Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies
John P. Sykes12 & Allan Trench134 1. Centre for Exploration Targeting, The University of Western Australia 2. Greenfields Research, UK 3. Business School, The University of Western Australia 4. CRU Group, UK
[email protected] [email protected]
Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 1 of 26
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Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies
THE PROBLEM Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 2 of 26
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Which of these is the future, if any? Pebble, Alaska
Udokan, Russia
Pampa Escondida, Chile
Reko Diq, Pakistan
Kamoa, D.R. Congo
Images: foxnews.com; mining.com; arizonageology.blogspot.com; bgk-udokan.ru; dawn.com; investroshub.advfn.com
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Resolution, Arizona
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The long-term future can be very different 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Chile
USA
Other
United Kingdom
Chile
14000.0 Decline of UK mining, rise of Americas
Resurrection of Chilean industry
Global Cu Mine Production (Kt)
Share of Global Cu Mine production
United Kingdom
USA
Other
Resurrection of Chilean industry
12000.0 10000.0 8000.0
6000.0 4000.0 2000.0
Decline of UK mining, rise of Americas
0.0 Data: Crowson, 2012
…in 1898.. Bingham Canyon… was something of a joke… only barren quartz rock flecked with a trace of copper. Nobody could make money out of so little. …the world’s most famous mining man [Chief Engineer for the Guggenheims] turned up his nose. It was ridiculed by the most respected mining journal of the day. …The shovels started… in June 1906. (Lynch, 2012) Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 4 of 26
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…and such change is very complex Data estimated from: Crowson, 2012
Steam power
Cornwall (UK) Average
UK Average
Michigan (USA) Average
USA Average
Western World Average
World Average
Dynamite
Cu ore grade (%)
10.0
Change from high grade underground mining in UK to low grade open pits in USA
Mechanisation
4.0
Airborne geophysics
2.0
Improved smelting & refining
Forward contracts
0.0
Globalisation Sources: Schodde, 2010; Lynch, 2012 & various personal communications to the author
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Porphyry geological model
Free trade
Flotation Further low grade copper mining innovations
The corporation
20th century copper mining technology, innovation & discovery package
8.0 6.0
SXEW
Better work practices
Low cost drilling
14.0 12.0
Regime change
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Major public infrastructure Computation
Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies
THE SOLUTION? Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 6 of 26
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Maybe foxy rather than hedgehog thinking "The fox knows many things but the hedgehog knows one big thing.” - Archilocus / Isaiah Berlin
Ilbury & Sunter: The Mind of a Fox: Scenario Planning in Action (2011) Tetlock: Expert Political Judgment: How Good Is It? How Can We Know? (2006)
Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 7 of 26
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Oxford Scenarios deductive methodology Contextual
Transactional Company
Strategic landscapes: contextual linkages
Deepen scenarios and prepare to engage
Drivers from the past and future
Play with different combinations
Key contextual linkages?
Combine axis to develop scenario framework
Designed by Angela Wilkinson
Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 8 of 26
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Clarify and cluster key drivers
Explore polar outcomes and select independent pairs
Mapping the key driving forces Geo-political trends
Contextual Environment (‘factors’)
“Driving forces”
International Science International Finance Commerce Climate Macroeconomics Exchange Conflict & Security Energy Prices Rates Innovation Commodity Legislation Water Prices Availability Demographics Social Values Utilities
Technology
Transactional Environment (‘inter-actors’)
Competitors Financiers Lobbies
Environment
National International Regulators Regulators
Local Regulator Investor Equipment s Consumables s Employees Suppliers Suppliers Industry Commodity Clients Traders
Company
Natural Disaster s
Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies AusIMM International Mine Management Conference, Brisbane
Influence & codesign
Control
NGOs
Template from: Ramirez et al., 2014
Slide 9 of 26
Survey & appreciate
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And how they’re evolving over time 1940s
1950s
COMMODITY DEMAND FINANCIAL CRISES SOCIAL TRENDS
1980s
1970s
1990s
World War II
Oil Crises
Resurgence of ‘Strategic Resources’ Concepts
Rise of Modern Environmentalism
Decline of Unionism
POLITICAL TRENDS
Asian & Global .com Financial Crises Crisis Rise of Sustainable Increasing Focus Development on ‘Social Licence’ Movement Low Costs in Labour Better Developing Cost Work World Inflation Practices Eastern-bloc Privatisation
Cold War (Separation of East & West)
Airborne Geophysics
Porphyry Model
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2010s
Chinese Industrialisation
Substantial Globalisation
Computers, Modelling & Scheduling
SXEW
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2000s
Post-War European & Japanese Reconstruction
LABOUR TRENDS
TECHNO TRENDS
1960s
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Then seeking the commonalities ECONOMIC BOOM
BUST Broadly similar: increase/decrease in industry margins
Technology drives lower costs
Increased support for mining
More land becomes available
TECHNOLOGY
Technology lags cost inflation
SOCIAL Broadly similar: increase/decrease in land availability either physically or conceptually
Decreased support for mining
ENVIRONMENT Less land available
Decrease in restrictive regulation
POLITICAL
Increasingly restrictive regulation
Template from: Ramirez et al., 2014
Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 11 of 26
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Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies
THE SCENARIOS Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 12 of 26
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The Scenarios Increased
COUNTING HOUSE
Decreased
Increased
MARGINS
CRUSADES
ECONOMIC
CONCEPTUAL SEARCH SPACE
PEASANTS’ REVOLT
Decreased
UNDER SEIGE
Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 13 of 26
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UNDER SIEGE Defending current operations with few new opportunities available •
Industry struggling with current profitability and with few future options for growth;
•
Falling commodity prices and falling productivity have reduced economic margins at existing operations;
•
A breakdown of the global order limits access to foreign projects and talent;
•
State mining companies, backed by governments concerned about the limited number of operating mines, are the main long term beneficiaries in this scenario;
•
The ‘declining-sum’ nature of the copper mining industry means that outside industries also benefit, particularly those willing to take over the long-term management of the copper supply chain.
