Miners are facing a more complex and difficult business environment than ever, with the pressures of rising costs, declining commodity prices, and rising social and investor demands.
The need for innovative solutions to these and other challenges has never been more urgent.
But what exactly does innovation mean for the mining sector, and how can it be achieved?
A recent survey by Monitor Deloitte and the Prospectors & Developers Association of Canada seeks to kickstart that discussion.
“We’ve had so many conversations with so many different mining companies over the years, and this is an issue that everybody’s grappling with,” says Andrew Swart, a partner at Monitor Deloitte, Deloitte’s strategy and business transformation consultancy.
“For me, the big central issue in the study is that companies know this is important and know that it’s a big issue, but what is it that really prevents them from moving to the next step and actually driving innovation in a more systemic fashion?”
The first annual Innovation State of Play survey was conducted by Monitor Deloitte, Doblin (an innovation-focused Deloitte-owned company) and PDAC early in the year. The survey consisted of a written component and follow-up interviews with a mix of majors, juniors and service companies. Although only 15 companies participated in the survey this year, Swart believes that its broad findings and conclusions are representative of the industry.
The results were presented in March at the PDAC convention, with a full report due in April.
The main questions the survey sought to answer were: the current state of innovation in the industry; the drivers behind innovation; the main barriers to innovation; and potential next steps for companies.
The good news is that, despite the constraints of financing and lacklustre commodity prices, innovation is taking place in the mining industry. The nature of the innovation has also changed over time, as most of the research and development (R&D) has moved outside of the majors, many of whom no longer devote significant resources to in-house research and development.
As majors have become leaner over the past 10 to 15 years, they’ve largely outsourced R&D to service companies — equipment suppliers, consulting companies, etc. New techniques and technology are now much more likely to come from service companies, which often work across industries and are in a good position to take new technologies or techniques from one sector and apply them to another.
In this way, the survey points to a critical role for service companies as catalysts for innovation, by developing mostly pre-competitive technology and making it available to the entire industry.
Although Swart admits he expected juniors to lag majors in innovation because of a lack of resources and funding, they are also finding ways to innovate.
“I’m happy to say that I was proved completely wrong,” he said. “What we really found was a bunch of very entrepreneurial people who right off the bat could talk about various innovations they were driving within their junior companies.”
Juniors are leading innovation in their relationships with stakeholders and also in joining forces with external partners to find solutions to technical problems. For these more agile companies, innovation is a matter of survival and stretching limited resources.
Ten types of innovation
Although innovation is occurring, the mining sector has a very narrow view of innovation that may be limiting the results of its efforts. The vast majority of innovation noted in the survey — 78% — took place in a single category: product performance. In the mining context, that means the pursuit of cheaper mineral extraction through new technology and methods.
By contrast, Monitor Deloitte counts 10 different areas in which companies can innovate — ranging from the profit model of the business to product performance to customer engagement.
In its studies of other industries, Monitor Deloitte has found that companies that innovate in areas outside of the actual product offering — such as configuration of the company or customer experience — generally see higher returns from those innovations.
“If you really want to drive innovation and translate that into shareholder value, innovating outside of the product (category) is often worthwhile,” Swart says.
While miners are overwhelmingly focused on operational improvements, the survey noted examples of companies that are innovating in other areas, such as customer engagement (Glencore [LSE: GLEN], which is improving training and retention rates of local indigenous employees), brand (Freeport-McMoRan [NYSE: FCX], which is creating transparency through public, independent external audits of compliance), and creating networks to create value (Encanto Potash [TSXV: EPO], which has a partnership with First Nations land owners in Saskatchewan).
What’s missing is innovation across areas. Innovation is more successful and sustainable when companies think about it more broadly, strategically and systematically, Swart says.
“When you look across these ten types, what you’ll find is that an innovation doesn’t always neatly fit into one of these buckets. Very often it will span two or three of these buckets — and that’s a really good thing,” he explains. “In our experience, the more dimensions that you innovate along, the more sustainable the innovation becomes.”
