The handbook on successful mining practice has seen a significant rewrite over the last decade. Traditionally thought of as an industry resistant to change, the sector has been transformed by the proliferation of digital technologies and a rapidly changing investor environment.
So what strategies are emerging mining firms taking to get ahead of the curve? And which ASX-listed companies are already taking note?
1 – Driving value through data
Mining investors are placing an increasing value on how well companies measure and use data, and in turn, how these insights are being used to optimise processes, reduce cost, increase efficiency, and improve safety.
In the past, the value proposition of mining companies has been based simply on a company’s ability to pull resources from the ground. Many experts now suggest this measure is expanding, principally in response to the digital revolution and the rise of tech-enabled data analytics.
Data measuring and analysis tools can provide mining firms with a plethora of new, previously unattainable avenues for innovation and cost cutting.
Australian lithium producer AVZ Minerals (ASX:AVZ) provides one such example of the value that can be added through data analytics.
In November last year, AVZ’s data-adept technical team focused their efforts on the transport costs involved in its promising Manono Lithium Project in the Democratic Republic of the Congo.
Estimated at a sizable 62 percent of the project’s total operating cost, data analysis and process reviews saw the team reduce transport costs by an enormous 26 percent, reducing Manono’s cost per tonne by US$58 to US$163. As a result, the review saw estimates of the project value jump by US$190 million.
2 – Respecting the value-add of innovation
Historically, mining juniors have leaned in favour of short-term cash flow generation over potential, down-the-line value adds.
Largely a result of the way that processes are structured in the industry, this cash-early approach sees many firms put little to no resources towards innovation or R&D. This dynamic has led to a perception of the industry as being “innovation immature”, especially among its younger players.
Increasingly, investors are looking for companies bucking this trend by adopting innovation initiatives early on in the project timeline.
Initiatives that have the potential to cut costs or reduce risk over a project life cycle, especially in the case of projects with longer-term value output, have become a green-light indicator for investors.
Arafura Resources (ASX:ARU) provides a good example of the value of this practice. The emerging rare-earth producer, already well on the way to commissioning its US$680 million Nolands Neodymium-Praseodyium project, has allocated early-stage resources toward pilot program testing its metallurgy process.
The program, currently in the sixth of its seven stages, has been designed to significantly reduce execution risk and find potential avenues for process improvement. Instilling a greater confidence in the viability of the project, Arafura’s early-innovation approach is rare among its peers.
3 – Growing confidence with proactive policy
Despite its enormous contribution to the global economy, the mining industry is still impacted by a legacy shaped by weak environmental policies and fractious community relations.
While the sector has taken huge strides to improve its image in the public eye, the industry is still vulnerable to public backlash and protests, both of which have the potential to impact a company’s stock price and reputation. In an era of 24-hour news, social media and growing environmental concerns, this dynamic has undoubtedly been heightened.
Successful mining companies can no longer take a passive stance on these issues, especially as a growing portion of investors enter the market embedded in this social and news media environment.
In 2019, successful mining firms will be those that go beyond public relations and embed social and environmental consciousness into their everyday processes.
The approach of emerging graphite producer Triton Minerals (ASX:TON) encapsulated this when the company opted to use a more environmentally friendly (and cost effective) caustic soda roasting process for the purification of its graphite in 2018.
Independent test work conducted in Germany confirmed the company could produce highly sought-after high purity graphite concentrate without resorting to the use of toxic, environmentally damaging hydrofluoric acid purification and costly energy-intensive thermal processes.
Triton’s decision to preference the lesser-used process was greeted positively by the market, setting a high standard for other Australian graphite players in 2019.
Star Investing has a commercial partnership with some companies mentioned in this article. This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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