Published on February 5, 2014
1 The future of mining DIEGO ARECES VP Mining, Minerals & Metals Solutions September 18 2013, Arequipa, PERU
● Introduction ● About Schneider Electric and Mining, Minerals and Metals in Schneider Electric ● The 10 Global Market Trends and their Implications ● Possibilities (or Options) for Mining Companies: The Mining Business of Tomorrow ● Technology for the next “Industrial Revolution” in Mining ● Conclusion The future of mining
3NOW! Schneider Electric at a glance The global specialist in energy management billion € of sales in 2012 North America 25% Asia Pacific 27%Rest of World 18% Western Europe 30% 28 300 44 200 42 600 22 000 employees in 100+ countries of sales devoted to R&D Large company of sales in new economies Balanced Geographies FY 2012 sales Year-end 2012 employees Diversified end markets FY 2012 Sales (billion €) Residential 9% Utilities & Infrastructure 25% Industrial & machines 22% Data centres 15% Non-residential buildings 29%
The Future of Mining Key Trends in Global Mining ● Focus is on the most important trends in the mining industry ● Trends create major structural changes and are reshapingthe industry ● Changes generate implications or challenges ● Companies acting on challenges will grow market share in the future Market Trends Mining Business Implications (Challenges) Possibilities (Options) Solutions
1. The Impact of China 2. Market Fundamentals Remain Unchanged 3. Scarcity of Natural Resources 4. The Renewed Role of Governments 5. Talent Availability 6. Sustainable Development: People’s Safety 7. Sustainable Development: Environment 8. Commodity Business Volatility 9. New Technologies 10.Globalization trends
The Impact of China ● China has been the world’s economic growth engine for the last 20 years • Size and speed will be unparalleled • Growth is slowing to single digits, causing an expected market reaction trend Source: IMF RealGDPGrowth
The Impact of Chinatrend Source: Raw Materials Group, Stockholm 2011 Chinese Iron Ore Imports
The Impact of Chinatrend
The Impact of China • Growth has generated Chinese expansion abroad: • Mining Chinese FDI increased considerably • Chinese supply chain and sourcing are required trend Source: Raw Materials Group, Stockholm 2011
The Impact of Chinatrend
Implications to Miningtrend • Short term demand, prices and profits decrease • Increased relevance of China > Customers, Suppliers, Partners, Colleagues • Need to source alternate markets
Market Fundamentals Remain Unchanged ● Mining market fundamentals remain unchanged ● Population Growth ● Urbanisation ● Industrialisation ● Scarcity of resources ● Sustainable development at center stage ● Commodities used as financial instruments will decrease trend
Market Fundamentals Remain Unchangedtrend 126 Years Coal Reserves 770 QBTU by 2035 (40% increase vs. 2012)
Market Fundamentals Remain Unchangedtrend 9B people by 2050 (30% increase versus 2012)
Implications to Miningtrend ● Long term demand and price increase, associated to productivity increase ● Source customers, suppliers and partners in even newer economies ● Globalisation
Scarcity of Natural Resources ● Natural resources are scarce ● Usage is exceeding regenerative capacity ● 68 billion tonnes of raw materials used worldwide (2009 ) ● 1/3 increase since 2000, double end 1970s ● Per capita raw material consumption is x4 in industrialised nations than in less developed countries trend Baeconomics, 02/2012
Scarcity of Natural Resources ● Reserves data are dynamic: ● Additional deposits have developed ● Existing exploited deposits are being thoroughly explored ● New technology or economic variables improve economic feasibility ● Despite the depletion by mining, reserves data are increasing trend
Scarcity of Natural Resourcestrend
Scarcity of Natural Resourcestrend Source: Australian Venture Consultants, 02/2011
Scarcity of Natural Resourcestrend Silver Manganese Copper Iron Gold Aluminium Nickel Manganese
Implications to Miningtrend • Long term commodity prices will increase • Finding new mineral resources will be more expensive • New mine sites will be located in more remote and riskier places • Exploration and production > challenging geographies and environments
The renewed role of Governments ● Political and economical reasons are driving Governments to be much more involved in the mining business trend Source: The Economist and Financial Times
• To benefit from mining activity • Direct Participation • Ownership (w & wo operation) • Indirect Participation • Taxes • Investment • To regulate the mining business • Sustainable development • Land distribution/ownership • Exploration/exploitation permits • Foreign participation • New codes and laws The renewed role of Governmentstrend Source: PricewaterhouseCoopers; 15th CEO Survey, 2012
Implications to Miningtrend • Impacts the risk and costs of capital projects • Directly increases the cost of doing business • Bribery and corruption can take centre stage
