23 Dec Insights into the past and future of the mining industry
Before starting a new decade, we spoke with different actors related to the mining sector so that they could give us their vision on the lessons learned in the last 10 years, and the challenges that the industry will have to face in the long term.
There are only a few days left to finish 2020, and without a doubt, it has been the most challenging year we have experienced so far. However, it has been a year that has also demonstrated the resilience of the mining sector in our country to face something as complex as a pandemic, which has paralyzed most industries and has dealt a severe blow to the world economy.
And with the end of the year and the beginning of a new decade, we asked various actors related to the mining sector what they considered to have been the main achievements of mining in the past decade, what are their main problems to overcome, and which ones, in their opinion, are the main challenges and what we should focus on in the future. These are their answers:
Aaron Puna | CEO, Anglo American Chile
The last decade has been a catalyst for change and, as an industry, we have learned that we cannot continue to apply the same practices of the last 100 years. We must make a fundamental inflection and promote an urgent, profound, and radical change in our activity, especially at a time when the economic recovery needs to be sustainable. Faced with lower mineral grades and other challenges, we must seek solutions focused on innovation. Increasing sizes and scales, as in the past, is no longer an option. We must continue to improve technology adoption and make sustainability a central part of our business vision. As an industry, we have a role in facilitating sustainability in society today and in the future. Mining is the main engine of the Chilean economy and its contribution to the development of the country is unquestionable, but our stakeholders need even more from us. How will we address those needs while reducing our footprint? The climate change context requires us to adapt our operations and make more efficient use of water and energy, in addition to achieving carbon neutrality. As a company we are moving towards modern mining, more aware and connected with our environment, to continue contributing to the development of Chile, carrying out an activity that considers all these elements and is also a relevant contribution to the communities and territories where we operate. It is a challenging path, which will take time, but we have already started it with determination.
Jorge Gomez | Executive President, Collahuasi
The last decade started in a promising way, with a supercycle in the price of copper that allowed the industry to consolidate the projects started in previous years and to launch new initiatives. However, as it is an inelastic industry in its supply and in which we all seek to do the same with some simultaneity, the growth in the supply of copper and a stagnant demand led us to a critical moment in 2015, with a profound financial impact. As an industry in general, it was a time when difficult but necessary decisions had to be made to regain financial discipline. This made it possible to progressively lower costs in the rest of the decade and successfully reduce the level of debt.
Similarly, another relevant trend in the last decade was the realization that it was not enough to have low accident rates, but that we needed to address in new ways the problem of high-potential fatalities and incidents, which remained high.. At a general level in the industry, there has been a very important work in this regard, ending the decade with a relevant change. Precisely the focus on the protection of people, in a work of alliance between companies and workers, was a key factor when facing the pandemic. The strength of the health and safety systems in the companies has made it possible to establish efficient sanitary barriers to mitigate contagions at the job site and assertively transmit to the workers the need to take care of themselves on their breaks, where the greatest risk has been so far.
Regarding the future, undoubtedly the greatest challenges are related to the vision that society has about our industry. For this reason, responsible behavior of companies, in terms of work, environment and society, is essential, and at the same time proactively involved in the challenges of the communities, such as the socioeconomic difficulties caused by the pandemic today. Also related to our environment, we have the challenge of responsible use of key supplies for our industry, such as water and energy, having to go further to get involved in obtaining new sources, an issue in which copper mining is part of the solution to face climate change.
As organizations we must be willing to permanently address new challenges, our permanent capacity to adapt and manage change being fundamental in our way of doing things. An important factor that should help us on this path is to accelerate the digital transformation of our processes, understood as the need to take advantage of a large amount of information available to obtain and apply knowledge. We must also be able to integrate gender equity and diversity in our organizations, given the need to attract a fundamental added value. In this sense, the remoting of functions, which the pandemic has pushed us to accelerate, is also an opportunity when we can return to a standard situation, which adds to continue improving the quality of life on the job, always keeping in mind that the people are who make the difference.
Ricardo Lagos | Former President of Chile
I think that the link between the decade that has passed and the one to come is very clear. The Paris Agreement in 2015, between the United States and China, raised the challenge for mining in the sense of decarbonizing the energy matrix, becoming the substantial element to be taken into account by large-scale mining.
