Mining Mindset: Ian Pearce - How Tech Is Changing Mining and What’s Wrong

When you look at mining, one of the biggest things we're always managing are uncertainties. It starts from when you look at the geology - you drill off the deposit, your drill spacings are usually pretty wide because it costs a lot of money, and it really is around how you use that data or information to get better control as you move that drilling from a resource into a reserve, which is really the economic position you want to be in where you say we can make money or we cannot make money based on the deposit.

That's the reality of mining - it's been that way forever. But in today's world, what I call the digital revolution, there are a lot of exciting tools and processes one can use in the mining space to define your businesses and run your businesses very differently.

In most mining companies, your biggest costs are around labor and energy. In the short term, you'd really want to understand how you can actually affect that. You'd want to draw what I call value driver trees around those aspects and then decide what are the areas you can focus on - where's the biggest bang for your buck, how can you optimize.

When you're in that situation, you have limited access to capital, so it's really around making sure you're putting capital where it's bringing you the most benefit. In the short term, it's really about managing efficiency of the operation.

All operations are mapped on a cost curve - for every commodity, for every supply, there's a cost curve whether it be copper, nickel, or whatever commodity. Typically in the short term, you want your business to be resilient through the cycle, so you want to move yourself to the lowest point on the cost curve as possible. You need to look at those levers that can actually move you down that cost curve.

This digital world offers us many tools. Before, many operations were done manually and not integrated. Today you can integrate decision trees through automation or through a digital platform.

Many times mines are located in very remote locations - you have to fly people in and out, house them, put them in camps, transport them. That is a very expensive operation. Now with many of the tools available, you can start thinking about how to do some of this work remotely. That also changes the gene pool you are looking to bring to your business. In the past, data scientists were not really a skill set associated with mining, but today because you've got data and want to use it, you can hire those kind of skills into your business.

Even things like monitoring your equipment - there's condition monitoring now where you can automate a lot of the equipment at site but monitor it remotely. That maintenance function that would have been done on-site can now be done remotely. These are simple things you can do to improve your business cost position by finding ways to remove labor from site and employ it where people want to be, which is usually in an urbanized environment.

I'm a metallurgist by background, and for many years people have worked on trying to improve the recovery of metal out of the feed sent to the processing facility. But I'm a big believer that it's really about orebody knowledge - going upstream to get a much better understanding of your orebody. The process plant is a fixed asset - it has some flexibility, but it's not that flexible.

If I was going to spend money, it would really be around understanding your orebody, understanding your reserve, and then how that reserve is put together in a mine plan. Mine planning is going to be very important - where you think you've got ore, where you think you've got waste, how you remove that efficiently. That is your biggest bang for your buck, because if you put waste in your ore stream you end up diluting, and if you leave ore behind in your waste you've actually lost revenue.

Today you're able to do dynamic modeling where you can do simulations - what happens if this happened, what happens if that happened. By looking at those simulations, you can start understanding what you can do to address some of the potential challenges you're going to have in the future.

The world has changed quite dramatically since COVID. When you go back to the early 2000s, globalization was very much driven by economic considerations. Post-COVID, when everybody realized how reliant they were on other countries and jurisdictions from a supply chain point of view, globalization has become quite geopolitical.

Geopolitical considerations are more important today than they've ever been. This goes around the whole topic - not just the political landscape with different countries having different standards, but also the ESG agenda that investors are looking for. If you are pulling money from mature jurisdictions like North America or putting on funds from Europe, no matter where you're operating, they would expect you to abide by the standards of those countries where you're accessing capital. That's the driver.

You definitely always want to be on side with your host country and meet their minimum requirements. But there's an overarching and changing landscape where the ESG agenda is moving, and for smaller companies it's very difficult to get to grips with these standards. Big companies can afford in-house lawyers and legal teams. Smaller companies need to outsource that. You need a really good general counsel or somebody on your workforce, and then you should be able to pick and choose the consultants and advisors to help you prepare.

Whether you're going to build a project in a jurisdiction or buy a company and integrate it into your business, you need to do your due diligence, your definition work up front, covering all aspects - understanding the geopolitical environment, understanding the regulations. As a small company, you're not going to have that all in-house, so you've got to use outside resources to augment a small but efficient internal company resource base.

