The tipping point: large-scale challenges for the mining industry
Despite mining’s historically high production and profitability, it faces a number of existential threats following the Covid-19 pandemic. From dwindling resources to spiralling expenses, JP Casey considers some of the big picture challenges for the mining industry.
While the mining industry remains one of the world’s largest industrial sectors, there are a number of concerns regarding its long-term viability. Spiralling exploration costs, depleting ore reserves, and mounting evidence of the sector’s environmental damages has combined to paint a picture of an industry whose best, that is most profitable, days could be behind it.
Yet this is not to say that there is no hope for the mining industry. The world’s industries are still reliant on raw minerals pulled from the ground and refined into useful materials, and a steady wave of technological innovations and cultural changes has helped the mining industry adapt to many of these challenges.
However, the question remains as to how effectively these reforms can counter the existential threat facing mining, that minerals are a finite resource being drawn from the earth at an alarming rate, and whether mining itself is a fundamentally unviable industry.
Tumbling ore grades
Perhaps the most significant threat to the global mining industry is that minerals are, by definition, a finite resource. With all the improvements in operational efficiency and productivity in the world, there will come a point where the world simply runs out of mineral wealth.
In a 2011 paper, James West of the Commonwealth Scientific and Industrial Research Organisation noted that in the US, the quality of ore bodies has fallen steadily, with the lowest viable copper ore grades in the US between 3% and 4% prior to 1900. By 1914 this had fallen to just 1.14%.
This declining quality runs in the opposite direction to dramatic increases in production, with global copper production jumping from less than one million tonnes in 1914 to 2.6 million tonnes in 1954. These trends have only intensified in the years since, demonstrating that ore quality has fallen just as demand for those minerals has risen, creating a trend whereby the mining industry is becoming less efficient over time.
The total volume of proven coal reserves increased to over one trillion tons in 2010.
Yet this decline can be slowed, if not eliminated outright, by technological innovation in two areas: exploration and operations. The former covers new technologies and exploration processes that reveal more financially viable mineral deposits for mining, with tools such as artificial intelligence and chemical processing leading the way.
Similarly, AI has found a role in mining operations, with a number of processes, from the movement of ore from one part of a mine to another, to drilling and blasting work, all benefitting from artificial intelligence which helps optimise operations.
The sum of these innovations is a reversal in what would be an expected decline in mineral deposits for a number of key commodities. The total volume of proven coal reserves, for instance, increased to over one trillion tons in 2010, and a report from the Copper Alliance found that, despite increases in copper production, the world’s copper reserves increased each year between 2014 and 2017.
While these developments have not put more minerals in the ground, our newfound ability to dig deeper, and go further, than ever before could help prolong the viability of mining.
As miners push the boundaries of exploration and extraction, however, a secondary challenge emerges: that of rapidly ballooning budgets, as companies have to spend more money than ever to reach increasingly slim deposits.
A report from the US Geological Survey (USGS) found that, between the 1950s and 1990s, the average global expenditure on exploration increased from $3.5bn to $28bn, a pattern that demonstrates “the tradeoff between depletion and technological advances”.
In particular, the cost of gold exploration has skyrocketed. The USGS data shows that in the 1950s, gold expenditure accounted for just 17% of total mining exploration costs, compared to 64% by the 1990s.
This suggests that while base metal exploration costs have been relatively contained, the consistently high demand for the “save haven” asset of gold has driven exploration costs to disproportionately high levels.
This trend is perhaps best summarised by a USGS figure demonstrating exploration spending as a function of global production; this figure increased from 1.2 to 2.1 between the 1950s and 1990s for base metals, and 0.8 to a vast 6.0 for gold over the same period.
In the 1950s, gold expenditure accounted for just 17% of total mining exploration costs, compared to 64% by the 1990s.
One solution to these spiralling costs has been a rise in state-owned, or at least state-supported, mining operations. Chinalco, for instance, is 85% owned by the Chinese Government, and began expansion work at its Toromocho copper mine in Peru in 2018, a project valued at $1.3bn.
Similarly, Ma’aden, in Saudi Arabia, is three-quarters owned by the state and boasts six gold mines, alongside an exploration budget of around $66.7m.
The latter example is particularly noteworthy as a large-scale project developed in a country not often considered among the world’s most productive mining regions, demonstrating how national interest can play a role in diversifying the global mining industry and addressing imbalances in resource extraction.
While these figures are significantly lower than those boasted by private majors, such as Rio Tinto and Vale, the growth of state-backed and sustainably-funded mining operations could help dull some of the more rampant examples of expense inflation.
Environmental and social challenges
Another significant challenge for the mining industry is that of its environmental footprint, with the damage left behind by mines well-reported.
From large-scale environmental disasters that have attracted global scrutiny, such as the Brumadinho disaster in Brazil, to long-term damage caused by waste mismanagement, such as the poisoning of hundreds of thousands of people in Zambia, the tearing up of landscapes to make room for mining operations is a process that will pose inherent environmental challenges.
One solution, and one that gained considerable support following the Brumadinho disaster, is to engage in waste management more critically and proactively. Examples include creative reuse solutions, which include the re-processing of mine waste to extract useful minerals that first slipped through the net, and the use of liquid waste in heating and cooling systems.
Mine waste accounted for around 30% of all EU waste in 2012.
There is also a role to play for international bodies and governance groups, such as the EU, which has published a number of laws and directives for its member states, where mine waste accounted for around 30% of all waste in 2012. This combination of technological adaptation and political action could help alleviate some of the more damaging impacts of mining.
Similarly, there is an increased awareness of a miner’s social responsibilities, especially for companies based in one, typically wealthy, country conducting work in another, often poorer, state.
There is more attention than ever paid to this potentially exploitative power dynamic, and whether those suffering are indigenous groups or locally-recruited employees, mining companies are held to a much higher social standard than in previous generations.
The latter example is particularly important, as the ruling of the Canadian Supreme Court, that Canadian miners can be sued in Canada for alleged slavery overseas, could set a precedent for future international mining operations.
If miners are set to be held accountable in their home countries, there is hope that they will more actively engage in their social responsibilities, helping to overcome some of the challenges that could be expected when working with such large numbers of people in so many jurisdictions.
// Main image: 3D System Model and Completed Installation. Credit: Deimos