CHAPTER 1.2 Current Trends in Mining Marcus RandolphSUPPLY AND DEMAND The next critical observation is that, while the overallTwo words dominate current discussions about the sup- trend is clearly downward, during periods of up to 50 yearsply and demand of minerals: globalization and supercycle. prices have steadily risen. The current buzzword for theseGlobalization’s application is much wider than mining, periods is supercycles, and they generally follow a majoralthough a shrinking world has profoundly impacted the min- event. The largest of these was the post–World War II perioding industry. Supercycle has recently come into use because when much of the world was rebuilding and metals demandrapidly industrializing, less-developed countries have stimu- grew strongly. A substantial body of experts currently believeslated minerals demand. Fifty years ago the mining industry we are in another supercycle. This period of strong demandwas dominated by local companies supplying single products growth is driven by the industrialization of the BRIC (Brazil,to local customers. High transportation costs, poor commu- Russia, India, and China) countries. The people in these coun-nications technology, and a lack of companies that had the tries, which number approximately 2.7 billion (40% of thecapability to invest outside their national boundaries led to an world’s total population), are seeking a better way of life,industry dominated by small producers operating on either a which they have learned about through television, the Internet,local or national scale. and global tourism, and believe that this better way of life is Globalization changed all this. Easy telephone calls, increasingly achievable to them.long-haul planes, and huge ships meant that mining compa- Industrialization does not affect the demand for all prod-nies could develop mines and sell their output globally. At ucts equally. One of the early beneficiaries was the raw mate-the same time, the technology used in production became rials that go into making steel, which is an essential input inmore efficient—generally by getting bigger. Plants and earth- the construction of roads, buildings, and general infrastruc-moving equipment became larger and underground longwalls ture. Figure 1.2-2 shows the steel intensity per capita at vari-got longer. Increasingly, the low-cost source of supply was ous levels of gross domestic product (GDP). As this graphhuge, high-quality deposits, the product of which was shipped shows, steel usage rises rapidly until the economy has grownall over the world. The result was the cost of supply went to about US$15,000 per person. During this early industrial-down and mineral prices declined. ization, iron ore and metallurgical coal, the two primary raw This trend was enhanced by the post–World War II recon- materials in making steel, have seen demand growth (andstruction of Europe and subsequent growth boom plus the rise price) exceeding long-term averages. Should the BRIC coun-of major Asian economies with little or no indigenous metals tries continue to industrialize, the large population bases ofresources. It also fueled the segregation of basic raw materi- these countries would support another supercycle. Over theals supply and processing, as raw materials became sourced next 10 to 20 years, this future growth (or not) of the BRICwhere the best resources were located and processing occurred countries will be the issue that will have the biggest impact onin countries where materials were in high demand. the mining industry. Figure 1.2-1 tracks the price of copper for the period 1800 The large growth in natural resource requirements isto 2008 in U.S. dollars per pound, in real 2008 dollars. In this causing debate now, as it did following the substantial expan-graph, the effect of inflation has been removed. sion of demand after World War II, about the adequacy of the The first observation on Figure 1.2-1 is that the general world’s resource base to meet the world’s needs. The earth hasprice trend is downward, due to the impact of globalization a large storehouse of minerals, and nearly all mining productsand, to a lesser extent, technology. It is much less expensive to are much more common in the earth’s crust than petroleum.produce lots of copper from a few large mines in Chile than it As the requirement for mining products grows, the issue willis to supply it locally from many small mines—and, as extrac- not be whether we will run out, but how much will these min-tion costs fall, so do prices. erals cost? The answer to this question will be determined by Marcus Randolph, Group Executive & Chief Executive, Ferrous & Coal, BHP Billiton, Melbourne, Victoria, Australia 11
12 SME Mining Engineering Handbook 10 Real Price 9 10-yr Moving Average Change Trend Line 8 US $ per lb (real Jan. 1, 2009) 7 6 5 4 3 2 1 0 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 Note: Calendar year 2008 average is January 2008–November 2008. Courtesy of BHP Billiton. Figure 1.2-1 Real copper prices, 1800–2008 1,200.0 USA (1900–2004) Japan (1950–2004) S. Korea (1970–2004) 1,000.0 Taiwan (1970–2004) China (1970–2004) India (2005) 800.0 Kg Steel/Capita 600.0 400.0 200.0 0.0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 GDP/Capita (Purchasing Power Parity, January 2006 US$) Courtesy of World Bank. Figure 1.2-2 Steel intensity per capita