This seemed forgotten when the United States and Mr. Trump were unaware of the Paris Agreement. Now, for the next decade, the Paris Agreement will reemerge with greater force than before. Appointing the former foreign minister, former Obama-era US Secretary of State John Kerry, as the new climate change “czar” speaks clearly that this will be central to President Biden.
Why do I say it? Because from the point of view of mining, and copper in particular, we still have a very carbonized energy matrix. There have been advances with solar power in some places at the end of this decade, but it is insufficient. What we are seeing from Europe does not predict the future. They are thinking that on certain goods and services that they import, place a tax on the amount of greenhouse gas emissions that these imports contain. There is no doubt that this would strongly affect our copper.
That is why it seems so important to me that in this decade, we have green copper, before 2025, and that is possible. Green copper from green hydrogen.
Douglas Upton | Investment Analyst, Capital Group
I see two main achievements over the past decade. First, to recalibrate growth spending and ambitions lower from the super-cycle conditions, which has now brought capacity additions broadly back in line with trend demand growth. And second, the continued good progress on safety, emissions, and community relations has been impressive to me.
Looking forward, the challenges will continue in much the same direction, in my opinion. What I mean is that the industry will always have to deal with uncertainty about demand prospects and price levels, in both directions. I expect big price cycles, so this will not be easy. On the ESG side, decarbonization is going to create many challenges and not a few opportunities. And expectations around community relations seem likely to continue tightening – tolerance for substantial differences between the wealth of mining companies and the wealth of their host communities will diminish.
Gustavo Nieponice | Managing director & senior partner, Boston Consulting Group
Mining companies have made significant progress in developing more systematic programs to improve efficiency in operations and projects. At the same time, they have taken a much more thoughtful approach to sustainability, with significant progress made in the strategies for use of water, relationship with communities, and CO2 emissions reduction.
In the next decade we see four imperatives for improvement:
- Embed purpose with an improved value proposition for employees and an increased focus on diversity.
- Push the next wave in total societal impact with a more integrated approach that includes total societal impact as an integral part of the strategy.
- Transform into a bionic company, organizing and deploying talent to best leverage new technologies from automation to analytics to push the next wave of productivity improvement.
- Continue to improve the ability to articulate the ecosystem around the mining company to achieve improved results.
All this will require a new approach to organization and leadership, with more flexible and agile processes and an “always-on” transformation mindset needed to master these imperatives.
Jerry Jiao | Senior Vicepresident, China Minmetals Corporation
If I think back to 2010, we were coming off a period of very strong commodity prices, driven largely by the extraordinary growth from China. The value was weighted strongly to miners and we at Minmetals had just completed the acquisition of the copper and zinc assets of Oz Minerals to create MMG, Minmetals’ platform to develop overseas base metal resources.
The next decade turned out to be a little more mixed with copper coming off early decade highs. Investment in new mines and discoveries slowed with capacity growth coming from a handful of projects in Africa, particularly DRC, Oyu Tolgoi in Mongolia, and greenfield/brownfield growth in Latin America.
What we set out to do as Minmetals, was to invest in new capacity during this period and, in hindsight, we built our Las Bambas copper mine in Peru at the right time – during a low point in the investment cycle.
As an industry, we also got more efficient in mining, processing, and refining. We had to. Production was principally sustained by existing major producers – many fighting a losing battle against declining average grades.
I think we also saw huge improvements in smelting capacity and technology in China and, at the close of the decade, we are a more productive sector.
While there were major improvements in operations and technology, I think we have to collectively acknowledge that the external environment – government, communities, and society – has become increasingly challenging.
In 2020, it is not enough to have a good orebody, you must have a genuine partnership with host governments, communities, and civil society to successfully develop or operate a mine. And this seems to be increasingly tough to achieve.
I truly believe that as an industry – and through collective groups such as ICMM – we are improving our social and environmental practices year-on-year. But expectations continue to grow. Issues such as climate change, tailings management, security, and human rights require us to listen, learn, and adapt.
We also must work together as a copper industry to promote our contribution to a carbon-constrained future. Copper is essential to a world dependent on electrical engines and reliable storage – facilitating reductions in our reliance on fossil fuels. We must be proud of our contribution. As we say at MMG, “we mine for progress”.