It also becomes harder for your competitors to replicate what you’re doing, Swart notes.
Systemic innovation across several categories is more likely to achieve transformational innovation — the breakthroughs and new inventions that drive the highest return on investment.
Drivers and barriers
The problems that both juniors and majors are trying to solve through innovation are the same: reducing the cost to operate, improving asset productivity, improving safety, reducing risk and reducing the cost to develop assets.
However, several barriers are holding companies back from pursuing innovative solutions to these issues, including a lack of risk appetite among majors.
Mining companies see innovation as risky, and are reluctant to adopt unproven new technology because they are already exposed to commodity, country and other risks.
“The mining industry in general is a conservative industry — while the company is operating in sometimes risky environments and risky commodity cycles, there’s a sort of inherent risk intolerance to anything that hasn’t been proven at that company, on that orebody and within that particular mine site,” Swart says.
There’s also a myth that innovation is always capital intensive. However, with service companies having already invested in new innovations, Swart says that doesn’t have to be the case.
“We’ve spoken to many service companies who have got great innovations and some are prepared to put these innovations in at no capital cost into organizations, and do it on a lease-type arrangement.”
Lack of leadership and organizational systems are also barriers to innovation that Swart sees across industries.
“Organizations where we’ve seen innovation really get traction is where you’ve got really strong senior buy-in, where literally at the top of the organization,
this is seen as an imperative, as being necessary for the organization,” Swart notes.
If senior leadership believes in the importance of innovation, they can ensure that the company is structured in such a way that innovation is encouraged. Incentivizing staff and aligning metrics used by the company are also important in getting everyone on the same page.
For instance, resistance to innovation often comes not from the leadership, but from a mine manager who is reluctant to try new methods or technologies because it may interfere with meeting the mine’s production target — on which his or her bonus is based.
Approach to innovation
In any industry, the word innovation can be used as a vague buzzword, and result in unfocused pet projects that go nowhere.
So how should companies approach innovation in a meaningful way and increase the odds of success?
Systemic processes and formal structures are key, Swart says.
“There’s never a shortage of good ideas,” says Swart, who has done similar surveys on innovation in multiple industries. “Innovation doesn’t fail because of a lack of creativity. It fails because it doesn’t get implemented. It fails because the organization itself doesn’t actually drive the innovation and isn’t actually aligned behind it.”
He points to four overarching principles that innovators — no matter what industry they’re in — adhere to:
First, they have a clear approach as to how they drive innovation and what they hope to achieve; second, they create an organizational unit or otherwise align the organization through senior leadership support; third, they marshal the right resources or competencies to drive their innovation agenda; and fourth, they create the metrics and incentives that drive innovation.
Swart points to AngloGold Ashanti [NYSE: AU] as an innovative mining company that has met all these criteria. (Because of confidentiality requirements, he can’t use any of the companies that participated in the study as an example.)
The survey showed a need for collaboration in the mining industry — particularly because of R&D moving from the majors to the service companies, and because of the financing and other constraints faced by juniors.
Swart notes that industry conferences and collaboration through industry associations, such as the Canada Mining Innovation Council, are good places to start. But there is also a need for formal collaboration between organizations aimed at identifying and solving common issues — including metallurgical, water, environment and stakeholder issues — using pooled resources.
Because of their lack of internal resources, juniors are already making some headway in partnering with research institutions and governments, but more progress is needed.
Are majors ready for a more collaborative future? First, the industry will have to tackle the view among majors that innovation has to happen in-house and is intellectual property that can’t be shared with anyone else.
Swart says majors should collaborate with a wider set of partners, including service companies, research institutes and even competitors.
“I don’t think that level of collaboration beyond normal joint-venture type agreements comes naturally within many mining companies,” Swart says. “So the onus lies on leadership to stimulate, promote and drive that kind of collaboration.”