Current Trends in Mining 13 100% Other 80% 60% USA Chile 40% Canada 20% Australia 0% 1950 1960 1970 1980 1990 2000 Courtesy of Metal Economics Group and BHP Billiton estimates. Figure 1.2-3 Nonferrous exploration expenditures by countrythe ability of mining and mineral processing technology to MINERALS EXPLORATIONstay ahead of demand growth. Location Mines have a single characteristic that is different from mostMarketing other industries: Development, and investment, must occurNo assessment of current trends would be complete with- where the resource is located. As miners, we don’t have aout commenting on the major changes that have occurred in choice about where to locate our mines; they need to be wherehow mining products are sold. In the 1970s, producer prices the deposits are. We do, however, have a choice in how much(where producers unilaterally declared the price) were com- we are willing to trade mining higher-grade and higher-qualitymonly replaced by auction prices. Effectively, producers of resources in higher-risk countries for lower-grade and lower-copper and aluminum began to sell to warehouses operated by quality resources in stable countries with developed infra-the London Metal Exchange. Buy and sell prices were agreed structures. This trade-off between discovery risk and politicalupon through an open platform/open outcry system, similar risk is the history of minerals exploration and has driven ato early stock exchanges, through auction prices. After these recent trend toward exploring in less-developed countries.prices were announced and published, they became the basis Figure 1.2-3 illustrates this shift of exploration expendi-for setting the price of raw materials. ture into less-developed countries. In the 1950s, nearly 80% The use of an auction process has two major benefits. The of the world’s exploration expenditure went into the Unitedfirst is that prices change rapidly with demand. Effectively, States and Canada. By the year 2000, the United States andthe price is continuously set at a level where there is a will- Canada were attracting barely 25% of exploration dollars.ing buyer and a willing seller, which effectively represents Instead, the major beneficiaries were Latin America andtrue supply and demand fundamentals of that product in real Africa, with Australia and Chile developing major miningtime. Second, the auctions allowed the creation of financial industries after early exploration success.products that are valued by both the buyer and seller. These What is clear is that, while there is a trend away from thefinancial products allow prices to be agreed upon for future highly developed countries, there has not yet been a majorsales, effectively allowing companies to reduce their exposure increase in exploration in the highest-risk countries. Althoughto changing raw materials prices. They also made it possible many of these extreme-risk countries offer easier-to-find,for companies to manage pricing risk between the purchase of high-quality deposits, they have not yet received substantialraw materials and the consequent sale of the product (match- attention from the global explorers. The reason for this is theing input cost and revenue). long-term nature of finding and developing a mine combined The current trend is toward greater use of screen-traded, with the limited risk appetite of investors and significant oper-open auction pricing for an ever increasing range of raw mate- ating and fiscal challenges. From the start of exploration untilrials. The early adopters were commodities that could easily a mine is in production generally requires around 10 years.be delivered to a single, consistent specification. Increasingly, Recovery of the initial investment frequently takes anotherscreen trading is expanding to include a wider range of speci- 10 years, effectively meaning that 20 years of operational andfications and products, such as coal and iron ore, which have fiscal stability is required for a mining project to pay backsubstantial variations in quality. its initial investment. Higher-risk regions may be geologically
14 SME Mining Engineering Handbookattractive, but their political stability is usually believed by SOE. The goal of this strategy is to ensure a supply of criticalmine developers to be insufficient to support 20 years of natural resources to support country growth and development.exploration, development, and mine operation. ORE RESERVES AND VALUATIONExploration Technology The fundamental source of a mine’s value is its potentialDuring the last 50 years, the exploration sector has moved ore reserve. The word potential is used because rarely isfrom reliance on observations of geologic features exposed the full extent or quality of an ore body known until it isat the surface to an ability to detect hidden mineralization at fully mined out. One of the key decisions that the developerincreasing depths. This has largely been achieved through faces before building a mine is therefore the level of cer-developments in geophysical exploration tools. Advances in tainty required about the ore body’s size, quality, and shapemicroelectronics in the late 1950s supported the development before the commitment of funds is made. In estimating theof smaller equipment that could quickly measure and process potential, most good analyses will consider the probabilitylarge amounts of data. This smaller equipment was mounted that various sizes and grades of ore bodies will ultimatelyin planes and helicopters and produced a quantum leap in the be found and mined.industry’s ability to cost-effectively screen large areas of land. Reporting requirements mandated by stock exchanges are Additionally, refinements in both passive (magnetics, requiring companies to disclose their ore reserves to standardsgravity) and active (electromagnetics) methods provided set in codes, such as Australia’s Joint Ore Reserves Committeeincreasing depth penetration potential. Direct detection meth- Code. The reporting of ore reserves is generally an externalods are now capable of outlining larger targets buried at depths exercise to provide investor