Talent Availability ● Talent availability remains one of the major risks for mining businesses ● Skilled worker shortages are a result of: ● Benefits generated by mining businesses ● Remote locations ● Aging workforce ● Lack of interest from Generation Y ● Overloaded supply chains will further be outsourced ● New skills required to meet globalisation and new technologies trend
Source: PricewaterhouseCoopers; 15th CEO Survey, 2012 Talent Availabilitytrend
Talent Availabilitytrend Source: University of Queensland, Australia, 2007
Talent Availabilitytrend Source: PricewaterhouseCoopers; 15th CEO Survey, 2012 http://www.pwc.com/gx/en/ceo- survey/pdf/15th-global-pwc-ceo-survey.pdf Read the Pricewaterhouse Cooper’s Annual Global CEO Report for more insights from leading miners on Talent Availability
Source: PricewaterhouseCoopers; 15th CEO Survey, 2012 Talent Availabilitytrend
Implications to Miningtrend ● More expensive projects ● Delay (or even cancellation) of new projects ● Higher operational costs ● Safety impact ● Decreased productivity and quality
Sustainable Development People’s Safety ●Sustainable Development has taken center stage: Economy, Environment and Society ● Communities, Governments, Shareholders and Customers require mining companies to comply with (implicit and non-implicit) sustainable development: ● Costs of non compliance are increasing ● Mining licenses and customers are being lost, as is shareholder trust ● Affects talent recruitment ● Mining companies are required to obtain the “social license” to operate: ● Companies provide social dividends for employee health and safety, the environment and host community trend https://www.globalreporting.org
Sustainable Development: People’s Safetytrend Reference: ArcelorMittal
Sustainable Development People’s Safety ● Mining employs 1% of the global labor force, and generates 8% of the fatal accidents (Source: International Labor Organization) ● Approximately 12,000 people die per year in Mining accidents ● Lack of information makes it hard to evaluate improvements ● Global Reporting Initiative delivering a sustainable development reporting framework trend
Sustainable Development People’s Safety ● China accounts for 40% of global coal output, and responsible for 80% of global mining deaths yearly ● China: over 3,000 people die from mining accidents yearly ● South Africa: fatalities decreased by 2.4% to 128 in 2010 ● Australia: fatalities decreased 63% to 6 in 2009-2010 ● USA: mine deaths increased by 115% in 2010 to 77 trend
● Not complying with sustainable development regulations has a major impact, well beyond costs. Sustainable Development People’s Safetytrend Marikana (South Africa) August 16, 2012 Reference: Financial Times
● Not complying with sustainable development regulations has a major impact, well beyond costs. Sustainable Development People’s Safetytrend Reference: Financial Times
Implications to Miningtrend ● Operational cost increase ● Cost of accidents or safety breaches well beyond the cost of the instance itself, but may severely impact production and share value ● People’s safety will impact the social license to operate
Sustainable Development: Environment ● Environment protection impacts the whole community in a direct and indirect way ● Government, communities, shareholders and customers are forcing commitment to sustainable development trend
Sustainable Development: Environment ● The next 10 years environmental sustainable development will shift: ● Understanding and setting standards to implementing standards ● Reposition to a proactive positive impact ● From large companies to the whole industry ● Mining companies, government and communities all responsible trend
Implications to Miningtrend ● Mining project costs will substantially increase ● Impact will affect new investments ● Early development of government and community partnerships ● Adoption and compliance to global reporting standards
Commodity Business Volatility ● Mining has become a volatile business ● Prices, shares, currencies ● Commodity prices are influenced by several factors ● Business environment ● Geopolitical: Natural and human created ● Economical: Supply and demand ● Commodities used as financial instruments (ETF) ● No evidence that speculation fueled the spike in commodity prices and volatility. Demand-supply shock did ● Currency exchanges fluctuation trend
22 Years 10 Years 10Years Commodity Business Volatilitytrend
Commodity Business Volatilitytrend Source: Reserve Bank of Australia, June 2011
Commodity Business Volatilitytrend Prices of commodities with not well developed financial markets increased as well Two commodities with large derivatives markets. Supply of natural gas increased Correlation between on- index and off index commodities Inventories
Implications to Miningtrend ● Impact the timing and decision process for capital investment ● Demand instability will affect planning and increase costs ● Increases risk
New Technologies ● Recent growth was a result of surge for commodity demand and prices ● Growth coincided with a decrease in productivity and investment in R&D trend
