The Future of Mining

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The future of mining

DIEGO ARECESVP Mining, Minerals & Metals Solutions

September 18 2013, Arequipa, PERU

● 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

3NOW!

Schneider Electric at a glanceThe global specialist in energy management

billion € of sales in 2012

NorthAmerica

25% AsiaPacific

27%Rest of World18%

WesternEurope

30%

28 30044 200

42 600

22 000

employees in 100+ countries

of sales devoted to R&D

Large company

of sales in new economiesBalanced 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%

The Future of MiningKey Trends in Global Mining

● Focus is on the most important trends in the mining industry

● Trends create major structural changes and are

reshaping the 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

1. The Impact of China2. Market Fundamentals Remain Unchanged3. Scarcity of Natural Resources4. The Renewed Role of Governments5. Talent Availability6. Sustainable Development: People’s Safety7. Sustainable Development: Environment8. Commodity Business Volatility9. New Technologies10.Globalization

tren

ds

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

tren

d

Source: IMF

Real G

DP

Grow

th

The Impact of Chinatr

end

Source: Raw Materials Group, Stockholm 2011

Chinese Iron Ore Imports


end

The Impact of China

• Growth has generated Chinese expansion abroad:• Mining Chinese FDI increased considerably

• Chinese supply chain and sourcing are required

tren

d

Source: Raw Materials Group, Stockholm 2011


end

Implications to Miningtr

end

• Short term demand , prices and profits decrease

• Increased relevance of China > Customers, Suppliers, Partners, Colleagues

• Need to source alternate markets

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

tren

d

Market Fundamentals Remain Unchangedtr

end

126 Years Coal Reserves

770 QBTU by 2035 (40% increase vs. 2012)

Market Fundamentals Remain Unchangedtr

end

9B people by 2050 (30% increase versus 2012)


end

● Long term demand and price increase, associated to

productivity increase

● Source customers, suppliers and partners in even newereconomies

● Globalisation

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

tren

d

Baeconomics, 02/2012

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

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d

Scarcity of Natural Resourcestr

end


end

Source: Australian Venture Consultants, 02/2011


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Silver

Manganese

CopperIron

Gold

Aluminium

Nickel

Manganese


end

• 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

The renewed role of Governments

●Political and economical reasons are driving

Governments to be much more involved in the mining business

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d

Source: The Economist and Financial Times

• 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 Governmentstr

end

Source: PricewaterhouseCoopers; 15th CEO Survey, 2012


end

• Impacts the risk and costs of capital projects

• Directly increases the cost of doing business

• Bribery and corruption can take centre stage

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

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d


Talent Availabilitytr

end


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Source: University of Queensland, Australia, 2007


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http://www.pwc.com/gx/en/ceo-survey/pdf/15th-global-pwc-ceo-survey.pdf

Read the PricewaterhouseCooper’s Annual Global CEO Report for more insights from leading miners on Talent Availability



end


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● More expensive projects● Delay (or even cancellation) of new projects

● Higher operational costs

● Safety impact● Decreased productivity and quality

Sustainable DevelopmentPeople’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

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https://www.globalreporting.org

Sustainable Development: People’s Safetytr

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Reference: ArcelorMittal


● 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

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d


● 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

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d

● Not complying with sustainable development regulations

has a major impact , well beyond costs.

Sustainable Development People’s Safetytr

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Marikana (South Africa)August 16, 2012

Reference: Financial Times

● Not complying with sustainable development regulations

has a major impact , well beyond costs.

Sustainable Development People’s Safetytr

end

Reference: Financial Times


end

● 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

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

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d

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

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d


end

● 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

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

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22 Years 10 Years

10 Years

Commodity Business Volatilitytr

end


end

Source: Reserve Bank of Australia, June 2011


end

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


end

● Impact the timing and decision process for capital investment

● Demand instability will affect planning and

increase costs● Increases risk

New Technologies

● Recent growth was a result of surge for

commodity demandand prices

● Growth coincided with a

decrease in

productivity and

investment in R&D

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d

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%

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d

Source: elsevier, R&D prospects in the Mining and Minerals Industry

New Technologiestr

end

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: 1 400 World Companies

New Technologies

● Major challenge: new technologies enhance productivity

● Technological advances from other industrial segments

may be applied to mining

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d

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

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New Technologies

● Major areas of innovation● Exploration

● Mining

● Mineral Processing

● Metal Production

● Sustainable Development

● Type of Innovation● Continuous Improvement

● Competitive Innovation

● Step Change Innovation

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d

Source: CSIRO, Jonathan Law, 2012

Source: CMIC, 2012

● Step Change Innovation

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d

Source: CSIRO, Jonathan Law, 2012

New Technologies


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● Match productivity improvement with the right new technologies

● Drive the right IP strategy to achieve competitive advantage

● Partnerships with suppliers, researchers and educational institutions

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

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d

● Countries see Mining as an opportunity for economic development

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

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d

Globalisationtr

end


end

● Consolidate > maximise productivity● Standardise to minimise costs● Integrate multiple operations

● Assimilate cultures and behaviors● Adapt to different legal and financial environments

The mining (business) of the future will be defined by the possibilities (or options) the mining companies will consider to face thechallenges posed by the market trends …

Market Trends

Mining Business

Implications (Challenges)

Possibilities

(Options)Solutions

Possibilities and Solutions

1. The Impact of China2. Market Fundamentals

Remain Unchanged3. Scarcity of Natural

Resources4. The Renewed Role of

Governments5. Talent Availability6. Sustainable Development:

People’s Safety7. Sustainable Development:

Environment8. Commodity Business

Volatility9. New Technologies10.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

● 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

● 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

PossibilitiesProductivity increase through R&D and adaption new technologies

● 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

PossibilitiesAvoid exposure to volatility through disciplined capital allocation, cost management and value creation

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


A Sustainable Mine



1.- Business Fundamentals

2.- Increased investment in R&D

3.- Investment in “new” technologies

4.- Partnerships with suppliers and research organizations


A Sustainable Mine







The next industrial revolution in Mining


•Exploration•Mining•Mineral Processing

•Metal Production•Safety•Environment (water,

energy, etc.)

•Tailings





Areas for “new” technologies and innovation

● 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 CapabilityAustralia Venture Consultants – February 2011

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 industriesDimitrios Filippou, Michael KingJune 2011

In general, Ok in large companies and mature countries

McKinsey’s twelve potentially economically disruptive technologies

“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.)

“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

Schneider Electric and New Technologies in MiningMine Planning, Supply Chain Simulation and Optimization

Schneider Electric and New Technologies in MiningProduction Energy Optimization: Understanding Energy in the Context of the production process

EnergyProcess

Schneider Electric and New Technologies in MiningWeather 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)

Schneider Electric and New Technologies in MiningWater 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

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 technologywill generate the next industrial revolution in mining which

will enable the Mine of Tomorrow

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

Thanks!

The Future of Mining

Technology

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