assurance and governance and isof up to 1 km. While this depth is still short of the economic different from the assessment of ore potential that is requiredlimit of mining, it is a vast improvement in capability ver- to support an investment decision. Investment decisions needsus 50 years ago, and ongoing improvements will ensure the to factor in the likely outcome for the total resource size andindustry can increasingly detect mineralization that is deeper quality, as well as the order in which it will be recovered. Theand covered by post-mineralization sediments. critical difference is that investments and valuations are based In the last 25 years, targeting capability has also been on what is expected, whereas reported ore reserves are basedenhanced by satellite spectral scanners. Dedicated satellites on what is known.are now providing geologists with a substantially improved Investment decisions establishing ore reserves and/orability to map topography, structure, and alteration. The devel- expected reserves also need to consider the ore-body struc-opment of faster processing capability linked to computer chip ture, processing recoveries, and impurities. The single biggestspeed means that an individual geophysicist carrying a lap- physical factor that causes mining projects to produce lower-top computer has the ability to process complex inputs from a than-expected investment returns is misunderstanding the orevariety of sources. body’s characteristics. The biggest errors occur in geological continuity, ground conditions, and metallurgical recoveries.Exploration Competitors Either the ore body isn’t continuous, it has unexpected faultsThe starting point for a successful minerals exploration pro- or other geologic features, the ground conditions (in the oregram is to obtain access to highly prospective ground. This or the adjacent waste) are harder or softer than expected, oraccess is typically granted in the form of an exploration license assumptions of recoveries and payable product are overlyby the government where the ground is located. Effectively optimistic. All result in higher costs, and several high-profilethis means that a good explorer must have a combination operations had to close after start-up because of unexpectedof relationships, capability, and reputation, which makes it and structurally unsustainable costs resulting from seriousattractive to the government granting the license. errors in predicting one of these issues. This structure has resulted in four competitors in the min- Unfortunately, companies do not appear to be getting bet-erals exploration arena: ter at understanding the ore reserves supporting their investment decisions. The possible explanations for this are the following: 1. Local public or parastatal companies that have good rela- tionships with the host government • Drilling and sample testing are typically the slowest and 2. Junior exploration companies, typified by small Canadian most expensive parts of feasibility studies. When corners and Australian exploration companies, that are willing to get cut, drilling gets underdone. take high risks to generate a discovery and then usually • Understanding the adequacy of a drilling program is com- on-sell it to a large producer with operating and financial plex, and the people approving the project rarely have the capability time or capability to judge the appropriateness of the esti- 3. Global mining companies that are exploring for deposits mated resource. they hope to develop Despite the importance of understanding ore-body struc- 4. State-owned enterprises (SOEs), supported by national ture and metallurgy, the biggest unknown in mine valuation governments, that are seeking to acquire natural resources is mineral prices. This is also the factor that has the biggest globally to support their countries’ development impact on the project’s returns. Companies are improving The development of group 4, the SOEs, is a recent trend their capabilities in this area, with virtually all midsize andand is typified by China. Under this model, the government larger producers investing substantial efforts into understand-sponsoring the SOE manages a coordinated program that fre- ing the likely direction of their key markets. However, as thequently ties together government-to-government soft loans, movement of mineral prices are heavily driven by demand,infrastructure development, and access to resources for the which flows from global growth, prices are volatile and price estimates remain substantially subjective. This is especially
Current Trends in Mining 15true over the long term, which is the time frame that is relevant Table 1.2-1 Escondida’s expansion historyto virtually all mining development projects. Metric 1990 2008 Daily ore production, t/d 35,000 240,000 concentrator feed,MINE OPERATIONS 60,000 oxide leach feed,Most mine operations have two separate activities: mining 300,000 sulfide leach feedand mineral processing. The high capital cost and long life of Total material moved, t/d 280,000 1.4 milliona mining operation necessarily lead to relatively lower rates Annual copper production, 320,000 in 1.1 million in concentrate,of technological change, broadly shared with other industries t/yr concentrate 300,000 million in cathodeswith similar characteristics. The activities currently used in Average copper grade 2.9% 1.5%the mining and processing areas of most mines look similar Processing technology Concentrate Flotation, oxide leach, sulfideto those used 25, even 50 years ago. Drilling and blasting, flotation leach, electrowinningthe use of trucks and shovels, crushing, grinding, flotation, Mining technology Drill, blast, Drill, blast, truck, shovel, oresmelting, and refining are all still core