New Technologies ● The industry spends less than 1% of revenues on R&D ● Average of the world’s 1,400 most important companies spend is approximately 8% trend Source: elsevier, R&D prospects in the Mining and Minerals Industry
New Technologiestrend Source: economics of industrial research and innovation, EU, 2011 1.31 -7.91 1.15 1.03 The 2011 EU Industrial R&D Investment Scoreboard: 1400 World Companies
New Technologies ● Major challenge: new technologies enhance productivity ● Technological advances from other industrial segments may be applied to mining trend
New Technologies ● Analytics ● Operation Optimisation and Business Decision ● Neuronal Technology ● Process Optimisation ● Ergonomics and Human Machine Interface ● Remote Monitoring and Management, Driverless trucks ● Image processing and 3D modeling ● Geology ● Geographical Positioning ● People location; Collision avoidance ● New Water Technologies ● Use of saline water in mineral processing trend
New Technologies ● Major areas of innovation ● Exploration ● Mining ● Mineral Processing ● Metal Production ● Sustainable Development ● Type of Innovation ● Continuous Improvement ● Competitive Innovation ● Step Change Innovation trend Source: CSIRO, Jonathan Law, 2012 Source: CMIC, 2012
● Step Change Innovation trend Source: CSIRO, Jonathan Law, 2012 New Technologies
Implications to Miningtrend ● Match productivity improvement with the right new technologies ● Drive the right IP strategy to achieve competitive advantage ● Partnerships with suppliers, researchers and educational institutions
Globalisation ● Globalised economy: money, goods, data, and people now cross borders ● The Mining Industry is global: ● Mine Location, Headquarter, Engineering House, Supply Chain involved in CAPEX project, workforce, customers: all in different countries ● Operations through acquisitions ● Suppliers and Customers trend ● Countries see Mining as an opportunity for economic development
Globalisation ● It is all about information flow ●Mergers and Acquisitions ● Large companies wanting to become bigger ● Companies from emerging economies breaking into developed economies ● Acquisitions create value, enable diversification and identify new growth opportunities ●Partnerships ● Access capital and new markets ● Access new technologies and competencies ● Streamline operations and asset portfolios ● Address financing needs trend
Implications to Miningtrend ● Consolidate > maximise productivity ● Standardise to minimise costs ● Integrate multiple operations ● Assimilate cultures and behaviors ● Adapt to different legal and financial environments
The mining (business) of the future will be defined by the possibilities (or options) the mining companies will consider to face the challenges posed by the market trends…
Market Trends Mining Business Implications (Challenges) Possibilities (Options) Solutions Possibilities and Solutions 1. The Impact of China 2. Market Fundamentals Remain Unchanged 3. Scarcity of Natural Resources 4. The Renewed Role of Governments 5. Talent Availability 6. Sustainable Development: People’s Safety 7. Sustainable Development: Environment 8. Commodity Business Volatility 9. New Technologies 10.Globalization • Short term demand, prices and profits decrease. Long term increase. • Increased relevance of China • Finding new mineral resources will be more expensive. New mine sites will be located in more remote and riskier places • More expensive capital projects • Higher operational costs • Decreased safety, productivity and quality due to the lack of talents • Complex decision taken due to market volatility. Increased risk. • Demand instability will affect planning and increase costs • Global integrated operations. • Diversity The Mining Business of Tomorrow
● From “don’t do evil” to an overall proactive positive impact ● From corporate social responsibility to creating shared value ● “Partnership” creation with government and communities to obtain the social license Possibilities Source: Michael Porter, 2012 Sustainable Development as the business driver
● Creating an innovative culture ● Protecting IP and use to gain competitive advantage ● Partnering with the supply chain, researchers and educational institutions to create step change innovation Possibilities Productivity increase through R&D and adaption new technologies
● Being better rather than bigger ● Diversify exposure: customers, geographies, commodities ● Excellence in capital allocation and capital project execution ● Include proactive sustainable development in ROI analysis ● Control costs and excesses Possibilities Avoid exposure to volatility through disciplined capital allocation, cost management and value creation