I think the collective challenges we face fall into the following areas:
- Orebodies. We are not finding new and better orebodies to sustain and grow our production. Declining grades, rising impurities, lack of community consent, environmental challenges, and logistics all make every tonne of copper a little harder to create. The traditional reliance on established jurisdictions and ‘Tier 1’ projects is waning and ‘Megaprojects’ are increasingly hard to find, fund, permit, and develop. We must get better at ‘scaling up’ brownfield operations and generating value from mid-tier opportunities that leverage new partnerships and approaches to generate value.
- Chain of Custody. Mining is not the first, but it is perhaps the latest, industry to face rising scrutiny from customers, communities, and end-users regarding supply chains. From environmental and carbon footprint to the conditions of artisanal miners and embedded human rights risks, we will face continued calls for greater transparency and chain-of-custody verification for our metals. The focus at the industry level should be to ensure this scrutiny is fit for purpose and that the rising burden of compliance is borne equally across the industry – so we ‘raise all boats’.
- Technology and skills. The core technologies and skills of mining have not changed much for generations. Recent innovations such as artificial intelligence, remote operations, and big data will increasingly become part of the growth of our sector. We must invest not only in the technologies to accelerate that change but the capability of our people to recognize and adapt new opportunities to the challenges of our sector.
- Climate Change. A revolution is occurring in our sources, use, and storage of energy. Our industry should be positioned at the forefront of a transition to lower-carbon energy sources. We have perhaps been a little slow to grasp the public imagination and position ourselves – and our products – as drivers of a new economy. The good news is, that transition is only accelerating, and I believe we have time and energy to grasp the opportunity.
- Social contract. Finally, we must re-double our efforts to bring our communities and host governments along with us on the journey. Mines of the future will be in more challenging jurisdictions, without established mining histories and new political risks. Based on multi-decade capital investments, we generate significant wealth for our people, our communities, and society and we must find a new way to build an understanding of that investment and contribution. We can only do that through a sustained commitment to transparency, engagement, and dialogue.
Robert Perlman | Executive Chairman, CRU
The past decade in copper mining can certainly be described as a decade of improvement. Head grades continued to decline, with many greenfield mines being developed well below the 1% mark. As high grades became scarcer, geologists developed new grade control solutions. The 12 to 16-meter mine benches can now use blast monitoring technology or high precision GPS, improving safety at the mining face and accuracy of the plant feed. Large scale and low-grade open pit mines have become a regular sighting. The maximum capacity of dump trucks now nears 500 tonnes a payload, while excavators have become electrified bringing new cable handling challenges to the mines.
Metal processing has also continued to improve, allowing for low-cost, low-grade treatment at satisfying recovery rates. Last year we saw the first results of an in-situ copper mine in Arizona, USA (Florence). Increasingly complex copper concentrates now show promise of treatment optionality using processes such as CESL by Teck or the Ecometales work in Chile. At the same time, producers have increased their efforts in the areas of sustainability and environmental protection, improving their ESG reporting and investing to provide solutions for the footprint mining leaves behind.
The next decade will continue to challenge copper miners. Head grades will keep on declining, resulting in a greater amount of waste at a higher complexity. Waste disposal methods will require further enhancements. Dry stacking or alternatives to deep-sea tailings disposal will be required for remote mining operations struggling to find space or to provide stability to tailings embankments. Moreover, as mine electrification will not happen overnight, miners will need to work on offsetting emissions, whether it is by recycling heat from processing, or CO2 capture in tailings.
Water has already become a scarce resource in copper’s top producing country – Chile. Desalination and pumping the water to high altitude require energy that must be supplied by renewable power. Copper processing could also require sea-water processing to become the norm in new greenfield projects. Finally, copper producers will be required to keep a strict watch on operating costs, ensuring that the transition to autonomous mining happens with the buy-in from labor unions and the employees themselves. Copper miners have a great history of improvement and will certainly face the new decade’s challenges head-on, maintaining a strict focus on the ESG aspects of mining.
Fernando Lucchini | Executive President, Corporación Alta Ley
The incorporation of renewable energies for the generation of electricity supply has been one of the great achievements of the last decade for the country, mainly driven by the mining sector. During the last decade, Chile led the world ranking, being the best country to invest in renewable energies, and achieving that, in 2019, 20% of electricity generation was provided by non-conventional renewable energies (NCRE), where mining was its main consumer.