elements of the indus- truck, shovel conveyorstry. As is the case with most technologies, however, the extentof perceived change depends on how high a helicopter viewis taken. One of the most pervasive overall changes is the sizeof the equipment and the scale of the operations in which they required to continue to access the ore body is becomingare used. extreme. All of these operations either have begun to develop In 1970, the average truck purchased for use in an open- and/or operate underground mines underneath their currentpit mine was 90 t (metric tons). By 2008, the average size of a pits or are in the later stages of engineerinsg studies to do so.newly purchased mining truck had doubled to just over 180 t. To meet the tonnage requirements of these large mines, all ofPlant size has followed a similar trend. The Escondida mine them are considering bulk mining methods, with block cav-in Chile has been either the first or the second largest copper ing being the mining method of choice. In South Africa, themine in the world since it started operating in the late 1980s. Palabora copper mine has already made this transition. TheSince construction, it has undergone multiple expansions, as combination of environmental pressures and depth is expectedshown in Table 1.2-1. to further this trend toward increased development of large The path that Escondida has followed would be a typi- underground mines.cal one for a large mine. The initial project was designed tomine the easy-to-access, high-grade ore. The limitation on Remote and Autonomous Operationinitial plant capacity was the ability to sell the concentrate, The technology shift in mining that merits close monitoringas Escondida does not have an associated smelter and was an is the increased operation of equipment either remotely orearly mover in supplying raw materials to nonintegrated pro- autonomously. Remote operations, where the operator is notcessing facilities in Asia. Since its initial start-up, substantial proximate to the equipment, can dramatically improve safetyvalue has been added through a series of expansions that used performance. This method of operation started to become morethe same infrastructure footprint as the original construction. common in the early 1990s. By the mid-1990s, equipmentAs these occurred, each generation of larger equipment was suppliers were presenting the potential of autonomous equip-added, and incremental processing technologies were intro- ment, where no operator was required. Since then, technol-duced to optimize recovery. ogy changes, including a high-resolution Global Positioning Escondida also reflects the general trend in mining System, wireless technology, remote sensing, and robust pittoward large open pits. At the beginning of the 1990s, more management software, are making autonomous operationsthan 90% of mine production was by underground means. By increasingly viable.the year 2000, 85% of mine production was from open-pit Productivity improvements and reduced equipment wearmines. Current indications are that the percentage of produc- and tear are driving the development of autonomous technol-tion from open-pit mines has peaked. Large open-pit mines ogy for mobile mining equipment. Safety and the possibility ofcreate big, permanent holes, leave large piles of waste rock, relocating staff away from remote and unattractive locationsuse large quantities of water, produce large amounts of noise are driving the development of remote operations technol-and dust, and consume vast amounts of petroleum to power ogy. Both remote and autonomous operations are technologythe mobile equipment. The tolerance of society for activities trends that should be watched closely as they can materiallysuch as these is declining. reduce mining costs. At the same time, the ore bodies that remain to beexploited are becoming deeper as existing mines deepen and Mineral Processing Technologyimproved exploration technology finds deposits under deeper Mineral processing changes have also continued to evolve. Ascover. Figure 1.2-4 shows the depth to the top of mineraliza- in mine operations, mineral processing equipment has becometion by year. Between 1930 and 2000, the depth of the aver- bigger. Larger grinding mills, flotation cells, and furnaces haveage discovery in Australia, Canada, and the United States made for simpler plant layouts and have brought down costs.increased from surface outcropping to 295 m. This depth to One of the high-level drivers for other technology changesthe top of the ore body requires more prestripping than any but has been the overall trend toward lower ore grade and/or thethe largest mines can support. need to match processing routes to other ore-specific chal- Additionally, the current mega-mines are reaching the lenges. As grade declines, the focus is on increasing recoveryeconomic limits with their stripping ratios. The world’s great and tonnage throughput, with less metal value ending up in theopen-pit copper mines, including Chuquicamata (Chile), tailings impoundment. This has led to measures that provide aGrasberg (Indonesia), and Bingham Canyon (United States), greater understanding and control of processes. The develop-are all nearly 1,000 m deep. The amount of waste removal ment of computer-automated quantitative mineralogy, on-line