The Mine of tomorrow A Sustainable Mine • Safe • Environmental Friendly • With a license to operate • Where shared value is created for communities, governments and customers Productive, Efficient & Flexible • Best rather than biggest • Supply chain optimization to deliver the right volume at the right quality and cost • Optimization of the production resources (capital, people, assets, raw material, energy, etc.) • Flexibility to adapt to the volatile business environment Where Value is Created • Business value creation for shareholders • Not just dug out • Longer value chain
The Mine of tomorrow A Sustainable Mine Productive, Efficient & Flexible Where Value is Created 1.- Business Fundamentals 2.- Increased investment in R&D 3.- Investment in “new” technologies 4.- Partnerships with suppliers and research organizations
The Mine of tomorrow A Sustainable Mine Productive, Efficient & Flexible Where Value is Created 1.- Business Fundamentals 2.- Increased investment in R&D 3.- Investment in “new” technologies 4.- Partnerships with suppliers and research organizations The next industrial revolution in Mining
The Mine of tomorrow •Exploration •Mining •Mineral Processing •Metal Production •Safety •Environment (water, energy, etc.) •Tailings 1.- Business Fundamentals 2.- Increased investment in R&D 3.- Investment in “new” technologies 4.- Partnerships with suppliers and research organizations Areas for “new” technologies and innovation
● Finding New World-class Deposits in an Increasingly Challenging Exploration Environment ● Water Issues ● Automation and Process Control ● Reducing Energy Intensity ● Integration of Environmental Issues in Design and Engineering ● Mineralogy and Processing ● Open Pit Slope Stability ● Underground Mine Stability ● Low-capital-low-operating cost Leaching Solutions ● Tailings Management ● Management and Leadership Issues ● Accelerated Technology Adoption Areas for “new” technologies and innovation The Western Australian Minerals Industry An Assessment of Knowledge and Technology Needs and Local Research Capability Australia Venture Consultants – February 2011
Status of technology use in Mining Adapting from other industries Adapting from consumer markets From own innovation in Mining Continuous Improvement Competitive Innovation Step Change Innovation The Mine of the Future R&D prospects in mining and minerals industries Dimitrios Filippou, Michael King June 2011 In general, Ok in large companies and mature countries
McKinsey’s twelve potentially economically disruptive technologies
“New” Technologies in Mining: Overview ● Analytics and Neuronal Technology ● Non Linear Optimization ● Supply Chain Optimization and Business Decision ● Process Optimization ● Ergonomics and Human Machine Interface ● Remote Monitoring and Management ● Driverless trucks ● Mobility ● Image processing and 3D modeling ● Geology ● Mine Planning ● New Mining Techniques (Underground, In Situ, Subsea, etc.)
“New” Technologies in Mining: Overview ● Geographical Positioning ● People location ● Collision avoidance ● Remote equipment location and maintenance ● Augmented and Virtual Reality ● Information Wealth ● Video Analytics ● Detecting, recognizing and tracking objects in motion ● Image processing ● New Water Technologies ● Use of saline water in mineral processing
Schneider Electric and New Technologies in Mining Mine Planning, Supply Chain Simulation and Optimization
Schneider Electric and New Technologies in Mining Production Energy Optimization: Understanding Energy in the Context of the production process EnergyProcess
Schneider Electric and New Technologies in Mining Weather Management Systems Historical and Future Radar Animation Most Accurate Forecasts Alerting for Lightning and Severe Weather Location-Specific Monitoring ● Schneider Electric is the World’s largest business-to-business weather services provider. ● Weather information in Mining is key due to: ● Safety ● Lightning, barometric pressure underground, etc. ● OPEX Optimization ● Mine Planning (ports, trucks, etc.). ● CAPEX Optimization ● Historical weather patterns allow to properly size infrastructure required (e.g.: water treatment)
Schneider Electric and New Technologies in Mining Water Management Solutions ● Water Quality ● Leak Detection in Pipelines ● Pump and Reservoir Optimization ● Pressure Optimization ● Production and Reservoir Optimization ● Solution for Desalination Plants ● Telemetry and Remote SCADA Solutions
Conclusion • Mining business is not getting easier any time soon • Major market trends are creating structural changes that are generating major challenges to mining companies • The way mining companies face the market challenges will define the mine (mining business) of the future. • Schneider Electric’s view about the Mine of Tomorrow: • Sustainable (Safety; Environment Protection; License to Operate; creation of shared value) • Productive, efficient, flexible (adaptable to the volume the market wants at the right cost and quality) • Where value is created • This is why we are very optimistic about the Mining Business • More investment in R&D and the use of existing and new technology will generate the next industrial revolution in mining which will enable the Mine of Tomorrow
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