore processed. Several initiatives are under way including: an advanced fragmentation approach to blasting design that increases fine ore fragmentation with fewer explosives; bulk sorting which utilizes sensors to sort worthless rock from ore-bearing rock; and Coarse Particle Recovery, a method of further separating waste rock from ore during flotation processing. Each of these enabling technologies aims to reduce water and energy usage in ore processing by reducing the amount of waste rock processed along with increasing the concentration of ore-bearing material being processed.

These innovations are just a handful of the changes that will take place in the coming years. Going forward, we believe investors should be on the lookout for management teams that utilize technology and innovation to reduce the capital intensity of mining. Those who do could reward shareholders with considerable value creation.

To read more about the innovations taking place within the mining industry, and to learn about the historical challenges to innovation that companies are finally overcoming, we encourage you to read our investment brief here, Mining for Innovation.

Article by Massif Capital

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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