In a series of stories marking Mining Week, Resource Works takes a look at what the sector means for Metro Vancouver’s economy
A turbulent combination of falling commodity prices and rising costs is making the mining industry a prime candidate for innovation, according to a leading analyst with Deloitte Canada.
Shaving five or 10 per cent off the cost of an operation isn’t enough — miners need to rethink their businesses from the ground up according to Jurgen Beier, Deloitte’s national mining leader for Canada.
Waning Chinese demand for key commodities such as copper and coal is putting pressure on producers — such as those in British Columbia — to run leaner operations. At the same time, mining operation costs including labour, environmental protection, government royalties and a rising U.S. dollar, are reaching “unsustainable” levels according to a recent Deloitte report on trends in the global mining industry.
The Canadian junior mining sector is already struggling as investors avoid greenfield exploration projects in favour of mature projects that are more certain to develop into new mines, such as Imperial Metals’ Red Chris project. Risk aversion isn’t the only challenge for investors, according to Beier.
“If we take a step back and we look at the mineral grades of the mines that are being discovered today, and the grades of the mines that are in development (compared to 25 years ago), there is a clear trend,” Beier said.
“They are deteriorating. Years and years ago we would have a gold mine that would be producing gold from an ore body that was eight or 10 grams of gold per tonne of ore. Well today, the average is much closer to one or two grams per tonne.
“That creates a whole bunch of challenges, most notably you have to move four or five times the amount of ore to get to the same end product.”
Beier said “tweaking” a mining operation can improve productivity by five or 10 per cent. But that’s not enough when you’re processing five times as much rock to get the same yield as an older-generation mine. What’s needed is a fundamental shift in how to operate a mine, he added.
“Somewhere between 40 and 50 per cent of the costs on any given mine are from energy. That’s probably the biggest addressable bucket you have.”
For example, the massive, six-metre-tall trucks hauling ore in an open pit mine are only about 30 per cent energy efficient once you factor in the weight of the truck, the steep grade on the ascent from the floor of the pit to the mill, and the fuel-hungry performance of a 3,000-horsepower diesel engine.
“For every dollar you spend on gas you’re getting 20 cents’ worth of work, so to say, out of that dollar. The other 80 per cent is being lost to heat-energy, to friction.”
Beier said electrification of haul-truck engines needs serious study. For example, “an electric motor is 90 per cent efficient by design,” although the technology to convert truck-based mining fleets is still at a developmental stage.
“If you look at mines that are under development today, they are largely being developed the same way they were 30-40 years ago. Everyone has a trucking model, and the mine design is pretty much the same. That’s not going to lead to the efficiency and effectiveness that is required."
“There are other ways of becoming much more energy efficient, such as using conveyors, or rail-veyors which are a combination of rail and conveyor, and all kinds of other electrically driven things to move materials.”
Nonetheless, Beier said Deloitte is “bullish” on long term demand for metals and minerals, pointing to continued growth in the number of middle class consumers in Asia.
“Demand will not go away over the long term. But we need to take a more measured approach to how we supply that demand. One of the things we saw in the last up-cycle is that investment decisions were made on mines that were marginal. You can’t build a mine on the basis of the peak price in the cycle.”
Scott Simpson works on communications projects with companies in the British Columbia natural resources sector. From 1981 to 2013 he was an award-winning reporter/columnist/editor at the Vancouver Sun, including a 10-year stint on the energy and mining beats. Other topics that interest Scott include innovation, technology, environment, transportation, government affairs, fisheries, and aboriginal relations.