April 2017

The mining industry disrupted

  • By Gavin Yeates FAusIMM(CP), Principal, Gavin Yeates Consulting Pty Ltd

How ‘industry 4.0’ will fundamentally change the global mining industry

I would like to challenge you to suspend your disbelief and come on a journey to explore what might be possible for a disrupted mining industry. To explore a world where we will see the operating cost of producing metals halve, capital intensity halve, safety approaching the zero harm goal that the industry strives for and all this with a drastically reduced environmental footprint while delivering enhanced social licence to operate. Can this be possible?

We are all aware of the pressures that the mining industry is facing, with a reduction in productivity and increasing costs and social pressures.  I hope to convince you that a bright technology-enabled future is not only plausible, but will be necessary for the mining industry to supply the world with the resources that it needs at the decreasing real costs and with the environmental footprint that society expects.

In order to explore this future state, we first need to look back at history as well as at some parallels in other industries to consider how we create this new future for the mining industry. If we begin by looking at the manufacturing industry, we find that there have been three waves of disruption. These have occurred every 50 years or so, and we are arguably now entering the fourth wave of disruption or industrial revolution. So what were these waves in manufacturing and how did they play out for mining?

First wave

The first wave was the steam age occurring in the early 1800s. This led to the first large-scale mechanisation, which didn’t just occur in steam trains, but also the traction engines used in agriculture, manufacturing and even in mining with the first steam shovels. In this first wave, mining moved from human and animal labour with picks, shovels and pit ponies to large-scale mechanisation, steam-driven shovels, in-pit trains, steam- driven crushers and battery stamps. This had a dramatic impact on the cost of production as well as on the health and safety of workers.

Second wave

The second wave was the rise of mass production in the early 1900s, driven by the division of labour and epitomised in Henry Ford’s Model T production line, which finally made the car affordable for the masses. Mass production applied to all industries and accelerated during the world wars with the making of arms, aircraft and munitions. This second wave of disruption moved mining from steam
to electric rope-driven shovels, diesel trucks that provided increased scalability and flexibility and large-scale electrically-driven crushers, grinding mills and flotation circuits. This second wave delivered mines that look similar to those that we see today.

Third wave

The third wave arrived in the 1970s and 1980s and used process control, electronics and robotics to automate routine and repetitive tasks. This enabled the creation of huge, highly specialised factories producing a single product with few variants very cheaply. During this wave, factories achieved global scale and were located in regions to access cheap labour. This required the shipping of products to global markets. Supply chains and logistics were the keys to success. While this wave promised high levels of automation, it actually only automated about 20 per cent of the most standardised and repetitive tasks. The promise of cheap labour proved to be temporary, with the inevitable rise in labour costs driven by the very presence of these factories distorting the local market.

This third wave of disruption struggled in mining. While we saw equipment sizes increase and the introduction of process control in plants (which more often than not remained in manual mode), the other advantages that manufacturing leveraged, such as moving to low-cost labour environments and standardised specialist production facilities, were thwarted by the orebody. Orebodies occur where they are found, they are at the scale at which nature created them and they don’t always occur in low-cost labour environments. As we all know, each orebody is different and unique. Yet we have spent the last 50 or so years trying to apply standardised and increasingly large equipment, along with a standard mining process, to highly variable and unique orebodies. Apart from scaling up equipment, very little value was gained in mining from this third wave of disruption. I would argue that some of the scale up was to the detriment of the industry, where the scale of the equipment was larger than optimal for the orebody and thus accelerated grade decline through dilution. This has been a poorly understood driver for the reduction in productivity in the industry. Accentuating this decline has been the application of business management theory pushed by management consultants, which has driven the introduction of poorly designed operating models, key performance indicators and metrics that have led to silo thinking destroying value for the whole.  This remains the position for much of the industry today.

After such a poor outcome from the third wave of industrialisation for mining, why will the fourth wave (‘industry 4.0’) be any different?


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Fourth wave

This fourth wave builds on the third, but is driven by the digital revolution that is evolving at an exponential rate rather than the linear rate experienced in earlier waves. Digital transformation is disrupting every industry, and indeed society, transforming entire systems of production, management and governance. Billions of people connected by mobile devices, unprecedented processing power, storage capacity and access to knowledge, artificial intelligence, robotics,  autonomous vehicles, 3D printing, nanotechnology, biotechnology, materials science, energy storage and quantum computing are all converging to allow things to be done that were never conceived of before.

In manufacturing, we will see this convergence give rise to the concept of ‘mass customisation’. This will enable the local manufacture of highly customised goods and services that are adjacent to final markets. The large specialised factories chasing cheap labour found that the very existence of the factory changed the labour market, meaning that cheap doesn’t stay cheap. It is predicted that by 2018, the labour costs in China will reach those in the US. The logistical costs of moving products across the globe becomes the largest cost, not to mention the environmental impact.