16 SME Mining Engineering Handbook 0 By 2000, the average depth of discovery was • Australia/Canada/USA = 295 m • Chile = 90 m Depth to Top of Mineralization, m 500 • Others = 52 m 1,000 1,500 Australia/Canada/USA Chile Other Western World 2,000 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Base Metal Discoveries (>0.1 Cu-equivalent) Courtesy of BHP Billiton. Figure 1.2-4 Average depth of newly discovered ore depositsmaterials monitoring, in-line process monitoring, sophis- substantially change the economics of their industries. Majorticated process modeling, and centralized control have all technology shifts in nickel and direct reduced iron have strug-contributed to improved mineral recoveries and lower costs. gled to be successful, in part becauseIndeed, it is now a rare plant that does not have a central con- • They are competing against technologies that have beentrol room with substantially computerized controls. optimized over many decades; Large step-change or revolutionary innovations are rare • Development time is long and implementation comes at ain most industries, and this is also the case for mining and high capital cost; andminerals. Nevertheless, they have happened. The most notable • The products (nickel and iron) have highly volatile pric-change has been the shift from pyrometallurgy toward hydro- ing, making it difficult to stay committed to an uncertainmetallurgy in nonferrous processing. For example, the advent technology that, in its early stages, is missing cost andof solvent extraction electrowinning (SX-EW) technology in performance targets, and is therefore cash negative dur-the 1970s has steadily led to the growth of leaching in the ing much of the price cycle.copper industry such that SX-EW now accounts for more than20% of world copper production. Escondida is a good exam- Although it is often difficult to predict where majorple of this trend, illustrating the key drivers of ore-specific change is likely, a trend to watch is the continued displace-processing, resulting in chemical heap leaching of oxide ores; ment of pyrometallurgy with hydrometallurgy in the non-and the need to treat low-grade sulfide ores, resulting in bio- ferrous area and particularly the continued evolution, andlogically assisted heap leaching. Carbon-in-pulp technology ultimate success, of leaching technologies across a widerhad a similarly wide impact on the gold industry. range of minerals. Of course, many innovative processes or subprocessesare scattered across the industry, and, although these are VERTICAL INTEGRATIONsometimes significant in novelty and impact, they tend to be By definition, mines need to be located where the ore bodiesapplicable to a smaller subset of ore bodies or ore types rather are located. Whereas the mine location is fixed, the level ofthan being generic. A path of process innovation has been fol- processing attached to the mining operation is not. Historically,lowed for some decades by the end user of energy coal, the mines have been associated with the minimum level of pro-power industry, in pursuit of advanced combustion and gas- cessing to produce a concentrated product. The goal of con-ification technologies, as well as carbon capture and storage centration has been to minimize transportation costs.approaches. The desire to reduce greenhouse gas emissions is The minimum level of processing required at a site has var-a strong driver and remains a work in progress. ied substantially according to the product mined. Largely this is Major investments have also been made in new tech- because some products do not have sufficiently developed mar-nologies for hydrometallurgical nickel laterite processing kets to allow intermediate products to be sold at full value andand the pyrometallurgical production of direct reduced iron. because locations away from the mine site can facilitate lowerThe development of laterite processing technology has been total production costs. As an example, there is only a smallresource driven as a result of the dearth of new nickel sulfide international market for bauxite and a moderate-sized marketdiscoveries and the easy availability of large nickel laterite for alumina, and prices for these products tend to be fixed asdeposits. In both cases, the technologies are still evolving a percentage of the aluminum price rather than the fundamen-and have not yet become sufficiently simple or predictable to tal supply–demand balance for bauxite and alumina. This lack
Current Trends in Mining 17of freely traded markets for intermediate products has gener- Simply put, it is increasingly difficult for a mine operatorally resulted in bauxite miners producing alumina at the mine with a bad track record on environmental or social issues tosite, and then transferring it to distant, but owned, aluminum obtain or hold the license to operate that it needs to be suc-smelters, which are generally located in areas that can provide cessful in most developed and many developing countries.inexpensive power. This structure minimizes production costs Governments, communities, financial institutions, and inves-but also makes it difficult to be a substantial participant in the tors do not want to support or facilitate actions that are per-bauxite mining industry unless your operations are vertically ceived to be unreasonably harmful to people. This has resultedintegrated through alumina refining and aluminum smelting. in stronger regulation, higher levels of community involvement Two current trends are pulling parts of the mining indus- in the approval process, strengthened laws regarding indig-try into or away from vertical integration. Pushing the indus- enous rights, and the adoption of voluntary principles of sus-try toward vertical integration is the desire of governments tainability and human rights by most large mining companies.to capture maximum rent from ore bodies and maximize job It has also resulted in a bifurcated industry structurecreation. As a trade-off for allowing access to mineral rights, whereby large, public companies are heavily scrutinized andgovernments are increasingly demanding construction of pro- typically seek to meet or exceed minimum legal