While gold miners are enjoying higher margins that accompany prices hovering near six-year highs, some are seeking longer-term productivity gains to further reduce mining costs.
New gold discoveries remain somewhat limited, but the sector turned to a wave of mergers and acquisitions to cut costs and grow in recent months. The key to boosting miners' bottom line further could be to embrace developing technologies such as automation, artificial intelligence and more.
"If you're going to be in the mining business, you've got to be right up there — with automation, innovation, agility — to attract young people who are best in class," Barrick Gold Corp. President and CEO Mark Bristow said on the sidelines of the Denver Gold Forum in September.
Ernst & Young, an accounting and advisory firm, identified productivity improvements as a top risk facing the broader mining and metals sector in a 2014-2015 report. At the time, executives at mining companies interviewed by the firm reportedly believed they were nearing a ceiling on further cost reductions and were reluctant to direct much spending toward cost containment efforts.
A review of mining productivity published earlier this year by the journal Mineral Economics found mining companies were "remarkably successful" in logging productivity gains over the last 150 years. However, those gains have slowed since 2000 and are showing little sign of turning around, the paper concluded.
Dundee Precious Metals Inc. President and CEO Rick Howes said during a September presentation in Denver that his company deploys "intelligent use of data" and "dynamic mine planning" concepts to influence the decisions made at its operations using artificial intelligence. Dundee is also looking into the benefits of automation, including underground autonomous drone technology.
"We started by just collecting data by introducing real-time monitoring of our operations and connected Wi-Fi on the underground environment," Howes said. "Now that we have that data set available, it allows us to do more with the data and we're starting to get the benefits of that already."
During a keynote speech at the Denver gold conference, Douglas Silver, a portfolio manager with Orion Mine Finance Ltd., said a common complaint is that the mining industry is not innovating fast enough. Still, he urged caution for miners looking to reduce costs.
"There's no point innovating if it's not productive," Silver said. "Artificial intelligence is a great idea — its day will come. Right now, every artificial intelligence deal I see is just a different data management system."
While technologies like automation and artificial intelligence deployed at more expansive operations capture the headlines, lesser-known technologies are also making a big difference, Nolan Watson, president and CEO of gold royalty company Sandstorm Gold Ltd., told S&P Global Market Intelligence. For example, sensors that measure the temperature of large tires that can cost about US$10,000 apiece can be used to reroute mine equipment to minimize wear.
"You're going through them every three months because you're running them too hot. If you can make them last a year, you're saving millions of dollars on your fleet every year," Watson said. "It doesn't seem groundbreaking, but it all adds up."
Gold discoveries around the world have slowed, Watson added, and reaching new gold resources is getting more difficult and expensive.
"Unlike the oil and gas industry where there's been a total game-changing technology in drilling, our core drilling technology hasn't really changed that much," Watson said. "So it's not getting that much cheaper, it's not getting much better. There's just not a lot of amazing unbuilt mines in gold out there."
Americas Gold and Silver Corp. President and CEO Darren Blasutti told S&P Global Market Intelligence that he is bullish on technology, particularly for improving safety outcomes. However, he added that much of the new technology is aimed at reducing labor costs. While that is a high cost at some mines, at others, it might not be worth the risk of testing out unproven technologies.
"Maybe we can go acquire it, you know, after all the bugs are out of it," Blasutti said of major technology shifts in mining techniques being tested. "The problem with technology is if you're at the front end of it there are lots of failures, and there are lots of costs involved. So you've got to be the Rio Tinto's and Barrick's of the world doing that stuff."
