Global management consulting company VCI released the third edition of its yearly report on innovation in the global resource industry during the Southern African Institute of Mining and Metallurgy’s New Technology and Innovation in the Mining Industry colloquium, which was held from June 9 to 10 at Emperors Palace, in Gauteng.
VCI’s ‘Innovation State of Play: 2016 Report’ represents a broad cross section of the industry with 230 executives from North and South America, Africa, Europe and the Asia-Pacific region contributing their respective insights. These include CEOs and board members from 15 of the world’s top mining companies, including Rio Tinto, BHP Billiton, MMG, Roy Hill, Antofagasta, Newmont and South32.
The report has been in the making for the past three years and is the culmination of a partnership between VCI and the University of Western Australia.
The ambition of the report is to create a platform to support strategic-level industry discussion of innovation and performance, macro-level insights into the industry ecosystem, and more effective strategy execution and business design for competitive advantage.
The report highlights that significant shifts and future drivers have been affected in the mining industry at a slower pace than other industries, as a result of the mining industry being conservative in terms of innovation, with its core process having changed little over decades past.
However, there are exceptions in the form of large changes in scale, processing breakthroughs in response to orebody challenges and the emergence of new extraction technology, such as block caving.
The mining industry, according to the report, has experienced dramatic progress, applying a risk-based approach to safety and environmental impact. Some CEOs note that the biggest shift is the recent emergence of remote operations, automation and analytics, which is fundamentally changing operating models.
Further, the CEOs are consistent in their expectation of future drivers that would shape the mining industry. Social expectations, coupled with technology-enabling transparency will demand a step change in their businesses.
In addition, a zero-tolerance approach to negative environmental and safety impacts, coupled with broader value chain custodianship and closed loop management of environmental systems, will dramatically raise expectations.
According to the report, analytics and automation will accelerate the removal of people from site, dramatically change decision support and transform the human and machine interface.
The relative value of orebodies will be reprioritised, owing to breakthroughs in exploration technology, low-impact extraction and technology impacting on the end use of minerals, thereby inevitably resulting in business models changing. This will compel companies to specialise in response to technology and competition, while, simultaneously, value chains will become more integrated and will compete together.
The role of exploration also stands to shift from being a risk-based practice to a more technology-driven activity.
“One thing is for certain: CEOs expect the mining industry to be unrecognisable in decades to come,” states the report.
In terms of leadership, the report highlights that a careful balance between top-down-driven strategy and bottom-up ad hoc innovation is required to improve levels of management in companies. It adds that these two forces are in natural tension, stating that CEOs need to be comfortable with this dynamic to be more productive managers.
Meanwhile, as part of their accumulative insight, CEO’s interviewed in the report suggest that innovation in mining is often not seen as central to strategy. Identified causes of this disconnect were risk exhaustion, where, after undertaking exploration, a large capital project and market uncertainty risks mean further innovation risk is seen as too much.
To change the negative perception of innovation, the report suggests that investor perspectives of mining need to shift from innovation being associated with risk, to a lack of innovation being associated with risk to sustainable returns.
Insight from CEOs also suggests that miners need to better educate investors in finding ways to reduce risk when making changes to capital infrastructure.
The report states that collaboration between miners and, critically, between large and small miners, is seen as having strong potential to combine capital, agility and need. The challenge will be for mining companies to be more flexible with attitudes to intellectual property (IP).
Dundee Precious Metals CEO Rick Howes says the perception in the industry is that companies cannot work together as a result of IP being leaked to other parties. “Most innovation in mining benefits the whole industry and the perceived advantage of IP hoarding is self-defeating. More open innovation is the one thing I would change.”