require-cessing facilities in-country. Effectively, governments are ments. They also tend to work closely with nongovernmentallooking to force mine developers to substantially increase organizations (NGOs) and governments. The scrutiny andinvestment and job creation as a trade-off for awarding min- standards that apply to smaller companies are typically lesseral rights, even if this means processing facilities are not than for a large one. However, governments and partners inoptimally located. less-developed countries are not always happy with the big The stronger force is toward less integration caused by company approach. This desire for quick investment supportsdecreasing transportation costs, the generally lower construc- the faster approach that smaller companies typically adopt.tion and operating costs available from locating plants in The International Council on Mining and Metals (ICMM)Asia (especially China), and the opportunity to build larger was established in 2002, and most leading mining companiesprocessing facilities in central locations that can aggregate are members. Through the ICMM, the industry has put for-feed from multiple mines. This trend toward disintegration is ward its proposal on sustainable development, including cli-expected to continue and will make it increasingly easy for mate change, and has undertaken to report its progress andmining companies to focus on mine-only operations, with pro- have its reports verified. Additionally, progressive companiescessing handled by a separate company at a distant location. have been engaging directly with their key stakeholders and making progressive decisions to enhance their licenses toSUSTAINABILITY operate. In many instances this involves commitment to envi-Environment, community, and safety are major issues for the ronmental management strategies that go beyond strict legalmining industry and the trend is for increased scrutiny in these compliance and have resulted in increased costs.areas. The reasons for this are the following: Climate Change • Historic: Improperly operated and/or closed mines are While there are some contrarian views, most of society still a legacy of our past. Old mines with major contami- believes that human-made climate change is causing harm nation and/or environmental degradation problems are all and that carbon emissions are the primary cause. Society has too common. therefore demanded that the subject of climate change receive • Social: Communities, lifestyles, and even social fabric are maximum government and industry attention. Through the all substantially impacted by nearby mine development. consumption of its products (primarily the burning of coal), • Emotional: The natural resources of a country are ini- the mining industry indirectly accounts for about 32% of tially the property of the people of that country. A com- global greenhouse gas emissions (IEA 2008). Given the pany, and particularly a foreign one, profiting from the industry’s large contribution to carbon emissions, sharehold- extraction of natural resources is a sensitive issue. ers, regulators, and society at large expect the industry to • Real: The purpose of mining is to concentrate elements reduce its footprint. (minerals) for use by society. While the production of Although many mining companies have made commit- concentrated minerals (copper, gold, lead, etc.) is desir- ments to reduce carbon emissions, this issue is expected to able, a side effect of mining tends to be the concentration become increasingly contentious. The likely focus will be (and release) of some undesirable elements (lead, arsenic, coal and uranium mining. Through its consumption, coal is sulfur dioxide, radioactivity, etc.). the single largest contributor to increased levels of carbon in • Progress: Society expects ongoing improvements in the atmosphere. Nuclear power, which uses uranium, has long industrial performance across all industries, and the been out of favor, largely due to issues associated with the mining industry must keep pace with progress in other disposal of nuclear waste and society’s long memory of early industries. nuclear incidents and accidents. However, nuclear power The mining industry has been well aware of these issues, does not generate carbon, and, as a result, it is increasinglyand its performance in the areas of environment, community, coming back into favor as a source of carbon-free power.and safety is improving. In part this change is driven by higher Technology improvements, including carbon sequestrationlevels of social awareness within the companies themselves. at coal-powered generating stations and the development ofHowever, much of the change is also due to recognition by nuclear reactors with reduced levels of waste generation, willsenior management that a good track record on environmental, be key trends to follow.community, and safety issues is a requirement for getting (and Although it is not clear how the balance between climateholding) access to resources. change and low-cost energy will evolve, it is obvious that the