Anytime there's uncertainty from a market's point of view, financial markets don't like it. Whether it goes in the right direction or the wrong direction, just not knowing which direction things are going is problematic. That uncertainty creates a stall of investment where people sit on the fence waiting to see what's going to happen. That sitting on the fence is not good for our business because we need certainty so we can go ahead or not go ahead with investment decisions.

The discussion around tariffs and what they'll do to supply chains and the ability to bring in or export materials has a big impact on the sector as well. Those uncertainties don't bode well for giving investors a clear picture of what your company will be doing in the future.

When you go from a local business into a global business - from your backyard where you know what you're doing, have your connections, and are familiar with doing business in your own country - when you go overseas, you need a very good understanding of what you're about to go into.

One thing to consider is time zones. When you stretch yourself, say a Canadian company that decides to operate in Australia, your time zone difference is massive. That offers a challenge to being able to control or have oversight on the company. You always need good leadership talent leading those operations, and one of the key positions is who's in control of the money. Whenever you're operating offshore, you need a very reliable person who really understands the money side of things and can make sure there's good controls, oversight, and governance.

The second thing is to find out who are the governments of influence in that country and build relationships with those governments so you've got good insight about what's happening politically.

The third thing is to potentially look for partnerships. A lot of times it can be attractive to have 100% of the benefit, but that means you're 100% responsible. Local partners can be very helpful in managing local content and any pushback that might happen.

One of the big mistakes that mining companies make is they look at NPV as a driver, which is an important metric. When you look at NPV, the bigger you go, the more attractive things become, but the larger you get, the more risk you have attached to that largeness. Step-by-step scale up or growth is a more prudent way to go - go in at a reasonable size and then have strategies of how you're going to grow that business.

Two things drive us that we don't have a lot of control of. One is the ground - nature has provided the ore and the orebody will be what it is. If the grade is there, great, but if it's not, you can't change that. The second big uncertainty is the metal prices. Thinking about how you're going to navigate those two pieces is very important.

It's very difficult today if you're a public company because the market is looking for a report every quarter - the market is very short-term in its thinking. But a mining company has to be run on a long-term basis. You really have to have a long-term view of the life of mine.

There might be times when you need to deploy capital - whether to replace equipment, do big maintenance expenditures, or do pushbacks in the mine which require capital to move overburden or waste. These are big capital-intensive programs that in a life-of-mine plan would be planned out. But you need to understand what you have around you - this is why flexibility and being able to move your plans is very important.

You may have a very downturn environment for metals when you just need to do that pushback, and therefore you don't have access to the capital. You need to plan these things in front, either through your balance sheet or by bringing some of that work forward when metal prices are really good.

The last piece is exploration. Exploration for me is like R&D for pharmaceutical companies. The day you start mining is the day the orebody starts to decline. You need to find a way to replace the reserves and resources you've taken out of the ground. This is a capital-intensive program that can't be done on a budgetary basis - it's got to be done on a campaign.

There's a real dislocation between the narrative we're hearing - world population is growing, urbanization is going from the 50s to the 60s, the energy transition, circular economies - all positive for the resource sector. But there's a dislocation because there's not the access to capital.

Because capital is traditionally sourced through public markets, the ability to raise the right amount of capital to do the right amount of work does not happen. Projects are not as well-defined as they should be.

I was at a conference in Vancouver put on by the Canadian Institute of Mining, Metallurgy and Petroleum called Mineral Resource Mineral Reserve, and an interesting paper was presented where someone had done a study on the distance between holes drilled when the mine is put into operation versus the distance between holes done to prepare a study for the project. The distance on average for studies was between 60 and 80 meters, and the distance needed in operations was 20 to 30 meters. You can see there's a massive dislocation around the amount of effort done in defining the orebody.

There are now many techniques and innovations that can help you better define orebodies by not just drilling, and I think it's gained through using the digital world. But the foundational issue is that the shortage of capital means people are not spending the right amount of money in defining projects - whether around the orebody, processing and recoveries, commissioning, ESG, environmental needs, or social needs. That's why a lot of these projects struggle to demonstrate the economics they started with.

In the geological space, we've moved quite far ahead. You can put instrumentation down holes you've drilled - get information around ground conditions, hydrology, even where the orebody may be moving in a direction, based on sensing systems down the holes. Some companies are looking at mapping with XRF the cores that come out of the ground, using direct technology to map the core.