•
The copper mining industry may feel that it is in the ‘Under Siege’ scenario presently: –
Falling copper prices;
–
Asset write-downs;
–
Curtailment of capital investments, exploration, and research and development.
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COUNTING HOUSE Focus on extracting economic rents from current operations •
A short term return to profitability, but a lack of long term options;
•
Resurgent economic growth increases commodity prices, whilst low gas, oil and coal prices reduce operating costs;
•
However, resource nationalism, environmental and social licence issues, and competition for resources limits the availability of new projects;
•
The major private mining companies are the main short-term beneficiaries as their already profitable assets further reinforce their advantage;
•
However, over the long-term industry outsiders begin to encroach;
•
This arises due to the continued failure to develop new projects, an echo of the recent boom.
•
The future becomes based on the running down of current assets and the present project pipeline, requiring higher commodity prices to be economic.
•
This is the conventional view of the future of copper mining, arising from the scientific and economic analyses.
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CRUSADES Many exciting opportunities in old and new areas •
A profitable mining industry investing in a range of new ideas and projects, able to successfully transition into the future.
•
A profitable industry benefitting from a temporary period of increased commodity prices and reduced input costs.
•
Industry able to invest in technologies and innovations increasing abilities to discover and develop less energy and water intensive, targeted mining operations.
•
At the same time the mining industry participates in a global proliferation of multilateral agreements opening up the developing world to major mining investment.
•
The first movers in technology, innovation, and increasing environmental and social access to projects are the long term beneficiaries in this scenario.
•
At the beginning of the recent boom in copper prices existing operations were very profitable, and initially there seemed to be many new options for development and exploration, assisted by the latest phase of globalisation.
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PEASANTS’ REVOLT Current plans not working, desperate switch to new ideas required •
A struggling mining industry, but one in which there are still many future options available that could provide a route to profitability.
•
Bulk mining operations fail in the face of lower commodity prices, higher input costs and increased environmental and social costs.
•
A radical switch to more targeted, less energy intensive mining is required.
•
As the mining industry struggles, outside industries are able to make significant advances into the industry, particularly by reforming the metals supply chain around a circular economy.
•
Reminder of the mining industry in the early 1990s, when the industry was enduring a 30 year spell of declining copper prices and increasing environmentalism, sapping long term investment in exploration and technology.
•
Global uncertainty was increasing as the Soviet Union collapsed, whilst a number of key mining economies were in decline. The mining industry was seen as ‘old industry’ as the high technology and internet industries began to establish themselves.
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Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies
THE IMPLICATIONS Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 18 of 26
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Aim for robust rather than optimal No worries – asset is robust against all scenarios; it may not thrive, but it will survive. Chill out! Real option – asset may or may not survive or thrive in a range of scenarios. Wait and see… Big bet – asset will thrive (or survive) but only in one scenario; these are brittle assets. Hold your breath! Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 19 of 26
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Based on: Erdmann et al., 2015
No truly ‘robust’ mines Mines
Under Siege
Counting House
Crusades
Peasants’ Revolt
Escondida
X
√
X
X
Andina
√
X
?
X
Chuquicamata
√
?
?
X
El Teniente
√
X
?
X
Olympic Dam
√
√
√
X
Collahuasi
X
√
X
X
Grasberg
X
?
?
?
Talnakh
√
X
?
√
Lubin
√
X
?
√
Los Pelambres
X
?
X
X
Los Bronces
X
√
X
X
Cananea
?
?
X
X
Toquepala
X
?
