Important presentation reflecting the State of Affairs (or the State we Are In) in Mining

1. 1
The future of mining
DIEGO ARECES
VP Mining, Minerals & Metals Solutions
September 18 2013, Arequipa, PERU

2. ● 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

3. 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%

4. 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

5. 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

6. 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

7. The Impact of Chinatrend
Source: Raw Materials Group, Stockholm 2011
Chinese Iron Ore Imports

8. The Impact of Chinatrend

9. 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

10. The Impact of Chinatrend

11. Implications to Miningtrend
• Short term demand, prices and profits decrease
• Increased relevance of China
> Customers, Suppliers, Partners, Colleagues
• Need to source alternate markets

12. 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

13. Market Fundamentals Remain
Unchangedtrend
126 Years Coal Reserves
770 QBTU by 2035 (40% increase vs. 2012)

14. Market Fundamentals Remain
Unchangedtrend
9B people by 2050 (30% increase versus 2012)

15. Implications to Miningtrend
● Long term demand and price increase, associated to
productivity increase
● Source customers, suppliers and partners in even newer
economies
● Globalisation

16. 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

17. 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

18. Scarcity of Natural Resourcestrend

19. Scarcity of Natural Resourcestrend
Source: Australian Venture Consultants, 02/2011

20. Scarcity of Natural Resourcestrend
Silver
Manganese
Copper
Iron
Gold
Aluminium
Nickel
Manganese

21. 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

22. 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

23. • 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

24. 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

25. 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

26. Source: PricewaterhouseCoopers; 15th CEO Survey, 2012
Talent Availabilitytrend

27. Talent Availabilitytrend
Source: University of Queensland, Australia, 2007

28. 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

29. Source: PricewaterhouseCoopers; 15th CEO Survey, 2012
Talent Availabilitytrend

30. Implications to Miningtrend
● More expensive projects
● Delay (or even cancellation) of new projects
● Higher operational costs
● Safety impact
● Decreased productivity and quality

31. 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

32. Sustainable Development:
People’s Safetytrend
Reference: ArcelorMittal

33. 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

34. 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

35. ● 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

36. ● Not complying with sustainable development regulations
has a major impact, well beyond costs.
Sustainable Development
People’s Safetytrend
Reference: Financial Times

37. 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

38. 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

39. 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

40. 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

41. 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

42. 22 Years 10 Years
10Years
Commodity Business Volatilitytrend

43. Commodity Business Volatilitytrend
Source: Reserve Bank of Australia, June 2011

44. 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

45. Implications to Miningtrend
● Impact the timing and decision process for capital
investment
● Demand instability will affect planning and
increase costs
● Increases risk

46. 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

47. 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

48. 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

49. New Technologies
● Major challenge: new technologies enhance productivity
● Technological advances from other industrial segments
may be applied to mining
trend

50. 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

51. 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

52. ● Step Change Innovation
trend
Source: CSIRO, Jonathan Law, 2012
New Technologies

53. 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

54. 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

55. 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

56. Globalisationtrend

57. Globalisationtrend

58. Globalisationtrend

59. Globalisationtrend

60. Implications to Miningtrend
● Consolidate > maximise productivity
● Standardise to minimise costs
● Integrate multiple operations
● Assimilate cultures and behaviors
● Adapt to different legal and financial environments

61. 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…

62. 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

63. ● 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

64. ● 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

65. ● 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

66. 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

67. 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

68. 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

69. 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

70. ● 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

71. 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

72. McKinsey’s twelve potentially
economically disruptive technologies

73. “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.)

74. “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

75. Schneider Electric and New Technologies in Mining
Mine Planning, Supply Chain Simulation and Optimization

76. Schneider Electric and New Technologies in Mining
Production Energy Optimization: Understanding Energy in the Context of the production process
EnergyProcess

77. 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)

78. 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

79. 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

80. 80
Schneider Electric – PlantStruxure NOW! – Diego Areces NOW!
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