The incumbent business model in mining has come under increasing scrutiny and pressure in recent years, for various reasons.
Not only is our world becoming more volatile economically, geopolitically, and environmentally, but the mining industry has also come under pressure to up its game on decarbonisation and environmental performance, social acceptance, community relations and circularity.
According to Andy Reynolds, President of Inspire Resources, the seemingly slow pace at which the industry has been able to respond to changing shareholder values and stakeholder demands, with environmental, social, and governance (ESG) issues now being the top risk for the sector, can, to a considerable extent, be traced back to the way mines are designed and scaled through the incumbent business model.
Business model limitations
“How did we end up with mines of such incredible dimensions? What has driven economies of scale?” I asked Reynolds.
“As metal grades have decreased, operational footprints have increased to achieve economies of scale,” he replied. “However, these large, capital-intensive projects are constrained by fixed designs developed against long-term assumptions, which can, and do, often change.
“In other words, in the current paradigm, the context in which we design mines gets oversimplified and, consequently, from a systems perspective, mines are designed for stability rather than flexibility.
“One of the first decisions a system designer must make is the trade-off between flexibility and specialisation. When mine engineers do early-stage development of projects in mining, under the current paradigm they freeze the system architecture into an inflexible path that’s very difficult to change later.”
“That makes me think of supertankers,” I said. “They’re enormous and stable but can’t easily change course. Mines became supertankers so they could profitably mine lower-grade deposits at scale and withstand price volatilities.”
“Yes, that’s right,” he said. “The economic goals drive mining companies in the direction of economies of scale. This is because, in mining, engineers tend to design and build for steady-state efficiency rather than flexibility and adaptability. Consequently, a tier 1 asset has low operating costs and is resilient, but it’s rarely adaptable.”
So far, so true. The ‘economies of scale’ model implies large-scale operations with a static planning and development process, so it takes years and even decades to bring a tier 1 deposit into production.
Getting climate minerals to market faster
Time, however, is a critical factor if the goal is to meet the increasing mineral demands of the energy transition. Finding different business models and rethinking mining has thus become part of the industry’s ambition to meet growing demand over the coming decades.
Designing mines that are scalable and adaptable can provide one such alternative to make previously uneconomic deposits viable and contribute to critical mineral production. This approach unlocks smaller higher-grade deposits in a way that can be altered to accommodate changing market requirements and price volatilities; for instance, by scaling production up or down and adapting production parameters according to market demands.
In this paper describing key findings from the TAD Scalable and Adaptable Mine Challenge, the term ‘scalable’ refers to the ability to start an operation small.
This enables early cash flow and provides the ability to ramp up or down in size as required, whereas adaptable refers to the degree to which a system can sustain the required performance when influenced by external factors, such as unexpected ore properties or environmental constraints.
I asked Reynolds, if there are any scalable, adaptable mines out there already?
“There are examples of smaller-scale mines that are agile, including, obviously, artisanal mining operations. But they’re usually not scalable because they have limited access to technology and capital,” he replied.
“This is partly because they’re not aggregated into larger portfolios, which would drive the deployment of modular capabilities. In this sense, the ownership structure of the industry has a major impact on how its systems are engineered.
“However,” he added. “It can be beneficial to look outside of the mining sector to industries such as manufacturing. Take mass customisation in food production: some production lines are reconfigured several times a day, switching to different products with interchangeable equipment.
“I believe we can learn from other sectors, and it’s important to look beyond the limitations of current mine designs.”
Mine design as a bottleneck for change
“So,” I asked. “If we’re still at a visionary stage, where do we start?”
“At the moment, I believe mine design is a bottleneck,” said Reynolds. “It’s time consuming, sequential, opaque, expensive, and overly dependent on tacit knowledge.
“In many cases, the mine design task is outsourced to engineering consultants. Dispersing engineering capabilities has proven efficient from a procurement perspective, but I believe we are at a moment where mining companies need to pull these capabilities back in and be more strategic.
“Today’s mine design paradigm doesn’t calculate the value of flexibility – just its cost. Calculating the value is a more complicated task because it requires the evaluation of management’s response to changing conditions, which also requires some optimisation of the decision logic.
“This is a significant shift, because it has implications for the whole project lifecycle. To design for flexibility, companies will need to make better use of modelling and simulation. It’s impractical to do this work in spreadsheets.
“In addition, the value of flexibility should not be limited to one mine as a closed system, but rather considered for a collection of mines that could work together. The industry doesn’t tend to look for commonalities between mines but considers each one as unique.”