Under the fourth wave, we will see small, agile factories using intelligent systems, robotics and additive manufacturing to create highly customised goods in batches of one for the same cost as large-scale specialised global factories.  These smaller, flexible factories will be able to do this close to a market, eliminating the huge logistical costs, and with minimal labour.

Ultimately, these small, flexible factories will be ‘lights out’ operations. This will commoditise manufacturing while enabling a new product design industry. Product design, unencumbered by manufacturing, will be where the differentiation is, and this will deliver added value to consumers, who will be prepared to pay a premium to get a unique product.

Mass customisation and the mining industry

When applying mass customisation to mining, we need to invert the thinking by applying the customisation to the orebody rather than the market. In manufacturing, we take a standard set of inputs and manufacture customised products for consumers. In mining, we will apply customised manufacturing (mining) techniques to the orebody to produce a standard product.

Rather than producing the largest mining equipment, we will see equipment customised to the orebody so as to only extract the valuable material while leaving waste behind. Where waste material has to be mined, it will be rejected at the earliest opportunity. Mining equipment will be tailored to have the lowest selective mining unit possible, but with the operating cost of the largest equipment today.

There are already some early examples of this approach:

  • AngloGold Ashanti has introduced a horizontal raise bore concept to mine only the reef. This represents an early example of customising the mining process to the orebody.
  • CRC Ore is working to reject waste at the earliest opportunity, which will be significantly enhanced with the progress in sensing.
  • When we look at the application of this fourth wave in mining, we see some great progress juxtaposed with some rigid and ingrained thinking.

The obvious examples of this ingrained thinking comes from our mining equipment suppliers, which are still working on the basis that bigger is better and are scaling equipment assuming that it will have an operator on board. The great progress in truck autonomy is still only being applied to the largest of the truck fleet. Why? Bigger only makes sense when you have an operator and labour is one of your largest costs. With autonomy, the critical question is: what is the optimal size of the truck? If you assume that the truck can reverse under a shovel in the time it takes to fill the bucket (and it can), then wouldn’t it make sense to have the truck sized to a single bucket, moving the load and haul process closer to a continuous process from the batch process it is today. This will make the system much more reliable, increase utilisation and, when augmented by sensing, allow the dramatic reduction in the selective mining unit, driving a step change in value. This is disruption.

Imagine a world where mining equipment is fully autonomous, connected via through-the-rock wireless communications and sized to suit the extraction of just the orebody, with minimal waste. Swarms of these autonomous miners will follow the orebody to depths beyond where we operate today with no people in the mine and a minimum footprint. By selectively mining just the orebody and minimising waste, there will be an increase in grade, reversing the trend of declining grades that we have been experiencing. With higher grades, the processing circuits can be smaller, less capital intensive and have a smaller footprint.

In this world, we will see miners with core competency in software and data analytics working from virtual remote operating centres connecting the world’s best skills through social networks and taking real-time data feeds from the equipment and process. There will be a constantly updating interpretation of the orebody carried out on the fly as each new piece of information comes in. The mine plan will be updated as the orebody model changes and as operating parameters are refined and metallurgical requirements are fed back from the process plant, optimising value constantly and in real time. Each operating decision will be simulated before it is made, with all options explored virtually before selecting the best option to deploy. All operating parameters will be recorded, and machine learning will be utilised to ensure that the best combination of parameters are applied for every given situation.

The operating model in this world will be characterised by flat organisations made up of agile, multidiscipline teams tasked and measured on holistic goals. At the core of these teams will be data analytics and software engineering working with geoscientists, metallurgists and mechatronics engineers.

In this world, we will see new business models that are characterised by opening up the enterprise. We will see the live orebody model and mine plan published on an open platform and being accessed in real time by suppliers and partners. This close coordination and integration, with the full value chain taking constant feedback and optimising forward, will deliver huge value by reducing inventory, rework and friction between business processes, regardless of who is performing the activity. These worlds are possible and plausible in a disrupted mining industry that takes advantage of the convergence of digital technologies.

Phases of the fourth wave

This disruption will not happen in a single step, but it has already begun. We are already seeing early investment and implementation in the first phase of the fourth  wave of disruption. Digital technologies are being applied to existing mines, equipment and operational processes to improve their effectiveness and efficiency. Many more sensors are being installed, and additional data is being captured from equipment and processes. While this will allow early wins in delivering value, it will also highlight some glaring gaps. For example, a truck now has 200 sensors telling us in great detail how the truck is running but only a single payload sensor to tell us anything about what it is carrying, not to mention that the data from those sensors is locked away in proprietary applications. Initial work in implementing any form of data analytics is being hampered by these immature architectures, where proprietary applications or point solutions ‘own’ the data and a lot of work is required to bring disparate data sets together. Early investments in remote operating centres are driving new thinking about the architecture and holistic optimisation of business value chains and challenging operating models.

