Benjamin J Cox is a mining expert from Vancouver, Washington and a Senior Advisor at Outotec
Divergence: Miners’ relative portfolios of products are going to matter. Not all commodities will continue to trade in a lock-step function going forward. The period of 2004-2014 was all about global demand growing, for almost everything. But going forward, what is produced will matter. Over the next 10 years, some commodities will either be supply-constrained or demand-driven, as opposed to others like iron ore or steaming coal which have no limit to supply and no real growth in demand. (Iron ore will be driven by ore quality: see next point.) My favorite commodities for the next 10 years are still water, copper, nickel and coking coal.
Customers are demanding quality products and paying for it: China is closing its doors to loads of “waste” that it used to process for a profit. They don’t want junk ore or concentrates any more, and if you spend any time there you can see why. They must clean up their air, and reducing the burning of cheap coal, cheap ore, bad concentrates and Western trash (aka recycling) will go a long way toward doing that.
2004-2016 was a period during which any quality ore, metal or product would suffice. 2017-2030 will be a period of: yes, we will buy it, but we will pay a premium for quality versus quantity. China is paying way more for Vale’s iron ore over FMG’s on a cost-per-iron unit basis. If you’ve got a nasty copper concentrate, good luck.
Water: I don’t care if you are in a B.C. rainforest or in the Atacama (a really dry place in Chile, where actual rain and the presences of wildflowers made international news earlier this year), water is the number one issue that miners face. You either have WAY too much and you are treating it for releasing it, or way too little and you are focused on figuring out how to pump it 1000s of meters vertically. On top of that, the water deals done decades ago are being revisited by local parties who want their rights back in most cases. A case in point: I don’t think a new mine in Chile will ever again be permitted using local fresh water.
Grade: The number of projects I am modeling that have a grade issue is going way up. Some of them had it from day one built into their mine plan, and others simply high-graded way too much between about 2012 and 2016. On the whole, grade is going down. At this point, to maintain production, majors are going to have to expand to process lower grade material. For some projects they have a halo of “low grade” (for them) that is better than most juniors in the sector, and they can maintain production with that for a long time, but mills are going to get larger and total (raw) tonnage is going up.
Recovery: The number one thing I am working on is technology that improves recovery. If you mine the rock, move the overburden, move the rock to the mill, crush the rock, grind the rock, does it not make sense to make sure you are state of the art on your recovery system? Every tonne per gram of copper/gold/silver/zinc/lead/unobtainium you recover with the same industrial footprint reduces your cash costs, reduces the global carbon footprint and reduces your tailings risk as a percentage of production.
Exploration versus mining: There is a complete lack of connection between the mining and the exploration side of the business. Miners don’t see exploration as making any sense, and exploration companies (juniors) have a really unrealistic expectation of majors. The SEC indictment of the former Rio Tinto management is going to put an ice bath on valuations for takeovers for years to come.
Social license: Perhaps 30% of any mine’s issues relate to its social license. If you are running something, you have to manage your connection with local interest groups, your unions and the government, as well as all the NGOs that might stop by to make your life difficult. I don’t have a single project that crosses my desk where I don’t have to consider what the unions, local population and government think about it. The upside is that health and safety is now a real core competency of most of the mines I am modeling.
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