The pending challenges point to the substitution of diesel from mining operations for sustainable fuels such as green hydrogen and to increasing the participation of NCREs in electricity contracts in the sector.
In terms of water resources, at the regional level, Chile has consolidated itself as the Latin American country with the highest desalination capacity during the last decade, which is directly linked to mining. In this line, between 2010 and 2019, the consumption of seawater linked to copper production has grown 43% as an annual average.
The pending challenges are associated with the environmental impacts of the brines that are returned to the sea and the high energy consumption from non-renewable sources associated with the operations of these plants, mainly due to the drive of the resource from the coast to heights that exceed the 2,000 meters and distances that travel between 150 and 200 kilometers. The focus should be on looking for alternatives for efficiency, greater traceability, verification, and management from a systemic logic in the use, adequate management, reuse, and recirculation of basins in conjunction with the territory and its communities, in addition to new sources of supply in a way that reduces continental water consumption.
During the past decade, the emission standard for copper smelters and arsenic emitting sources for the country was published, establishing maximum emission limits for sulfur and arsenic that set a capture percentage equal to or greater than 95%, for which smelters locals had to make investments that exceeded 3 billion dollars.
The challenges point to improving catch levels to levels above 98%, in line with the highest global standards. There is a consensus at a technical level that the challenges of capturing sulfur and arsenic will be growing in the country and that, to achieve world-standard capture levels, new facilities, considerable levels of investment will be required, in addition to advancing with technologies that allow the leaching of sulfides.
In terms of employability, mining is a key economic sector for the country in terms of job creation. At the beginning of the decade, around 190 thousand workers carried out functions in mining operations directly. At the end of the last decade, about 250 thousand workers were part of the workforce in operations. In that same period, the female workforce rose from 6.16% to 8.62%. The challenges point to mining continuing to be an engine that generates employment considering the technological trends and new capacities required by the sector, in addition to increasing the participation of women as a key element in terms of gender parity.
On the other hand, it should be remembered that at the beginning of the last decade, mining represented 15.9% of the national GDP. As of 2019, the share of mining in GDP reached 9.4%. Despite the decline, mining continues to be the most relevant industry in the country and a world benchmark in mining matters. The production of copper and iodine stands out, which positions the country as the first world producer of these minerals, and the production of molybdenum and lithium compounds that places it as the second world producer.
Challenges to overcome include improving mining planning processes, streamlining investment processes, executing projects on time, and respecting investment costs. Also, Chile must take advantage of all its polymetallic potential through mining business models that make it possible to take full advantage of the value of the minerals that accompany copper mining, in addition to the full development of other minerals in a sustainable way.
The work that has been done in terms of safety should be highlighted. The value of life is a fundamental element for the mining industry. Regarding accident statistics, it is very valuable to point out that the last decade ended with the lowest number of fatal accidents and deaths that occurred in mining in Chile. At the beginning of the decade, there were 45 deaths, while at the end there were 14 fatalities.
Along with the above, it should be noted that the severity rates in mining fell from 748 to 242.4 during the decade and the frequency rate of disabling accidents fell from 3.5 to 1.53, in both cases per million hours worked in mining. The challenges are aimed at consolidating a safety culture with clear commitments to achieve zero fatalities mining.
Over the past decade, mining deposits have become increasingly complex, deeper, and lower-grade, making mining operations technically more complex and much more expensive. The future projection confirms this trend so that innovation plays a key role in the future sustainable development of mining. These challenges were collected from industry players by the Alta Ley Corporation through the generation and updating of the Mining Technological Roadmap, which allowed generating a roadmap that seeks to identify opportunities, R&D requirements, and challenges to generate technological capabilities in the country and develop a sector of technology-based suppliers linked to sustainable mining.
All of the above in a context in which national mining led during the past decade the incorporation of remote operations in production processes, increased number of autonomous trucks in operation, launched two pilot centers for the scaling of technologies, launched the fund capital investment in the world’s largest copper value chain, introduced artificial intelligence and digitization tools, promoted the formation of advanced and specialized human capital, in addition to consolidating open innovation programs such as Expande, the Tranque program for the operation safe and reliable of these deposits, among many other developments.
Among the challenges there is managing the business in an integrated way, through a more competitive, traceable mining, concerned with the environment and the communities, taking charge of market trends, and consolidating an ecosystem of local technology providers towards its internationalization.