A few years after this century's commodity boom, which was primarily driven by China's resource-intensive manufacturing and infrastructure sectors, many segments within the global mining industry are facing challenges that have caused severe price declines, increased volatility and lowered utilization levels. To add to this, the current value-chain is being challenged by macroeconomic conditions and increasingly pervasive new technology. As a matter of fact, the digital transformation of mining companies is expected to persist indefinitely and as a result, define the mining industry's new normal.
Conventional mining requires extortionate fixed-asset operations and machinery, the maintenance and depreciable life of which can substantially impact production output, operating costs and ongoing capital expenditure. In order to move beyond stagnant growth and deliver exceptional shareholder, customer and safety value, mining companies are increasing the utilization of automation, robots and operational software.
Previously, automated hardware was restricted to carrying out specific tasks it had been programmed to do. In recent years, robots and machinery have been modified to perform tasks with a high degree of autonomy, working for extended periods without human intervention. According to a recent report by Markets and Markets Research Private Ltd, the technology trends in autonomous operations and robotics technology are expected to provide a substantial value to the mining industry and its stakeholders, and ultimately, create a mining automation market worth over USD 3.29 billion by 2023. In addition, the adoption of mining automation in various mineral ore sites has increased the number of strategic partnerships between mining automation equipment vendors and other communication systems providers. For instance, in June 2016, BHP Billiton Ltd awarded a contract to Atlas Copco AB (Sweden) for the autonomous upgrade of 18 drill rigs. Similarly, Calibre Group has completed the first autonomous train deliveries across Rio Tinto's Pilbara mining operations, establishing the world's first automated heavy locomotives that haul ore hundreds of miles to port terminals. Rio Tinto's automated operations in Australia are reportedly intended to preview a more efficient future for all its mining operations and reduce the need for human miners. Meanwhile in Africa, joint venture partners Rand Resources and AngloGold Resources have automated the Kibali operations in the Democratic Republic of Congo to the extent that remote operators function underground from safe air-conditioned cubicles, while managing the loaders on the open stopes of the underground operation that descends close to 800 meters below surface into a massive orebody.
Moreover, there is an increased use of 3D viewing which creates a life-like impression of whatever is being viewed with depth perception. 3D viewing allows the human brain to understand and relate complex interrelated issues. More recently, a number of mining companies have been exploring the use of virtual reality tools and analysing overlaid information through augmented reality without having to trawl through siloed databases, both of which are an evolution of 3D viewing. Although 3D viewing is far from the top of the agenda for digitalising the mining industry, 27% of companies that responded the WWDX in Mining Maturity Scope Benchmark Survey noted that they had invested in it.
An additional operational software that has gained traction in the mining industry is smart sensors. Smart sensors are combined with human geospatial tracking to turn on and off the lights when people are not in a particular area of the mine. Goldcorp's deployment of smart sensors at its Éléonore mine is a case in point. The single multiservice IP network provides secure wireless communications to reduce maintenance and operating costs and improve the safety and efficiency of the workforce. By using the tracking system, Goldcorp can ensure that workers are clear of planned blasting work and manage the mine's air filtration system by sending fresh air to areas that need it the most. Meanwhile, Freeport-McMoRan has modified military-grade drones to monitor and evaluate rock-face in real time. These drones are used to instantaneously survey highwalls, blasting operations, tailings, large mill buildings and power lines.
Although the digital technologies discussed above are at varying stages of maturity and usefulness, the value-at-stake analysis and assessments reveal that mining companies that are digital first movers have benefited real value from new technologies and such companies' pro-forma projections have shown a substantial increase in the EBITDA margins. According to a report prepared by the World Economic Forum's Mining and Metal's DTI Advisory Group, the digital transformation initiatives in the mining and metals industry could generate USD 425 billion value for the industry, customers, society and the environment over the next 10 years. This translates to 3-4% of industry revenue over the same period.
In addition, the quantifiable value of the different digital initiatives and projects could result in an improvement in safety and the reduction of 610 million tonnes of CO2 emissions, with an estimated value to society and the environment of USD 30 billion. For example, Vale International's implementation of a digital transformation programme, which includes a number of technological innovations such as the internet of things, advanced analytics, robotics, automation, machine learning, artificial intelligence and mobile applications, has yielded a number of great benefits. According to the Vale International's digital transformation director, Afzal Jessa, the mining company's considerable investment in new technology has, among other things, integrated its mining operations spanning several countries, achieved sustainable health and safety value, improved the maintenance of its assets, expanded production capacity and ultimately, generated more than USD 20 million in savings.
Although new technological trends in the mining industry offer the promise of nimble and profitable businesses, improved decision-making, increased employee empowerment, improved health, safety and environmental impact and the creation of an estimated USD 56 billion of additional value for the mining industry, there are a number of challenges that need to be overcome. As new technology empowers some workers and creates new jobs, it could also threaten traditional roles such as the workforce of a typical open-cut, iron-ore mine and operators in open pit mines, especially in developing countries. According to a study published by the International Institute for Sustainable Development, new technologies in the mining industry will have a tremendous impact on low-middle income host countries and host communities. The productivity gains from new technologies will reduce the amounts that mining companies contribute to government revenues in low-middle income host countries by USD 284 million, and ultimately, the host countries' gross domestic product.
Additional impacts of adopting new technologies on low-middle income countries will be in terms of the displacement of approximately 330,000 job opportunities that require unskilled and semi-skilled personnel and a reduction in employment-related local procurement, over the next 10 years. The World Economic Forum has noted that overcoming these challenges will require collaboration amongst industry leaders, communities and policy-makers. To this end, mining companies are encouraged to invest in alternative ways to work with and compensate local stakeholders and communities for the responsible use of their resources.
By Itumeleng Mukhovha, Associate, Corporate/M&A Practice, Johannesburg