Even if you just took the data you've got, put it into a model, and did simulations using machine learning and artificial intelligence to do different scenario planning - when you think about how difficult it is for a human being to do a new mine plan, if you had it all embedded into a platform, you could play out different scenarios. If the orebody was over here but not over there, if it was continuous versus non-continuous - you could start doing scenarios to understand the uncertainties, and that would inform you where best to actually go and drill.

You also need to understand where things aren't or where you don't have information, because that's just as important - you might be missing something.

I'm with a startup where they've developed technology that puts sensors on the shovels. Once you're in mining, you can actually dig the ore and it'll tell you the grade of the ore in that shovel. That's very informative because you can reconcile back to your block models and mine plan. And that can also be done by putting the same sort of instrumentation in the process plant - so you can reconcile process data with your shovel data with your block model, all on real time, because it's all automated.

The practices have been practiced in the industry for decades, and because in the past they've been accepted, there's a big resistance to change. The industry is well known to be quite conservative. I joke with some of my investors - the mining industry always rushes to be second, but nobody wants to go first.

When you look at junior companies and mid-tiers, a few major companies are very self-sufficient, but in the junior space they don't have a lot of capacity to take on some of these projects because they are very lean organizations. In one of the companies I'm advising, we're finding that when we have conversations with companies around data science and data collection, they are pulling on our people to do the work for them because they don't have the talent within the company. There isn't the capacity to take on new projects because they run themselves so lean.

There's a need for collaboration. The big mining companies can afford to do some of this stuff, and if we could share it or make sure there was an open platform where others could learn from that, it would help others adopt technology easier.

When you're looking to find a customer willing to talk about technology, you must find a customer who's in pain. There's a very good book called "Good to Great," and one of the biggest evils of great is good. With many of these companies, because they're making money, things are good, there's nothing problematic - there's an inability to desire to be great because good is good enough.

That's where leadership has to come in. A manager's role is to create constraints for their teams so they can be innovative about finding solutions. There's no development without crisis. Leadership's job in those comfortable situations is to create constraints to motivate people to think about things differently.

People have come to terms with how to get to 2030, but I don't think people have started to think about how to get to 2050, and to get there is a very different picture. We need new knowledge, new ideas, new ways of doing things. But because we are so focused on the next quarter, the next half-year result, it's very difficult for lean, small teams to lift up their heads and think about that long-term picture.

There's an inability to see the advantage of these technologies. One also needs to translate them into financial benefits - you need to be able to pitch to the CEO and CFOs the value.

Consulting companies like McKinsey, Bain, and the top auditing companies are getting mining companies to pay them millions of dollars to consult, and their pitch is always to the CEO and CFOs in financial terms. They make it very simple and show that cadre of leadership the numbers they're going to deliver.

That's where a lot of these technologies are falling short - they show technical solutions but don't show economic solutions. You need to translate these technologies and approaches into what it means to the bottom line and pitch that to the C-suite. When they see that pitch, they will adopt.

At the same time, you've got to build a relationship at operations because they can actually sabotage your project if they don't buy in. You've got to work at both levels - both at the operational level as well as the corporate level, making sure the message gets across to both.

I do believe there is a need for energy transition, and I use that word selectively. One cannot take the energy sources of today and just switch them off and then flip over and switch on the other energy sources. Between now and 2050, we need a very clear program of how we're going to transition our energy.

Our grid system is highly inefficient, and I think we need to redesign how we supply electrons - whether to a person in the street or a business. I always look at the cell phone as a disruptor. Think about the telecommunications world where a landline was the only device you could use to communicate, and the advent of the cell phone - it's now a mobile device because it's become more than just a communication tool.

When you look at energy, because we have developed this grid system that's highly inefficient and highly complex, that has to be changed. I believe in thinking about microgrids and a combination of energy systems.

The biggest consumer of peak power, certainly in Canada, is the population. When a person comes home on a hot day and switches on the air conditioner, the grid has to respond. You've got this very complex power supply system being pulled upon to supply peak power demands. We have a lot of latent capacity in our sector which is just there to supply that peak power but could be running 24/7.

In mining, many sites are remote. When you think about the grid's ability to take power from existing infrastructure hundreds of kilometers to a mine, it doesn't make sense because line losses over that transmission distance waste electricity.

There are solutions - whether it be small nuclear reactors, wind turbines and batteries, or solar and batteries. There are solutions for remote locations in both industry and society. There's going to be a big demand on metals to supply that energy, so I do believe we need to focus on an energy transition using wind, solar, battery, nuclear, and hydro - energy sources that are hopefully better for the environment as a consequence.