Companies in the mining sector have traditionally been slow to adopt new technologies due to the scale and complexity of their operations, as well as the hefty costs that come with change. The uptake of digital tools and solutions has consequently been limited. However, challenging market conditions – driven by weak global demand for certain minerals and persistent excess capacity – are pushing mining companies towards digitalisation. Fourth Industrial Revolution technologies such as large-scale automation, artificial intelligence (AI) and virtual reality (VR) are increasingly being adopted as solutions to sector-wide problems including declining ore grades, safety challenges and operational inefficiencies. According to a 2017 white paper by the World Economic Forum (WEF), digitalisation in the mining industry has the potential to deliver over $425bn in shareholder, customer and environmental value in the 10 years to 2025, which is equivalent to 3-4% of total industry revenue over that period. Beyond balance sheets, the potential benefits of digitalisation in mining could see global CO emissions reduced by 610m tonnes and over 1000 lives saved with enhanced safety measures.
Industry Trend
Productivity levels have decreased dramatically from the early 2000s, although there has been a slight turnaround since 2014. A surge in demand for metals and minerals in the early 2000s – driven by an acceleration in economic growth and associated building in developing countries – quickly translated into high commodity prices and, with it, increased profitability. Boosting production volume became the industry’s top priority under these conditions, and many mining companies lost sight of the productivity parameters that underpinned thinking in the lean years of the 1980s and 1990s.
The commodity boom of the early 2000s brought raised spending and higher output: between 2004 and 2014, output grew at a compound annual growth rate (CAGR) of 14.8%, according to a mining productivity report by global management consultancy firm McKinsey. However, costs rose more sharply, with capital expenditure increasing at a CAGR of 36.8% over the same period, operating expenditure at an 18.1% CAGR and employee numbers at a CAGR of 6.6%, lowering the productivity ratio of the value of output divided by the value of inputs. This meant that despite a 50% increase in the production of certain commodities during this time, average productivity declined by 3.5% every year due to the increased associated costs. In effect, by 2013 mining companies were 28% less efficient in digging and moving one tonne of material than they were 10 years earlier.
Forces of Change
Separating the 2004-14 period into before and after the 2008-09 global financial crisis, however, shows some interesting contrast. Starting in 2009 increases in mining firms’ capital expenditure slowed considerably, to an average of 3% between that year and 2014, and productivity levels flattened out. Then, the 2015 commodity price crash marked a turning point for the industry: prices declined by 25% for copper and 32% for coal, for example, between end-2014 and end-2015 due to weaker demand from China and global oversupply. Many mining companies were forced to reassess productivity and costs, leading to layoffs and restructuring. This resulted in a turnaround in productivity levels. According to McKinsey, there was a 2.8% annual increase in productivity between 2014 and 2016 – the most recent assessment period – largely due to decreased employment and lower capital spending.
Nevertheless, productivity still remains far below the levels that were experienced before the start of the commodities supercycle and construction boom of the early 2000s. While the global mining industry has shown strong signs of recovery since commodity prices bottomed out in 2016, with revenue and profit of the world’s top-40 mining companies increasing by 8% and 4%, respectively, in 2018 alone, productivity issues still linger, as do concerns associated with the long-term value of the industry and its perception among investors. For many investors and other stakeholders, the mining industry has fallen behind on addressing vital issues such as safety, the environment and efficiency. Although technology is posited as a solution to many of these problems, companies face unique operating challenges – such as capital-intensive infrastructure investment, distant planning horizons and lengthy implementation timelines – which make its adoption particularly complicated.
The Digital Mine
The future of the global mining industry is envisioned to comprise fully integrated supply chain processes that seamlessly move product from pit to port. Along this path, operations will be automated and remotely monitored using drones and other devices with AI components from remote control centres that monitor real-time data on ore quality, stock, feed and logistics. Using this data, mining companies will be more agile, efficient and safer.
While futuristic, this picture of the mining landscape may not be so far-fetched. Many companies have been looking to implement technological changes at their mines and across the supply chain since the mid-2010s. According to the International Data Corporation, in 2015 some 69% of mining companies were looking at remote operation and monitoring centres, 29% at robotics and 27% at unmanned drones.
Integrated Supply Chains
Historically, mining operations have been silos, with minimal integration between mining, processing and transport. Bringing these elements of the supply chain together presents the biggest scope for change and, in turn, a significant opportunity to find new efficiencies and drive operational results. According to French multinational Schneider Electric, integrating supply chains in any industry can improve efficiency by as much as 20%.
Digitalisation enables a full picture of the pit-to-port supply chain, with data analysed to identify operational issues, manage inventory and quality, track production and asset performance, and understand costs. Supply chain management systems can help interpret data to plan, schedule and optimise operations to maximise profit, while employees or automated technology at remote operations centres can monitor real-time data to make any required adjustments.
Some large multinational mining companies, such as Australia’s Rio Tinto, are already remotely controlling many of their mines from centralised operations centres. It is a trend that is slowly taking hold. In South Africa local tech start-up Ramjack Technology Solutions launched the world’s first fully outsourced remote operations centre in 2019 to help mining companies monitor real-time production and safety systems. Based in Johannesburg, Ramjack’s remote operations centre monitors data from both open-pit and underground mines, providing real-time data to its clients on instruments and equipment, safety and output, among other indicators.
Improved Efficiency
Equipment performance plays a critical role in daily operations, and machinery disruptions can lead to incredibly expensive losses; the cost of an excavator stalling is around $5m per day, for example, according to Schneider Electric. This is where effective asset analysis and real-time data monitoring can make a crucial financial difference.