18 SME Mining Engineering Handbookmining industry must be part of the solution and that energy to choose between an urban and rural lifestyle, and substantialproduced from the mining of coal, uranium, and tar sands will opportunities to travel.continue to provide a major part of the world’s energy supply. Finally, there is a strong trend toward fly-in/fly-out (FIFO) operations for new development projects. These FIFO opera-Safety tions are an alternative to creating remote residential towns toThe mining industry has historically had a poor safety record, support nearby mining activities and are seen as a more attrac-and the industry is viewed as a dangerous one. While injury tive lifestyle alternative for many potential employees. Thisrates and fatalities continue to be unacceptably high, the move toward FIFO operations also supports a sustainabilityindustry overall has dramatically improved its safety perfor- agenda, because when the mine is depleted, the towns that weremance. For context, the construction of the Panama Canal in built to support it are frequently left without an economic base.the early 1890s involved the movement of 300 Mt of mate-rial and cost 26,000 lives. BHP Billiton’s Escondida mine GOVERNANCEmoves 360 Mt every year with the expectation that this will be There is unquestionably a trend to increased governance ofachieved without the loss of a single life. Safety performance public companies in general and mining companies in particu-is still an issue, but dramatic improvements have been made lar. These come from many sources:and must continue to be made. • Unions: Although union membership has been falling worldwide, the statement that “you get a union when youHUMAN RESOURCES earned one” is still valid and provides an important checkThe design and material flow sheets for modern mines are on the management of industrial relations.complex and unique, the equipment is large and expensive, • Nongovernmental organizations: NGOs are passionateand operations are frequently remote. Capable people, at all about their individual issues, and they are growing. Areaslevels of the organization, are therefore essential to operating such as human rights, protection of indigenous people,a successful mine or mining company. biodiversity, and the environment all attract strong fund- Despite this requirement for large numbers of capable ing and provide a voice on mining issues that is widelypeople, the mining industry has faced and is facing a global heard and considered. The trend is for these groups toskills shortage. The best evidence of this is the decline in become more pragmatic in their approach, and manyuniversity graduates in mining engineering, earth sciences, NGOs have moved from simply being against mining toand metallurgy. In Australia, the supply of mining engineer- engaging companies in substantial discussions about howing graduates declined to just 100 in 2005, down from 200 as mining can be done more sustainably.recently as year 2000. In the United States, there were only • Regulators: Stricter reporting requirements and unbi-86 mining engineering graduates in 2005. Similar acute skills ased verification are clear regulatory trends through leg-shortages have developed for mechanical and electrical trades- islation such as the Sarbanes–Oxley Act of 2002 in thepeople and to a lesser degree for skilled equipment operators. United States. Industry groups such as the ICMM are The reasons for this shortage of skilled people in mining also substantial forces for self-regulation through theirinclude the following: members’ commitments to codes of conduct and report- • Remote locations: Mine locations are frequently rural ing. The trend is for industry to increasingly rely on self- and remote. This lifestyle is generally less attractive than regulation and voluntary compliance to standards that living in large cities, particularly to unmarried new grad- exceed legal requirements. uates and families with high-school-aged children. • Financial institutions and shareholders: Equity ana- • Industry unattractiveness: Particularly in developed lysts are increasingly independent from their lending countries, the image of mining industry work is (incor- institutions, and banks and investors have much better rectly) of low-skilled, dirty jobs in an outdated, boom/ access to information about the companies they choose to bust industry. This image does not attract high-quality financially support. For these reasons, it is harder for bad entrants. companies and projects to attract funding. • Lack of awareness: As the relevance of the mining • Society: The volume of information and speed with which industry has declined in the developed world, potential it is transmitted through sources such as the Internet are entrants are increasingly unaware of the opportunities the making it harder for unacceptable actions to go unnoticed. industry offers. • Boards of directors: Members of the boards of direc- tors of public companies strongly dislike being associated Increasingly, the trend is to fill the void left by a lack with any type of scandal or perceived violation of a com-of new entrants in the developed world by recruiting skilled pany’s “social license to operate.” Most boards devoteworkers from developing countries. In 2007, the mining large amounts of time to ensuring that high standards ofindustry employed 8% of Australia’s skilled migrants but governance are upheld.only 1.3% of its native workers. A number of companies havestarted recruiting new graduates in less-developed countries Lastly, there is a clear trend toward more disciplined man-with strong mining or manufacturing cultures. As a result, agement decision making. As mining companies have becomeSouth Africa, Russia, and China have started to become tar- larger and more global, the costs of the decisions they aregeted countries for recruitment of new graduates with techni- making, particularly to build ever larger individual miningcal degrees. These steps will help, but they are not enough to projects, are increasing. This has brought with it a higher levelattract the talent the industry requires. To lure skilled workers, of discipline to operating and capital decisions that have ben-the industry is increasingly promoting the benefits of a career efited all aspects of operation, including safety and environ-in mining, including career development, high pay, the ability mental performance.
