Monday, March 4, 2013
4 Myths that prevent Innovation in the Mining Industry
Recently I've noticed a lot of people in the news talking about the importance of innovation and commercialisation as potential drivers of enhanced productivity in Australian industry. With a number of recent studies talking about how Australian industry productivity levels have fallen behind our peers, many argue that this has to do with a lack of investment in innovation. In a powerful talk, Mark Cutifani (CEO AngloGold Ashanti and now CEO Designate of Anglo American) discusses, among other things, the importance of mining to the world economy and its innovation challenge. Click Here to watch Mark speak.
A lot of industries around the world are investing in innovation that is being driven by advances in information and communications technologies. These advances include: New wireless communications technologies, smaller and more powerful mobile computing platforms, access to big data and big computers over the internet (think Cloud computing) and whole new ways for people to collaborate (think Twitter and Facebook). The combination of all these technology trends forms the eye of a perfect storm that will allow many companies and industries to re-invent the way they operate.
In a mining context these trends present opportunities to work and be effective in remote areas, or across geographically dispersed footprints, or in difficult operating conditions. New approaches that these ideas will allow are machine and process automation, operational control and monitoring from a distance, mobile equipment automation, and comprehensive sensor networks that allow unprecedented vision of an operation. So why aren't mining companies investing hell-for-leather in these new ideas, to try to find competitive advantage in their marketplaces?
Over the last 15 years working around mining companies trying to bring new technological approaches to the table, I have been rebuffed more times than I can count. This is not to say that all mining companies are luddites. Some companies are rising to the innovation challenge with major step change initiatives. However, they are the exception, not the rule. Here are some of the myths that are used by miners to avoid innovation.
Myth Number 1. We are different to other industries. Many of the ideas that I talk about to miners are ideas that have already been proven to work in other industries. But the first response I often get is that mining is different to other activities. It is true that there is inherent operational complexity in mining and processing an ore body that is not homogenous and invariably different to every other ore body in some significant way. This means that miners need lots of flexibility. Fair enough, but once the ore is out of the ground and loaded into the transport medium, the process becomes as predictable as any industrial chemical or manufacturing plant, all of which are leaps and bounds ahead of mining in terms of automating their operations. And even parts of the upstream mining process have outside analogies. For instance, there is a direct analogy between operating and automating a truck and shovel fleet in an open cut mine to operating and automating a tank warfare operation. Lots of large machines hooning around the countryside with a need to know where all of the others are, avoid crashing into each other, and deliver an efficient outcome for the operation. Yes mining is different, but it’s not that different, and parts of it are very similar to other industries.
Myth Number 2. Ours is a simple business. I often hear the refrain that mining is a simple business - that “we just dig stuff up and send it to our customers”. Interestingly, I often hear this argument from the same people as argue for complexity being a big issue. The level of complexity that we observe depends on the scale at which we look. At the highest level mining is a fairly simple matter, but this masks levels of great complexity within the industry. It is true that no two ore bodies are the same; geographical issues introduce variability and even the nature of the metallurgy will dictate the complexity of the extraction and concentration processes. Miners do much more than dig stuff up and sell it. All of which leads me to conclude that smart new information technologies must surely be able to lighten the load. For instance, with all of the computing power available today, and with clever new analytical programs, the simulation of multiple potential outcomes becomes relatively straight forward. If complexity of the ore body means we can't make decisions in advance, then simulation holds the key to building multiple mine plans from which we can choose as we go along and improve our knowledge of an ore body. As the ore body knowledge is improved, previous simulations would help operators quickly home in on the right course of action.
Myth Number 3. Innovation is risky. Yes innovation is risky. But it is not as risky or expensive as flawed investment decision processes involving billions of dollars. It is not as risky or expensive as exploring for minerals, and it is not as risky or expensive as not innovating at all. Innovation through R&D is a process. It should be undertaken strategically, and it should be managed like all other business processes with one small exception. Early in the innovation process, ideas need to be given seed funding to help them deliver a business case and they need to be protected from those whose interests are vested in the status quo. That seed funding needs to ensure that the biggest risks, the biggest assumptions in an innovation idea, are tested early, and failed early. After developing a sensible business case and identifying a path to commercialisation, the idea must be managed as rigorously as any other project.
Myth Number 4. We can't afford Innovation. I am often amazed that highly profitable mining companies feel they can't invest in their future. Of course they do - mineral exploration is the most visible example that they do. And most mining companies over a certain size will have some significant investment in R&D, either in-house or as investments via university research. But almost without fail, mining companies invest in incremental innovation that is focussed on the existing portfolio of problems. Very few take bold steps. What I find interesting is that mining companies, especially big ones, are more than happy to make flawed (in hindsight) investment decisions that can destroy billions of dollars of shareholder value, but baulk at spending a few million dollars on doing some fundamental research into step change innovation.
Not all miners are adverse to innovation. I was recently involved, with many others, in an innovation activity at AngloGold Ashanti (www.aga-tic.com). Faced with the problem that their South African gold mines were becoming too deep to mine profitably, and the knowledge that there remained enormous reserves of gold below 4000m, AGA initiated an open innovation forum with all of their major suppliers to attempt to re-invent underground mining at depth. The outcomes are impressive, and are now being tested on a block of ground to see if the new technologies are up to the task. It's a great example for the industry.