Employing condition monitoring and predictive analysis for assets can help identify early warning signs that something is not working properly, or otherwise ensure equipment is up to date, boosting efficiency across the asset portfolio. Large technological solutions companies, such as Siemens, offer products and services specifically tailored to the mining sector, like systems to detect problems at the earliest stage and alert employees to routine maintenance tasks.
Some mining companies have been implementing their own in-house initiatives. Alfred Baku, executive vice-president and head of the West Africa region for Gold Fields, a global gold mining company, told OBG, “Gold Fields has introduced digitalisation processes in our Ghana operations to strive for improvement on safety, production, operational efficiency and cost optimisation. We are focused on further enhancing our network backbone capacity, harnessing known and proven technologies, and improving our digital footprint through innovation.”
The implementation of more digital solutions is certainly spreading across the industry. The operations in southern Ghana of Colorado-headquartered Newmont Goldcorp have already seen significant savings from implementing digital equipment monitoring systems. In 2018 the firm launched an initiative to reduce equipment delays at the Akyem gold mine using real-time data. The move reduced downtime at the site by 20% for shovels, 22% for trucks and 30% for drills. Overall, it led to improved equipment usage and productivity, with the value creation as of December 2018 some $300,000 over that year’s target.
Automation
Technology is indeed becoming a critical differentiator for the world’s leading mining companies and their balance sheets. Automated technology and machinery is one of the most promising areas in this regard, and although its uptake remains low compared to other sectors, the adoption rate for autonomous machines in mining is expected to rise from 0.1% of global industry operations in 2016 to 25% by 2025, according to the WEF. Other processes such as stock monitoring are set to be fully automated in the near future. Autonomous operations and robotics in general have the potential to create an additional $56bn in value for the industry between 2016 and 2025, since machines and processes can operate 24 hours per day without the need for employees.
Certain international mining firms are leading the pack in terms of automation. Rio Tinto, for instance, runs the world’s largest fleet of automated trucks, while Anglo American has been using automated drills at its Kolomela iron ore mine in South Africa since 2014. Elsewhere, autonomous and piloted drones are being employed to improve geological assessments and help monitor operations. In Papua New Guinea, Australian company Newcrest Mining is using this technology at its gold and copper mines to good effect. Combining drones and autonomous trucks can reduce the margin of error in ore extraction from soil volumes by 20-30%, according to McKinsey. In Nigeria, global tech firm Asseco Group opened a training centre in 2018 for drone operators who work with the government to carry out geographical information system surveys of mining areas around Lagos State.
AI
Developments in AI go hand in hand with automation. Mining companies sometimes use less than 1% of the data collected from their equipment and machinery, and this is where AI can help. AI and machine learning can analyse the huge amount of data and help employees make more informed decisions to continuously improve performance. Not only can computing power surpass the processing capability and speed of humans, but a programme can learn and improve over time when different variables are introduced. AI can draw on disparate data sources to create a holistic view of historical, real-time and projected operations, as well as control a vast network of interconnected sensors and robotics within a mine or refinery.
In practice, one popular application of AI in mining is during the prospecting phase, especially for discovering deposits. Significant variability in ore bodies exist across regions and are difficult to assess, and this can make or break an investment. GoldSpot Discoveries (GoldSpot), a Toronto-listed tech company, uses AI to improve mineral exploration for its clients. GoldSpot has developed a system capable of ingesting data inputs on geology, geochemistry, satellite imagery and spatial data, among others, which are then interpreted and transformed by learning algorithms to be useful in identifying new potential mineral deposits and helping miners make informed exploration choices.
Virtual Reality
Mining often involves distant planning horizons and multiple unknown variables. VR technology can help miners bring many of these unknowns out of the dark, allowing them to predict and prevent potential problems and adjust accordingly before a large amount of capital is invested in on-theground operations. Technological advances now allow companies to create what is often referred to as a digital twin – an immersive, virtual environment that can simulate various aspects of a mining operation, from the conveyor belts to safety procedures. VR and augmented reality environments can mimic physical mining locations, giving employees “real life” training and development experiences. The applications can also be used to create various test scenarios that allow companies to try out new process technologies, such as crushing and conveying, and assess their potential benefits and the most accurate cost model.
VR is already being employed by mining companies around the world, often in partnership with companies like Siemens, which offers services to study the behaviour and interaction of belt conveyor mechanics through digital simulations. Digital twins are also being used to optimise haulage fleets, for example at Anglo American’s Los Bronces mine in Chile. In South Africa, Exxaro Resources has been harnessing data from its coal mine in the north of the country to create a digital twin to test scenarios before digging.
Safety
While efficiency and profits are important, protecting employees is paramount. Mining involves significant inherent operational risks, but the WEF estimates digitalisation could save 1000 lives and avoid 44,000 injuries across global operations in the decade to 2025. Using VR for employee training and test scenarios – which is safer and more engaging than traditional on-site methods – is just one way mining firms are addressing safety through digitalisation. Other methods include wearing devices, which can monitor employee fatigue. At the Two Rivers platinum mine in northern South Africa, operated by local firms African Rainbow Minerals and Impala Platinum Holdings, miners have been supplied with smart caps that monitor brain activity to assess if they are fatigued. Efforts are also under way at a university research institute in Johannesburg to develop cellphones capable of sending and receiving radio waves in deep underground mining shafts, alongside sensors imbedded in the phones to detect unsafe oxygen levels.
Considerations
The potential benefits of digitalisation for the mining sector are clear, and the technological gap between the industry and other sectors is closing. An increasing number of mining companies are implementing digital strategies to increase efficiency and gain a competitive edge amid challenging market conditions. Governments and state-owned companies are coming on board and, in some cases, leading innovation in certain jurisdictions.
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