Using scenarios - Sykes & Trench - Aug 2016 - Centre for Exploration Targeting / The University of Western Australia

1. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting StrategiesUsing Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies John P. Sykes12 & Allan Trench134 1. Centre for Exploration Targeting, The University of Western Australia 2. Greenfields Research, UK 3. Business School, The University of Western Australia 4. CRU Group, UK john.sykes@research.uwa.edu.au allan.trench@uwa.edu.au 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 1 of 26

2. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies THE PROBLEM Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 2 of 26

3. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Which of these is the future, if any? Images:foxnews.com; mining.com; arizonageology.blogspot.com; bgk-udokan.ru;dawn.com; investroshub.advfn.com Pebble, Alaska Pampa Escondida, Chile Resolution, Arizona Udokan, Russia Reko Diq, Pakistan Kamoa, D.R. Congo 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 3 of 26

4. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies The long-term future can be very different 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% ShareofGlobalCuMineproduction United Kingdom Chile USA Other 0.0 2000.0 4000.0 6000.0 8000.0 10000.0 12000.0 14000.0 GlobalCuMineProduction(Kt) United Kingdom Chile USA Other Decline of UK mining, rise of Americas Resurrection of Chilean industry Decline of UK mining, rise of Americas Resurrection of Chilean industry Data: Crowson, 2012 …in 1898.. Bingham Canyon… was something of a joke… only barren quartz rock flecked with a trace of copper. Nobody could make money out of so little. …the world’s most famous mining man [Chief Engineer for the Guggenheims] turned up his nose. It was ridiculed by the most respected mining journal of the day. …The shovels started… in June 1906. (Lynch, 2012) 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 4 of 26

5. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies …and such change is very complex 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 Cuoregrade(%) Cornwall (UK) Average UK Average Michigan (USA) Average USA Average Western World Average World Average Change from high grade underground mining in UK to low grade open pits in USA Data estimated from: Crowson, 2012 Further low grade copper mining innovations 20th century copper mining technology, innovation & discovery package Dynamite Steam power The corporation Mechanisation Major public infrastructure Flotation Improved smelting & refining Airborne geophysics Porphyry geological model Better work practices SXEW Computation Low cost drilling Globalisation Sources: Schodde, 2010;Lynch, 2012& various personalcommunications to the author Free trade Forward contracts Regime change 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 5 of 26

6. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies THE SOLUTION? Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 6 of 26

7. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Maybe foxy rather than hedgehog thinking "The fox knows many things but the hedgehog knows one big thing.” - Archilocus / Isaiah Berlin Ilbury & Sunter: The Mind of a Fox: Scenario Planning in Action (2011) Tetlock: Expert Political Judgment: How Good Is It? How Can We Know? (2006) 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 7 of 26

8. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Oxford Scenarios deductive methodology Company Transactional Contextual Strategic landscapes: contextual linkages Drivers from the past and future Key contextual linkages? Clarify and cluster key drivers Explore polar outcomes and select independent pairs Combine axis to develop scenario framework Play with different combinations Deepen scenarios and prepare to engage Designed by Angela Wilkinson 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 8 of 26

9. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Mapping the key driving forces Contextual Environment (‘factors’) Transactional Environment (‘inter-actors’) NGOsCompany Equipment Suppliers Investor s Employees Local Regulator s Lobbies Competitors Industry Clients Exchange Rates Legislation Macroeconomics International Commerce Geo-political trends International Finance Energy Prices Social Values Technology Environment Demographics Science Water Availability InnovationCommodity Prices Natural Disaster s Conflict & Security Climate Consumables Suppliers Utilities Commodity Traders National Regulators International Regulators Financiers “Driving forces” Survey & appreciate Influence & co- design Control Template from: Ramirezet al., 2014 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 9 of 26

10. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies And how they’re evolving over time Chinese Industrialisation Post-War European & Japanese Reconstruction Global Financial Crisis Asian & .com Crises Oil Crises Rise of Modern Environmentalism Rise of Sustainable Development Movement Increasing Focus on ‘Social Licence’ COMMODITY DEMAND 2010s FINANCIAL CRISES SOCIAL TRENDS Resurgence of ‘Strategic Resources’Concepts LABOUR TRENDS TECHNOTRENDS POLITICAL TRENDS World War II Better Work Practices Cold War (Separation of East & West) Airborne Geophysics 2000s1990s1980s1970s1960s1950s1940s Substantial Globalisation Porphyry Model SXEW Low Costs in Developing World Labour Cost Inflation Computers, Modelling & Scheduling Decline of Unionism Eastern-bloc Privatisation 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 10 of 26

11. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Then seeking the commonalities Template from: Ramirezet al., 2014 Increased support for mining Decreased support for mining SOCIAL ECONOMIC BOOM BUST TECHNOLOGY Technology drives lower costs Technology lags cost inflation POLITICAL Increasingly restrictive regulation Decrease in restrictive regulation ENVIRONMENT More land becomes available Less land available Broadly similar: increase/decrease in land availability either physically or conceptually Broadly similar: increase/decrease in industry margins 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 11 of 26

12. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies THE SCENARIOS Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 12 of 26

13. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies The Scenarios Increased Decreased ECONOMICMARGINS Increased Decreased CONCEPTUAL SEARCH SPACE CRUSADES COUNTING HOUSE PEASANTS’ REVOLT UNDER SEIGE 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 13 of 26

14. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies UNDER SIEGE • Industry struggling with current profitability and with few future options for growth; • Falling commodity prices and falling productivity have reduced economic margins at existing operations; • A breakdownof the global order limits access to foreign projects and talent; • State mining companies, backed by governments concernedabout the limited number of operating mines, are the main long term beneficiaries in this scenario; • The ‘declining-sum’ nature of the copper mining industry means that outside industries also benefit, particularly those willing to take over the long-term management of the coppersupply chain. • The coppermining industry may feel that it is in the ‘Under Siege’ scenario presently: – Falling copperprices; – Asset write-downs; – Curtailment of capital investments, exploration, and research and development. Defending current operations with few new opportunities available 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 14 of 26

15. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies COUNTING HOUSE • A short term return to profitability, but a lack of long term options; • Resurgent economic growth increases commodity prices, whilst low gas, oil and coal prices reduce operating costs; • However, resource nationalism, environmental and social licence issues, and competition for resources limits the availability of new projects; • The major private mining companies are the main short-term beneficiaries as their alreadyprofitableassets further reinforce their advantage; • However, over the long-term industry outsiders begin to encroach; • This arises due to the continued failure to develop new projects, an echo of the recent boom. • The future becomes based on the running down of current assets and the present project pipeline, requiring higher commodity prices to be economic. • This is the conventional view of the future of coppermining, arising from the scientific and economic analyses. Focus on extracting economic rents from current operations 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 15 of 26

16. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies CRUSADES • A profitable mining industry investing in a range of new ideas and projects, able to successfully transition into the future. • A profitable industry benefitting from a temporary period of increased commodity prices and reduced input costs. • Industry able to invest in technologies and innovations increasing abilities to discover and develop less energy and water intensive, targetedmining operations. • At the same time the mining industry participates in a global proliferation of multi- lateral agreements opening up the developing world to major mining investment. • The first movers in technology, innovation, and increasing environmental and social access to projects are the long term beneficiaries in this scenario. • At the beginning of the recent boom in copper prices existing operations were very profitable, and initially there seemed to be many new options for developmentand exploration, assisted by the latest phase of globalisation. Many exciting opportunities in old and new areas 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 16 of 26

17. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies PEASANTS’ REVOLT • A struggling mining industry, but one in which there are still many future options available that could provide a route to profitability. • Bulk mining operations fail in the face of lower commodity prices, higher input costs and increased environmental and social costs. • A radical switch to more targeted, less energy intensive mining is required. • As the mining industry struggles, outside industries are able to make significant advances into the industry, particularly by reforming the metals supply chain around a circular economy. • Reminder of the mining industry in the early 1990s, when the industry was enduring a 30 year spell of declining copper prices and increasing environmentalism, sapping long term investment in exploration and technology. • Global uncertainty was increasing as the Soviet Union collapsed,whilst a number of key mining economies were in decline. The mining industry was seen as ‘old industry’ as the high technology and internet industries began to establish themselves. Current plans not working, desperate switch to new ideas required 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 17 of 26

18. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies THE IMPLICATIONS Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 18 of 26

19. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Aim for robust rather than optimal No worries – asset is robust against all scenarios; it may not thrive, but it will survive. Chill out! Real option – asset may or may not survive or thrive in a range of scenarios. Wait and see… Big bet – asset will thrive (or survive) but only in one scenario; these are brittle assets. Hold your breath! 24 August 2016AusIMM International Mine Management Conference, Brisbane Basedon: Erdmannet al., 2015 Slide 19 of 26

20. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies No truly ‘robust’ mines Mines Under Siege Counting House Crusades Peasants’ Revolt Escondida X √ X X Andina √ X ? X Chuquicamata √ ? ? X El Teniente √ X ? X Olympic Dam √ √ √ X Collahuasi X √ X X Grasberg X ? ? ? Talnakh √ X ? √ Lubin √ X ? √ Los Pelambres X ? X X Los Bronces X √ X X Cananea ? ? X X Toquepala X ? X X See associated paper for further detail. 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 20 of 26

21. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Whilst projects are even more brittle Company Type / Scenario Under Siege Counting House Crusades Peasants’ Revolt Oyu Tolgoi X ? ? X Pampa Escondida X ? X X Pebble X X ? ? Resolution X X √ X Udokan √ X ? ? Reko Diq X X X X Kamoa X X √ ? See associated paper for further detail. 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 21 of 26

22. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Industry is forced into a make-do strategy A few ‘wait & see’ options 24 August 2016AusIMM International Mine Management Conference, Brisbane A few ‘big bets’ A ‘no worries’ strategy? What would be an original ‘no worries’ strategy? Slide 22 of 26

23. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies THE KEY LEARNINGS Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 23 of 26

24. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Key learnings from the scenarios The methodology • The future of the copper mining industry is uncertain; yet mineral explorers need to know about the long-term future of the industry for effective exploration targeting; • Scenario planning may assist with such long-term exploration targeting – this research provides ‘proof of concept’. The implications • The copper industry is currently brittle – it is leveraged to a narrow range of futures; • The industry may be too focused on extracting rents from existing assets (mines and projects) rather than generating impactful new discoveries and ideas; • The industry has to invest in the long term, either as exploration, research & development, or increasing ‘accessibility’ via a stronger social licence to operate. • Currently no strategic approachis ‘future-proof’, so some strategic choices will have to be made, with companies balancing a series of ‘big bets’ and ‘real options’ to make a robust ‘no worries’ strategy. 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 24 of 26

25. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting StrategiesUsing Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies THANK YOU Contact: john.sykes@research.uwa.edu.au allan.trench@uwa.edu.au Acknowledgements: PhD Committee: T. Campbell McCuaig, Mark Jessell & Nico Thebaud Funding: Centre for Exploration Targeting (University of Western Australia) Colleagues: Centre for Exploration Targeting (Curtin University & University of Western Australia) 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 25 of 26

26. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies References Main Reference: • Sykes, J.P. (2016) Using scenarios to investigate the long-term future of copper mining and guide exploration targeting strategies, AusIMM International Mine Management Conference, Brisbane, Australia, 22-24 August. Other References: • Erdmann,D, Sichel, B andYeung,L, 2015.Overcoming obstacles to effective scenario planning, McKinsey Quarterly, June:1–6. • Ramirez,R, Khong, C & Selin, C. (2014)Oxford ScenariosProgramme.28 April-1 May, Oxford: Said BusinessSchool (University of Oxford). PDFlecture notes. • Ramirez,R, & Wilkinson, A. (2016) Strategic Reframing:The Oxford Scenario PlanningApproach, Oxford University Press:Oxford. • Sykes, J.P. (2015)Using the Oxford Scenarios deductive methodology to understandthe long-term future of copper mining and guideminerals exploration targeting strategies, Curtin BusinessSchool Higher Degree by Research Students’ Colloquium, Perth, Australia, 30 September • Sykes, J.P., & Trench, A. (2014a)Chapter 14 – Findingthe Copper Mine of the 21st Century:Conceptual Exploration Targeting for Hypothetical Copper Reserves. InSpecial Publication Number18: Building Exploration Capability for the 21st Century, edited by Kelley, K.D., & Golden, H.C., 273-300.Boulder: Society of Economic Geologists. • Sykes, J.P., & Trench, A. (2014b) Resourcesversus Reserves – Towardsa Systems-basedUnderstandingof Exploration andMine Project Development andthe Role of the Mining Geologist. InMining Geology through the Value Chain: Proceedings of the Ninth International Mining Geology Conference held in Adelaide, South Australia, 18-20August2014,243-270.Carlton, Victoria: AustralasianInstitute of Mining andMetallurgy (AusIMM)andAustralian Institute of Geoscientists (AIG). • Sykes, J P andTrench, A, [2015a]Mining in 2040:anindustryundersiege [online], 2 November, MiningNewsPremium.net. Available from: http://www.miningnews.net/insight/strictly-boardroom/mining- 2040-an-industry-under-siege. • Sykes, J P andTrench, A, [2015b]Mining in 2040:major minersascounting houses [online], 16 November, MiningNewsPremium.net. Available from: <http://www.miningnews.net/insight/strictly- boardroom/mining-2040-major-miners-as-counting-houses> • Sykes, J P andTrench, A, [2015c]Mining in 2040:peasants’revolt [online], 23 November, MiningNewsPremium.net. Available from: <http://www.miningnews.net/insight/strictly-boardroom/mining-2040- peasants-revolt> • Sykes, J P andTrench, A, [2015d]Mining in 2040:the commodity crusades[online], 9 November, MiningNewsPremium.net. Available from: http://www.miningnews.net/insight/strictly-boardroom/mining- 2040-the-commodity-crusades • Trench, A and Sykes, J P, [2016]Strictly (Mining)Boardroom:Volume II: A Practitioner’s Guide for Next Generation Directors, Major Street Publishing:Highett, VIC. 24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 26 of 26

Using scenarios - Sykes & Trench - Aug 2016 - Centre for Exploration Targeting / The University of Western Australia

Using scenarios - Sykes & Trench - Aug 2016 - Centre for Exploration Targeting / The University of Western Australia

Recommended

More Related Content

What's hot

What's hot(20)

Viewers also liked

Viewers also liked(7)

Similar to Using scenarios - Sykes & Trench - Aug 2016 - Centre for Exploration Targeting / The University of Western Australia

Similar to Using scenarios - Sykes & Trench - Aug 2016 - Centre for Exploration Targeting / The University of Western Australia(20)

More from John Sykes

More from John Sykes(14)

Recently uploaded

Recently uploaded(20)

Using scenarios - Sykes & Trench - Aug 2016 - Centre for Exploration Targeting / The University of Western Australia