The second phase of the fourth wave of disruption is yet to appear in the mainstream industry. In this phase, we will see new or different deposits or orebodies being exploited through the use of modified mining equipment and processes enabled by technology. This will be true disruption as it will enable things that were not previously possible. Initial work has already begun in this area, such as the aforementioned examples from AngloGold Ashanti and CRC Ore.

The third phase of the fourth wave of disruption will see us move to new frontiers, where completely new orebodies can be developed in ultra-deep or ultra-narrow conditions or wet or hot environments that have not been able to be exploited to date. We could also see very low-grade deposits exploited by cheap in situ mining methods. The key to this disruption will be removing people and reducing footprint while also providing a strong case for social licence to operate with community acceptance. Very early work and thinking around this is being done, mainly by researchers such as the in situ leach initiatives led by CSIRO, Adelaide University and Mining3.

So what are some of the missing pieces that would accelerate our move forward? Some examples are as follows:

  • a real-time penetrative and instantaneous bulk-grade sensor for all elements that can be deployed on a conveyer belt, shovel bucket, truck tray or mine face
  • real-time mineralogy determination
  • robust, ubiquitous high-bandwidth communications and location services that work above and below ground and out of line of sight
  • real-time orebody definition updated on the fly with uncertainty characterised.
  • Each of these examples will drive a myriad of new ways of doing all sorts of things that we haven’t even conceived of yet.

This is disruption.

Conclusion

The mining industry is at a point of inflection. It has begun to disrupt. Incumbents will need to choose the stance that they take when participating in this disruption. The choice to join this fourth wave of disruption could be the most important strategic decision that companies make; however, we continue to see companies making tactical decisions.

Recent surveys show that less than ten per cent of mining companies have a digital strategy. The disruption path is being taken by some, with the leaders moving fast to build the architecture, capability and operating and business models to take them down this track. These first movers will hit the ‘tipping point’ first, then see the acceleration of benefits leading to non-linear value realisation.

We will see dramatic reductions in operating costs, capital intensity and agility to respond to markets. We will be able to remove people from high-energy workplace environments. We will be able to deliver society the resources required to fuel growth and improve standard of living in a sustainable and socially acceptable way.

It  is  clear  now  that  the  fourth   wave  of  disruption  or  ‘industry  4.0’  will  apply  to  mining,  possibly disproportionately. Before the disruption of the motor car, people probably wanted faster horses.
So to take these first steps, we need to consider a world that is outside of our comfort zones. Just like in a previous era it involved building engines, tires and fuel instead of horseshoes and hay bales.

The question I have for you is: if the path of industry 4.0 is digital transformation and mass customisation, are you an investor in Henry with his Model T Ford or are you still trying to build a faster horse?

Feature photo by Yuri Samoilov. www.flickr.com/photos/yusamoilov. Used under CC BY 2.0.

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  • Allan Blair
    18 May 2017 at 6.43pm

    Great article Gavin, it poses challenges for many sections of the mining industry. It is no small wonder that low capital intensity mining operations in the third world offer lower mine operating costs than so called low cost, high capital intensity, bulk mining operations in the Western World. It is not just about low labour and consumables costs!

  • Stephen Hyland
    16 Apr 2017 at 12.36pm

    “When you arrive at a fork in the road, take it.”
    Yogi Berra.

  • Gavin Yeates
    8 Apr 2017 at 8.05am

    Bill, thanks for your comments, and I am glad you found it thought provoking. You have realised quite correctly some of the implied issues this approach to mining raises. This could be the next challenge in ore reserve estimation, how to deal with a dynamic SMU! You are of course correct in the paper’s premise that we have been seduced by scale and tonnage (I think Peter McCarthy first coined this) and many orebodies are now being mined at scales greater than their natural grade tonnage curve would suggest and thus we are processing a lot of waste for no gain, not to mention the wasted capital, energy, water etc. You are so correct in pointing out the fact that the SMU is ill defined in most reserve estimates yet is a fundamental core assumption. Keep thinking Bill, there is plenty of challenges left to solve, Gavin

  • Bill Shaw
    6 Apr 2017 at 8.10pm

    A very thought-provoking article Gavin. It is great to see these ideas being published and you are right on the money.

    To my mind, one of the most important, and perhaps little appreciated, implications of your predictions is the comment that some mines will be able to produce more selectively, i.e. higher grades, less waste, less dilution. This then will push the problem of scale forwards to the mills (we have large plants milling low grade ore to achieve ‘economies of scale’) as well as backwards to the large mining equipment suppliers. And the dynamic resource/reserve models that you suggest imply all sorts of difficulties in terms of forecasting production (and reporting those forecasts publicly). The real relationship between grade-tonnage and the Selective Mining Unit will be a lot more apparent. This is a hidden or ill-defined assumption in many current ore reserves. You are implying that the Effective SMU may be smaller than currently, and may actually vary locally with the morphology of the orebody. The future will hold many new challenges.