Designing for flexibility
I tried to imagine what a flexible mine design might look like and its technological requirements…
“Designing for flexibility, from a technological perspective, requires a digital foundation – a platform, which allows for constant redesign and adaptation of the original plan,” said Reynolds.
“The platform would enable the modelling and simulation of different outcomes without having to start a new feasibility study every time you learn something new.”
With respect to the technologies required for more flexible systems, Reynolds explained that flexibility is a characteristic of the whole system. This means it’s not just a matter of finding flexible technologies and equipment, but of designing the system for flexibility first and then finding or designing the technology to meet the requirements of the system.
“Substituting flexible technologies into inflexible systems does not make the systems flexible! It just makes them expensive,” he added.
In essence, it’s about translating the system requirements down to a base level and setting aside preconceived goals. For example, if a flotation plant is to be switched on and off frequently, it’s more valuable to have fewer recirculation paths and a lower steady-state recovery.
Reynolds explained: “Another prerequisite for more flexible and adaptable systems (mines) are standardised interfaces, and there needs to be a decision if these standards apply to the equipment of just one mine or across operations.
“This is another bottleneck, because the value of modularity is only realised if changing the modules of the system is possible without re-testing the entire system to prove that it still works.”
To make this easier to grasp, Reynolds gave an example: imagine the total number of USB devices and computers that are on the market today… It’s obvious that not all possible configurations have been tested to see if any given USB works in any computer. This is because the interfaces have been standardised.
“I believe there will be a time in the future where capabilities and interfaces will be standardised, and miners will be able to make quick decisions about the systems they want to design and pick the modules they need,” Reynolds said.
The business of small, adaptable mines
If existing technologies can be used to create smaller and adaptable, even modular, mines, then how would business models need to be reconfigured? I wondered.
Two things that Reynolds said really stood out: first, the need to build alliances and create a portfolio of small and adaptable mines to maximise shareholder value. This would also help open opportunities for alternative financing and governance models.
“The first, requirement is an alliance of industry partners”, he said. “This could be a formalised partnership which results in a comprehensive, collaborative design process that brings together each party’s design capabilities.
“Collaboration then, is not limited to the design phase, and the team but would extend to a system of small modular mines that share equipment and resources and collaborate closely.”
This is confirmed with one of the key findings from the TAD Scalable and Adaptable Mine Challenge which states that “the real value from this change in thinking comes as we begin to consider clusters of small underground mines, where the resource volume and ore grade have made these deposits previously uneconomical.”
Reynolds is confident that “once the industry gets to a stage of standardised modular designs, approval processes and trust building will move faster, based on the experience of previous projects.”
Even though people love to collaborate, Reynolds finds it’s still a challenge to assemble the right teams and forge new partnerships that bring together capabilities in systems engineering and digital solutions to pull this approach off. However, a systems approach does require collaboration to bear fruit.
“Another advantage of scalable mines is that the capital investment can be spread out over several tranches,” said Reynolds. “With smaller mines, it should also be easier to be more inclusive in the governance process, as the mine is more accessible and local.
“To build trust, organisations should be responsive and behaviorally adapt to the requests from communities, and that means that design cycles need to be shorter.
“In this way, a more flexible, scalable approach and a modular architecture opens new ways to reconfigure relationships with communities and societies.”
The ambition is not to replace the existing mine design paradigm or tier 1 mining operations.
For Reynolds, it’s about coexistence to broaden the overall options for getting critical minerals to market in time for the energy transition. And, given the demand forecast, we will need them all – small, medium and large-scale mines.
His intention is not to disrupt mining. “If anything”, he said with a smile, “we want to disrupt engineering.
“Once we bring the engineering fundamentals of mine design into the systems era, we can start to think more broadly about how the industry best meets society’s needs,” he added. “Society probably doesn’t care about the system architecture of mines, but I am quite sure it wants a scalable and adaptable mining industry.”
Disrupting the dominant engineering paradigm and moving towards more sophisticated and collaborative engineering practices (rather than becoming too specialised), he reflected, could support the mining industry in embracing greater diversity and inclusion, help it connect more closely with society, and better its environmental and social performance.
In short, it could make mining better.
For the record, I think Reynolds is right. The discussion on systems engineering reminds me of recent conversations I’ve had on circularity.
The bottom line is that, through shifting mindsets and questioning leading paradigms, the industry can leave its narrow view of isolated parts and move towards a more integrated approach, whether that’s in mine design, product design, or mining as a whole.
To do that, we need to apply systems thinking, and acknowledge the consequences of narrowing our focus around what it means to create and sustain value in an interconnected, volatile and rapidly changing world.