Global Prosperity to Impact on Mining – Dr. David Robinson

The Sudbury Mining Solutions Journal gave Republic of permission to post Dr. David Robinson’s column. This Sudbury-based magazine showcases the mining expertise of North Bay, Timmins and Sudbury. (This article was originally published last winter.)

It is Christmas in the mining industry. Rio Tinto is handing out money to Alcan shareholders. China just signed a three billion dollar iron deal with Gabon. Xstrata has a $3.1 billion takeover offer for Perth-based Jubilee mines.

Talk of a takeover by BHP Billiton in September sent Rio Tinto shares up close to 18 per cent in just over a week.

South Korea is setting up a $22 billion fund to invest in global oil and gas projects, vying with China, Japan and India for resources as prices soar.

Where is all the money coming from? In a sense, it all comes from the imagination. The entire world is looking to a global society with a rich China, a rich India, rich Eastern Europe, and maybe even a rich Africa. The value of today’s ore deposits depends on whether you think they will be needed tomorrow. In a rich world, there will be more buildings, more bridges, trains, breadmakers and jigsaws. Picture that rich world, calculate the amount of steel, limestone and energy it will take, and start buying mines and mining companies. Suddenly, everyone knows that the world’s metals are worth a lot more than we imagined.

 The U.S. Department of Energy claims “each year, nearly 47,000 pounds of materials must be mined for each person in the U.S. to maintain a standard of living.” That may be an over-estimate, and it may be that the number reveals a dreadful waste of energy and resources. Even so, the number is a good first approximation of what the rest of the world aspires to. India and China together have eight times the population of the U.S. These are the people who will be paying for today’s takeovers. There will be a whole lot of mining going on.

Any natural disasters that global warming brings on will just increase the demand for metals and construction materials. Major infrastructure projects will drive the market for new materials and rare metals.

For the mining supply and service sector, this super boom means business. It means competition. It means concentration. Fewer, bigger mining companies will be buying systems from fewer, bigger suppliers. Local suppliers will find it harder to stay in the game without marketing networks or deals with the biggest global suppliers.

Small companies with promising technologies will be targets for the big players. Think about the computer industry – Microsoft does invent new technology, but more often it buys the company when it wants the technology.

Microsoft is a global integrator and retailer.

The market for new mining technology will grow. Mining has a reputation for being slow to adopt new technologies, but the pressure to produce will change that. Technologically conservative miners will be bought out or chucked out. Three of the world’s five biggest nickel producers disappeared in the blink of an eye because they were moving too slowly.

Performance contracts will be increasingly detailed and demanding. More than just the U.S. military will rely on specialized contractors for everything from accounting to sinking shafts.

Profit margins for equipment producers will probably fall as volumes rise and production is increasingly globalized. The advantage will move to technology creators, innovators and start-ups that bring something new to the industry. The majors will contract research to universities and to companies that can develop specific technologies quickly.

The environmental movement will insist on less and less “collateral damage,” and the industry will meet the demand. Suppliers with technologies that reduce environmental impacts will do especially well. The need to cut greenhouse gas emissions will drive the industry to conserve energy. Suppliers that can help will do especially well.

Exploding demand for energy, especially zero-carbon electricity, will turn more miners into power companies. At some point, mining companies will wake up to the fact that they have to advocate for a massive expansion of green power if they are too keep producing. There will be lots of work for energy consultants and lobbyists.

The technology revolution in mining hasn’t taken off yet. If other sectors are any guide to how it will happen, look for mining clusters that are already technology producers and mining research centres rolled into one. Sudbury is one of those mining technology hotspots. The revolution could start here.

Dr. David Robinson is an economist at Laurentian University in Sudbury, Canada.