Current Trends in Mining 19 This discipline includes a more sophisticated approach to companies with two-tiered ownership structures such as Teckanalyzing future price scenarios, assessing investment and oper- Resources (previously known as Teck Cominco).ating decisions, and understanding risk. It also includes aggre-gating purchases of consumables, measuring and reporting SUMMARY AND CONCLUSIONSperformance in key operating areas, and requiring adherence The mining industry is going through a period of rapid change.to minimum standards of operation across entire companies. Globalization and a potential supercycle, caused by strongEvidence of the success of these actions is the general reduction demand from newly industrializing countries, are permanentlyin capital cost blowouts by the leading companies, improved changing the industry. The industry-leading companies thatinvestment decision making, and the ability to establish and have emerged are bigger, financially stronger, and much morereport against a wide range of operating targets. Ten years ago capable than their predecessors. They operate across borders,BHP Billiton could not track its company-wide energy use, its produce a wide variety of mining products, and generally seekcarbon emissions, its usage and the prices paid for key spare to operate in a manner that exceeds minimum compliance withparts, its instantaneous financial exposure to its key customers, international standards.or its equipment uptime. Nor could it easily dig into the quality Although the companies within the industry have substan-of the supporting data for fundamental documents such as its tially changed, most mining operations and the technologiesore reserve statements or its financial results. Today it routinely they apply are similar to the practices in the 1960s to 1980s.measures (and reports) all of these and much more. Although similar technologies are employed, individual mines However, the resources required to complete this work are are much larger, and the percentage that are open cut is higher.large and therefore tend to be within the domain of the larger Operations are also increasingly moving to hydrometallurgi-companies. This disciplined approach will need to be increas- cal recovery processes and de-integrating themselves fromingly adopted by smaller companies or the industry will face downstream activities.increased regulation, which will further increase the value gap The industry is also receiving a high level of scrutiny.between the industry leaders and the rest of the industry. Resources are increasingly scarce and securing access to suffi- cient resources to facilitate economic development has becomeINDUSTRY STRUCTURE part of government policy in some countries. CatastrophicIn the mining industry’s evolution, the winner is clear. Lower “unsafe events” continue to be unacceptably common and aretransportation costs, bigger equipment and projects, higher heavily reported. Lastly, mining activities consume and alterstandards for operating and ethical performance, and strong large quantities of water and terrain and, as mining opera-demand growth have all favored big, global companies with tions become larger, the scale of such alterations is becomingdeep financial and operating capabilities. The gap in size increasingly visible.between the leading mining companies and the rest of the pack Society demands more from the mining industry, and thehas become quite large. In 2009, the world’s largest mining industry is responding. Increased raw material demand hascompany (BHP Billiton) is 40% larger than its nearest com- brought with it growing recognition that the mining industrypetitor (Vale), which is itself 40% larger than its next largest can be an attractive employer and that it does meet an essen-competitor. As a group, the large companies are active in mul- tial need of society. This new status is increasingly attract-tiple products and countries and could credibly claim to have ing a new and more capable set of industry leaders, and onesthe capability to efficiently build and operate mines in any of that are increasingly focused on not only providing essentialthe major minerals, anywhere in the world. resources to society but doing so in a manner that is socially The industry leaders also dominate the ownership of the and environmentally sustainable.best mineral deposits. A few midsized companies have large,high-quality deposits, but they tend to be companies that REFERENCEare protected from large acquirers by either their ownership IEA (International Energy Agency). 2008. World Energystructure or their potential liabilities. Companies in this group Outlook 2008. www.eia.doe.gov/oiaf/ieo/ieooil.html.include state-owned miners such as Chile’s CODELCO and Accessed August 2009.