The dollars and cents of concentrating value

Developing a profitable mining operation carries a high degree of financial risk. The end goal is always a balance of sustainability and profitability — but as the landscape shifts beneath our feet via factors like market fluctuations, technological advancement and changing consumer demands, mining must use innovative methods to maximize value.

When it comes to the financial side of things, establishing a new mining operation is the very definition of high-risk, high-reward.

Successful mining operations provide a highly profitable economic engine for the Canadian economy; in 2018, the minerals sector directly and indirectly contributed $97 billion to Canada’s nominal gross domestic product (GDP), and internationally, accounted for $104.5 billion — which works out to 20 per cent of all value generated by our exported goods. 

However, the financial risks are substantial. Many mining ventures fail early on in their lifecycles, whereas others may operate for years before suddenly staring down bankruptcy in the wake of shifting market demand.

As one might expect, large, diversified mining companies tend to be among the top performers in terms of profitability. But beyond a broadly diverse portfolio of operations, how can mining companies — size notwithstanding — maximize their profitability?

 

Innovative methods

The mining industry has long relied on traditional methods, drill and blast being a prime example — and the pace of adoption for new methods and technologies is generally conservative. Yet as new technologies continue to emerge, providing miners with value across safety and efficient operations.

When determining the most cost-effective way to mine a resource, we should consider new methods tied to trends like digitization and autonomous mining equipment. These strategies must be considered and implemented early in the planning and design stage of a mine, as they have a large impact on efficiencies and cost in the future operation of the mine.  While they may represent a considerable upfront investment of capital and learning curve, these methods can have been shown to increase productivity, increase operating hours, improve efficiency, enhance safety, and minimize the need to send workers into high-risk environments. Recent mines have seen their cost profile reduced by 15%-30% over the life of the mine.

However, new developments are usually a small portion of operators’ portfolios. Implementing ambitious innovative technologies has proven to be harder in existing production mining environments. For instance, robotic and autonomous machines are usually required to operate in a totally separate mining areas from their human counterparts. A hybrid and customized approach must be taken. Innovations like robomaps, integrated mine development and virtual simulators are just a few examples of technology that can greatly enhance efficiency in mining methods.  These allow miners to find value in leveraging more information to be more flexible, optimize extraction and increase processing rates across the value chain.

Mining companies should also consider applying existing mining methods in unusual or innovative contexts. For example, heap-leeching techniques used to be avoided in colder climates, are now in operation even in northern locations.

Energy costs represent 14% to 25% of Canadian mines’ operating costs, and the electrification of mines is an innovation that is improving value to these. Less carbon emissions, improved worker benefits, including better ventilation and safety. This means incorporating strategies to power these remote locations with resilient smart grids and renewable generation that is tailored to the location and need.

Beyond the extraction process, significant quantities of some types of ore can be wasted due to non-ideal, under-researched methods of refining. By switching to methods that mitigate inefficiencies, mining operations can lower the waste of energy, time and materials. As an example, ore sorting – the use of advanced sensors to sort and separate a variety of valuable substances significantly reduces the amount of energy and water required.

 

Not just good on paper

A key prerequisite for maximizing value is to create a highly detailed, customized mine plan with solid parameters, well before ever breaking ground on the site. Planning out the economic parameters ahead of time, with foresight toward market fluctuations, is a critical input toward ensuring success. This means being close to the client – as the design of mining methods must align with the investment strategy which is foggy at the outset and becomes clearer later in development.

These plans must be very specifically tailored toward the mine project in question, based on realistic economics, project location and real experience. It’s not uncommon for companies to base mine plans on similar projects which lack the appropriate data to determine whether the plan will really deliver — or is only good on paper.

Considering mine operations right at the outset of the design phase and mine planning is one way to protect against this risk. Sometimes, this might lead to decisions that may seem less ambitious, such as shifting from high-grade to medium-grade to target profitability if operating costs are lower in the medium-grade ore. This may represent slightly less metal production while increasing profitability. This is case by case scenario for sure and targeting high-grade will most likely be the most profitable option. However, tactical decisions that are well-tailored to the specific mine and market at hand can dramatically maximize short-term profitability.

Value can also be found when looking at the mine life-cycle from exploration to reclamation. By developing strategies to reuse tailings in backfill. Tailings need to could be neutralized and stabilized as a paste before being pumped back into the mine stope, so a clear understanding of the composition is needed. As well, by designing for rehabilitation at the start of a project means incorporating practices throughout the life of the mine to reuse topsoil as soon as possible to prevent the loss of soil nutrients and microbes.

 

Expert strategy

Making these decisions can often require the detailed expertise of expert advisors to overcome common challenges during the design and planning phase. There are risks that are frequently encountered, such as incomplete economic modelling, siloed expertise and limited or not representative data. Mining companies need to guard against these risks when constructing a life-of-mine plan and cash flow.

However, when a mine is designed from the outset according to an advanced strategy, owners can maximize value quickly, optimizing grades and tonnage, reducing risk, and increasing profitability. By planning a mine that will deliver profit quickly over the short term, we can insulate against future market fluctuations — and even design operations to match fluctuations on commodity prices and capital costs.

It’s clear that mining will remain an integral pillar of the Canadian economy. We remained the world’s top destination for nonferrous exploration spending in 2018, growing our share by 1.3 per cent to 15 per cent of total global expenditures. Capital spending in the mining sector is projected to increase by five per cent year-over-year. There is unmatched opportunity in our natural resources sector, and the mining leaders that focus on a disciplined, strategic approach from the earliest planning stages will see even more concentrated value.