X
X
See associated paper for further detail. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 20 of 26
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Whilst projects are even more brittle Company Type / Scenario
Under Siege
Counting House
Crusades
Peasants’ Revolt
Oyu Tolgoi
X
?
?
X
Pampa Escondida
X
?
X
X
Pebble
X
X
?
?
Resolution
X
X
√
X
Udokan
√
X
?
?
Reko Diq
X
X
X
X
Kamoa
X
X
√
?
See associated paper for further detail. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 21 of 26
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Industry is forced into a make-do strategy
A few ‘wait & see’ options
A few ‘big bets’
A ‘no worries’ strategy?
What would be an original ‘no worries’ strategy? Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 22 of 26
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Using Scenarios to Investigate the Long-Term Future of Copper Mining and Guide Exploration Targeting Strategies
THE KEY LEARNINGS Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies Slide 23 of 26
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Key learnings from the scenarios The methodology
•
The future of the copper mining industry is uncertain; yet mineral explorers need to know about the long-term future of the industry for effective exploration targeting;
•
Scenario planning may assist with such long-term exploration targeting – this research provides ‘proof of concept’.
The implications •
The copper industry is currently brittle – it is leveraged to a narrow range of futures;
•
The industry may be too focused on extracting rents from existing assets (mines and projects) rather than generating impactful new discoveries and ideas;
•
The industry has to invest in the long term, either as exploration, research & development, or increasing ‘accessibility’ via a stronger social licence to operate.
•
Currently no strategic approach is ‘future-proof’, so some strategic choices will have to be made, with companies balancing a series of ‘big bets’ and ‘real options’ to make a robust ‘no worries’ strategy.
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THANK YOU Contact:
[email protected] [email protected]
Acknowledgements: PhD Committee: T. Campbell McCuaig, Mark Jessell & Nico Thebaud Funding: Centre for Exploration Targeting (University of Western Australia) Colleagues: Centre for Exploration Targeting (Curtin University & University of Western Australia)
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References Main Reference: •
Sykes, J.P. (2016) Using scenarios to investigate the long-term future of copper mining and guide exploration targeting strategies, AusIMM International Mine Management Conference, Brisbane, Australia, 22-24 August.
Other References: •
Erdmann, D, Sichel, B and Yeung, L, 2015. Overcoming obstacles to effective scenario planning, McKinsey Quarterly, June:1–6.
•
Ramirez, R, Khong, C & Selin, C. (2014) Oxford Scenarios Programme. 28 April-1 May, Oxford: Said Business School (University of Oxford). PDF lecture notes.
•
Ramirez, R, & Wilkinson, A. (2016) Strategic Reframing: The Oxford Scenario Planning Approach, Oxford University Press: Oxford.
•
Sykes, J.P. (2015) Using the Oxford Scenarios deductive methodology to understand the long-term future of copper mining and guide minerals exploration targeting strategies, Curtin Business School Higher Degree by Research Students’ Colloquium, Perth, Australia, 30 September
•
Sykes, J.P., & Trench, A. (2014a) Chapter 14 – Finding the Copper Mine of the 21st Century: Conceptual Exploration Targeting for Hypothetical Copper Reserves. In Special Publication Number 18: Building Exploration Capability for the 21st Century, edited by Kelley, K.D., & Golden, H.C., 273-300. Boulder: Society of Economic Geologists.
•
Sykes, J.P., & Trench, A. (2014b) Resources versus Reserves – Towards a Systems-based Understanding of Exploration and Mine Project Development and the Role of the Mining Geologist. In Mining Geology through the Value Chain: Proceedings of the Ninth International Mining Geology Conference held in Adelaide, South Australia, 18-20 August 2014, 243-270. Carlton, Victoria: Australasian Institute of Mining and Metallurgy (AusIMM) and Australian Institute of Geoscientists (AIG).
•
Sykes, J P and Trench, A, [2015a] Mining in 2040: an industry under siege [online], 2 November, MiningNewsPremium.net. Available from: http://www.miningnews.net/insight/strictly-boardroom/mining2040-an-industry-under-siege.
•
Sykes, J P and Trench, A, [2015b] Mining in 2040: major miners as counting houses [online], 16 November, MiningNewsPremium.net. Available from:
•
Sykes, J P and Trench, A, [2015c] Mining in 2040: peasants’ revolt [online], 23 November, MiningNewsPremium.net. Available from:
•
Sykes, J P and Trench, A, [2015d] Mining in 2040: the commodity crusades [online], 9 November, MiningNewsPremium.net. Available from: http://www.miningnews.net/insight/strictly-boardroom/mining2040-the-commodity-crusades
•
Trench, A and Sykes, J P, [2016] Strictly (Mining) Boardroom: Volume II: A Practitioner’s Guide for Next Generation Directors, Major Street Publishing: Highett, VIC.
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