Preparing for unprecedented, unpredictable change

By Darryl Cuzzubbo, Orica

Where is the mining sector heading?

We can predict with some confidence how some aspects of the technological trajectory will look. There will be much more automation. We will be separating ore and waste earlier in the mining process. Planning and execution cycles will be compressed from days and weeks to almost real time, and we will need a workforce better equipped with technological and analytical skills. Miners will also become data miners.

But to assume that this is where it stops is to presume that new technologies and capabilities will not continue to develop even more rapidly, and that they will not open up new horizons that we simply cannot see today.

This is well captured by Bill Gates in his book ‘The Road Ahead’ where he says, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction”. Reflecting on this, we are likely to underestimate the value of this change because we just cannot anticipate all the sources of value from our current vantage point.

You can see this phenomenon unfolding everywhere – where one trend feeds from and then amplifies another trend, making the rate of change both unprecedented and unpredictable.

Take, for example, urbanisation and globalisation. Globally, every week, 1.5 million people are moving into cities – the equivalent of 30 times the capacity of Suncorp Stadium moving into cities. This trend has enabled a structural improvement in productivity which has helped lift 1.2 billion people out of extreme poverty since 1990.

It is important to recognise that pulling 1.2 billion people out of extreme poverty could not have happened without the resources sector providing the necessary energy and raw materials for building infrastructure. Globalisation, with the productivity benefits of urbanisation, is enabling the progress of developing countries to leapfrog that of developed countries.

Therefore, the future might not be defined by the countries that we would typically look to.

For example, India has 10 of the 30 fastest-growing cities in the world, but today three quarters of its 1.2 billion population still lives in rural areas. The United Nations believes that over 400 million of these people will move into urban areas by 2050. That is 16 times the population of Australia becoming urbanised in the next 30 years – in one country alone. Such a massive population movement obviously has a flow-on effect for steel raw materials and copper demand. China, another obvious example with 50% of the world’s electric vehicles, is growing its fleet at 2,800 vehicles per day compared to U.S. at 1,000 vehicles per day.

When we consider this in the context of mining, we are starting to see influential, interconnected trends that will impact our sector. Technological enablers - such as cheap RFID sensors and high-speed 5G networks combined with advances in automation and analytics - will allow mine planning and operations to be optimised in real time. Such interconnected trends can be somewhat daunting, particularly when we don’t really know where they will ultimately take us.

We can learn from other sectors, where success has not been dependent upon being able to predict the future but instead has rewarded those who set themselves up to manage and capitalise on a forever-changing environment.

The maturity of digitisation in other sectors is a prime example. While digitisation may only be one dimension of change, we would all agree that it is an enabler for many other aspects of change. For companies in the media, logistics, and retail sectors, the entire value chain is now dominated by digital – just think of the importance of technology to companies such as Netflix, DHL and Amazon.

Mining is at the beginning of this journey, having so far only captured incremental value from its application of digital technologies. I believe that we are now moving into the second phase, as evidenced by remote operating centres with an increasingly end-to-end view of the full value chain.

Some may think that just because sectors like media, logistics and retail have gone through disruptive change doesn’t mean that the mining sector will. But we don’t want to fall into a similar trap as the CEO of Blockbuster when he said in 2008 that, “Neither RedBox nor Netflix are even on the radar screen in terms of competition”. Just two years later, Blockbuster went bankrupt, and Netflix is now worth over $130 billion. Or more recently in 2015, when the CEO of hotel chain Hilton said of Airbnb, “I strongly do not believe that they are a major threat to the core value proposition we have”. It took just three years for Airbnb’s U.S. sales to overtake Hilton in the leisure segment.

The other reason why we will see this change occur in our sector is the sheer size of value on offer. The World Economic Forum values the potential benefit of digital transformation in the global metals and mining sector at $320 billion annually over the next decade. If we look at this opportunity for just the Australian mining sector, it equates to a digital dividend of $40-80 billion in EBITDA annually, representing a 30- 60% improvement in EBITDA.

We have seen this in our sector with autonomous haul trucks. Their benefits go well beyond the labour productivity benefits initially envisaged over 10 years ago when the programs started. Since then we have also seen substantial improvements in safety, utilisation, cycle times and maintenance costs.

The question is - how do we prepare ourselves to thrive and not just survive in this change when we don’t know with a high degree of certainty where it is taking us?

There has been much research on this particularly around digitisation. Still, there are two critical success factors that keep on coming up, which are the ones that Orica has been focused upon as we position ourselves to offer the most value to our customers today and into the future. These are:

1. Chasing the value. While obvious, how many of us deliberately and methodically focus our organisational energies on transformational change rather than incremental change.

2. Developing the necessary partnerships – do not do it alone.

Transformational technology in the blasting sector embraces both digitisation and automation. Why? Because with these:

1. We get analytical capability – discovering where our clients’ biggest opportunities lie.

2. We get control – not only can we quantify what we achieved against what was planned, but through control algorithms and systems we can control the physical execution process.

