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Global mining at the edge of transformation.

Early this year, mining giant Rio Tinto opened a new data center in Pune, India, to analyze massive volumes of information gathered from sensors attached to equipment operating at its mines around the world. Rio Tinto's Analytics Excellence Centre was established to predict and prevent downtime and improve safety and productivity. It's an industry first--mining has been pretty much last in adopting such business practices--but it could be the beginning of a sorely needed transformation. The center is unique in applying sophisticated data management technology, but also because it manages multiple, remote operations from a central location--mining has been, traditionally, a local art. If it is successful, the center and other recent innovations like it could help alter the fortunes of an industry in crisis.

Mining is a volatile business at any time, subject to boom-or-bust cycles and the vagaries of nature, local politics, and commodity markets. But 2014 was a particularly bad year in a string of them, and 2015 looks bleak as well. Gold prices are at a four-year low. Iron ore plummeted to double-digit territory in May 2015 and is forecast to hit an all-time low of $70 a ton in 2017. The world's biggest steel consumer, China, is pulling back on orders as its economy slows. Many mining companies have canceled projects or folded altogether.

In this context, the world's largest mining companies are fighting to survive and stay competitive. Some companies have invested in critical new automation and drilling technology that promises to improve production and reduce costs, but a growing chorus of industry leaders argues that more fundamental change is needed--companies must change from within. Business models and processes must be streamlined to eliminate waste, smooth out the peaks and valleys of production, reduce accidents, protect the environment, and provide flexibility to respond to the unforeseen. The industry's future, these leaders say, depends not so much on where the next big ore deposit is discovered, but on how well mining companies coordinate dynamic information across complex operations.

Emilie Ditton, a mining industry consultant and head of Asia Pacific Energy Insights at International Data Corporation (IDC), spends much of her time identifying ways to get operational silos inside mining companies to talk with each other. "Mining companies are very sophisticated within their operational silos," she said. "They do everything from optimizing truck performance to minimizing fuel costs and conveyor belt material handling efficiency. But if a production operation meets its goals and delivers product to a processing operation that can't handle all of the material coming in, the ultimate production outcomes are not improved."

Mining companies have assets, technology, and access to data, Ditton said. "What they require is an enterprise-level data strategy." Far more than new technology, she said, mines need organizational investment in data interpretation as a business strategy. But, she admits, it takes strong leadership to take a risk on a new idea. "We don't yet have a convincing story to tell on why we would take that risk," she said.

That might be changing, however. "We're in the early stages of a paradigm shift in mining," said Mike MacFarlane, a Canadian engineer and industry consultant, and retired executive vice president of AngloGold Ashanti, one of the world's largest mining companies. "There are lots of clues around. Start with technology and innovation. In the United States, the auto industry in the 1940s and '50s had no peers; in the '60s and '70s, no peers. In the '80s, little Japanese cars changed everything. GM went to Japan and copied Toyota's lean manufacturing process. I would say the mining industry, in the little Japanese car analogy, is in the mid-80s."

Indeed, the metaphor holds in the particulars, too, as mining companies are beginning to look at lean manufacturing for ways to streamline their own operations. Lean, a term that emerged from Toyota's famed Toyota Production System, is an approach to manufacturing focused on creating value, streamlining processes, and minimizing waste. Though few industry experts agree on exactly how mining companies might go about implementing lean's core tenets, the heads of some of the world's largest companies are pushing the industry in that direction.

Rio Tinto's CEO, Sam Walsh, is a former auto executive and a champion of lean thinking and processes in the industry. "If I had to name one thing I have transitioned from what the automotive industry taught me across to what Rio's mining operations are doing today, it would be an intense, laser-like focus on value and efficiency," Walsh told a conference of business leaders in 2012, the year before he become CEO of Rio Tinto. "At base level, it represents a concentrated intent to eliminate variation or waste at every stage of production."

For others, the focus on waste extends beyond production, to all areas of operation. Mark Cutifani, CEO of London-based Anglo American, one of the top five mining companies in the world, says the industry has lost billions of dollars in delays and cancelled permits in recent years due to poor relations with local governments and communities on economic, safety, and environmental issues. Mining operations can last 20 to 30 years or more, and the impact on local ecologies, cultures, and communities is huge. Because mining increasingly operates in remote, developing parts of the world, companies must find better ways to engage with local residents and governments, he said.

Technology can help with these challenges, but new thinking is required. "The industry is constrained by conventional thinking," Cutifani said recently in an address to socially responsible investors. "We need to do this outside of the normal industry structure by drawing ideas and experience from outside of the industry. We want to lead the industry and set the pace for change."

There are challenges unique to mining that may present barriers to the adoption of lean practices. Miners don't work in sheltered, automated factories where processes are repeatable and predictable, and many mining executives argue that the industry's unique nature makes it prohibitively difficult to apply new business practices, lean or otherwise, especially for mid-size and smaller companies. Mining companies, they argue, steer colossal-scale discovery, extraction, and processing operations across remote, far-flung regions under harsh conditions. The markets for mining's products are harsh as well, fluctuating with the rise and fall of world markets and with political upheaval, corruption, weather, and natural disasters in the countries where the mines exist. Business processes that depend on replicability simply can't account for all of the sources of variability in a mining operation, although experts agree that open-pit mining is more suited to automation than underground mining.

Walsh, and others like him, counter that mining is a manufacturing operation like any other and should be run like one. The industry can establish the foundation for a more secure future by deploying new technologies, such as driverless, autonomous hauling vehicles and centralized operations control centers located far from the mines themselves, and cultivating a lean culture among its workforce.

Technology is a key component of any implementation of lean in mining, as truly lean processes depend on the kind of visibility into operations that only digital connectivity can supply, given the difficult locations and rigorous conditions in the mines themselves. IDC analyst Emilie Ditton says mining industry investment in digital technology that connects physical and virtual information is beginning to produce the kind of transparency across operations that mining needs. Such transparency helps operators "manage the mine as a system--through an integrated web of technologies like virtualization, robotics, Internet of Things (IoT), sensors, connectivity and mobility--to command, control and respond." This is the first step in mining's new move toward a more modern approach to production.

More urgent for the industry, however, than technology or new business models is the need for industry executives with clear vision, Ditton says. "Leadership transformation--where senior leadership have a vision for the transformation of their organization and a sophisticated understanding of technology--needs to play a role with more impact than we are currently seeing across the sector." That kind of leadership, however, may be the rarest resource of all for the besieged industry. Mining executives are generally gloomy about the future, according to the Pricewaterhouse Coopers (PwC) 18th Annual Global CEO survey. Only a few leaders envision an industry transformation driven by technology and proven business principles; most see only tougher regulations, a shrinking workforce, and fading prospects. Rather than leading change within their companies, the PwC survey reports, most will likely seek escape routes through mergers, acquisitions, alliances, and closures.

DOI: 10.5437/08956308X5806001

Dan Headrick, Contributing Editor Research Triangle Park, North Carolina
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Title Annotation:News and Analysis of the Global Innovation Scene
Comment:Global mining at the edge of transformation.(News and Analysis of the Global Innovation Scene)
Author:Headrick, Dan
Publication:Research-Technology Management
Geographic Code:1USA
Date:Nov 1, 2015
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