3. Perhaps most importantly, we can fundamentally change the way that mining is done. Steps that used to have some form of constraint or had to be carried out in sequence have had constraints removed, allowing us to mine much more efficiently. Understanding our role as the global leader in explosives, Orica has invested three times as much in research and development compared to our closest competitor over the past five years.

This significant investment in the future is starting to produce fruit with the concurrent introduction of a number of ‘game-changer’ technologies.

The key areas are:

1. BlastIQ, our digital platform which integrates blast design with explosive loading and outcome measurement and analysis, including fragmentation measurement and tracking ore to the point of milling.

2. Wireless detonation, enabling detonation without any wires through up to 800m of rock.

3. Semi-autonomous loading of bulk explosives, which is a stepping stone to fully autonomous loading.

If we dig into the second area of wireless detonation, the associated transformational value propositions are, most importantly, the improvement in safety. We can eliminate the 90% of known misfires which are currently due to downline damage.

The wireless detonator is also the first detonator to achieve an International Standard Safety Integrity Level 3 rating – the same safety rating at which car airbags operate.

We can also significantly reduce the impact of exclusion zones when there is the potential for lightning strikes, as we are removing the primary mechanism where lightning can trigger a blast.

BMC, operated by BHP in the Bowen Basin, is leading the way globally. In October of this year, they successfully set off the largest ever wireless blast globally using nearly 2000 wireless detonators. As we have deployed this new technology at an increasing rate, we have come to realise that the associated value propositions are much larger than we had first imagined.

For example, we can potentially do what we call multi-layer blasting, which means we can materially lift drill rig utilisation, use fewer loading trucks and offer the mine much more flexibility. We can always be ready to blast if the mine plan changes for any reason.

We foresee similar transformational value propositions with wireless blasting in underground applications. In particular, where it enables us to mine otherwise non-recoverable areas that today cannot be safely pre-charged, because the leads would be damaged in a preceding blast.

Turning to the second area of focus - developing the necessary partnerships - is best illustrated by the following story.

Before joining Orica, I ran a large mine in South Australia. About two months after starting at Orica I was more than mildly disappointed as I realised that Orica could have been having a much bigger impact than it was. When I was the person running the mine, I did not know the full range of Orica’s technical capabilities and Orica didn’t really know how I made money. Orica was certainly doing things that were helping the mine in a narrow blasting sense, but was not working on the things that would have pushed more volume through the mine’s production bottleneck - which could have materially moved the dial on the mine’s revenue line.

We have found that developing the necessary partnerships has made Orica much more impactful on our customers’ mine planning in recent years.

We live the understanding that we are all part of an integrated value chain – miners, service companies, suppliers and customers. If we each work in independent silos, trying to transform our individual parts of this value chain, the best we can do is each increase mine profitability incrementally in our respective parts of the value chain. However, by working collaboratively to optimise the application of new technologies across an integrated value chain, the overall improvement in mine profitability is significantly higher.

To enable this improvement, our first action was to make accountabilities around customer performance delivery very clear, and we provided a higher level of empowerment to our people to improve customer responsiveness.

Secondly, we have been changing the nature of our commercial agreements toward gain share/pain share agreements that incentivise partnership behaviours. This change brings a sharper focus on the most critical things that we collectively pursue with urgency. In just over 12 months, we are already close to having 30% of our contracts in Australia reflecting a partnership-type approach.

We are also developing our technology roadmaps together with like-minded customers. As the functionality of our technologies develop, it is prioritised in a way that quickly unlocks the most value for these customers. These first-mover customers receive the benefit of having the technology developed that is biased towards their requirements.

The nature of these technology partnerships varies from customer to customer, but what is very clear is that they are enabling rapid introduction of new technologies and value realisation at a pace that we just haven’t seen before. In just the last 12 months:

• Orica’s 3-year technology roadmap for open pit blast automation is being heavily influenced by a number of value workshops with Roy Hill, WA, where we have been integrating our respective technology roadmaps.

• We have also introduced over 20 semi-autonomous loading mobile manufacturing units in our region.

• Northparkes in central NSW was the first mine in Australia to move to wireless detonation and just the second globally.

• Olympic Dam has successfully fired the world’s largest underground wireless detonation blast.

• In Queensland, BMC performed the world’s first wireless detonation for an open pit mine and very recently fired a very complex through-seam blast which was even bigger than the blast at Olympic Dam. The world record now sits in Queensland - at least for the moment.

We believe that the rate of change in the mining sector will increase exponentially over coming years. Although we intuitively plan knowing where our desired destination is, in today’s world that just isn’t feasible. Orica has invested heavily in transformational technologies.

We are now focused on building the effective customer partnerships that we believe are the key to safety and prosperity, for both the mining sector and the many communities that depend on us. 