Adapting to the post-China boom times will involve miners concentrating on sustainability, optimised efficiency and creating value within communities, according to the head of MMM for Schneider, Diego Areces. He shares some of his observations and predictions with Brent Balinski.
It is not news that miners are adapting to shifts, with a major one being lower demand from China.
The 13 per cent Chinese GDP growth of 2007 – and the need to feed this with resources – has slowed, with single figure expansion tipped for the near future.
At the time of writing, the price of iron ore had just hit a five-year low, and some analysts are predicting it could fall below $US80 in the next year.
Diego Areces of Schneider, which is a partner to some of the world’s biggest miners, believes the recent slowed demand for resources could be a positive: it’s more sustainable and less likely to be volatile. Times are different and miners will have to behave differently in response.
Growth will be slower overall than it used to be, though this isn’t all bad.
“The pace is going to be slower because we are no longer going to have these demand shocks that China created, for instance,” Areces told Manufacturers’ Monthly. “We’re going to have India, Africa, but this is not going to be like China.
“The population will continue growing, urbanisation will continue, the middle class will continue growing, therefore the consumption will continue growing, but at a different pace,” he said.
“Mining companies need to adapt to that.”
Markets other than China will have to be located.
According to Areces, who is the vice president of Mining, Minerals and Metals Solutions at the French-headquartered energy and automation specialist, there are three key aspects that will drive the industry: sustainability, optimising efficiency and value creation.
No longer just a reporting requirement and something seen as an impediment to growth, “sustainability is a must to operate,” said Areces.
“Today if mining companies are not sustainable they will not be able to operate… So that kind of accountability is a must. And it’s no longer about just being sustainable – it’s protecting the environment in a productive way.”
“That for us is about people efficiency, production optimisation, and assets utilisation and optimisation,” said Areces.
Values will be more important than volume, and companies will be driven to be the best at what they do rather than the biggest.
Consider BHP’s recent decision to split its assets, praised by supporters as good for the clarity and focus of the miner.
Return on capital investment will also be something mining businesses care more and more about, with divestment of what’s not being used.
Assets at a mine site that aren’t being fully utilised will look more and more like waste.
“If you have 50 per cent of your capacity sub-optimised, you can cut your plant in half and get 4 per cent [on what’s gained from the sale]” said Areces.
Another value-related prediction was the extension of companies’ value chain, with gasification of coal cited as an example. Again, it is to do with getting more out of assets.
“These are things that happen, these are market trends that come and go, if you look at aluminium, they are bauxite mining companies,” he said.
“And they are even making cans of Coke or wings for airplanes and then they pull back but I believe the value chains are going to be long.”
Another trend was the shift in how mining companies are governed. In line with the expectation that mining companies will create value for the communities and customers they are involved with, there would be more community representatives wanting a seat at the table.
The government and the community would both be part of the governance of the mining company of the future, said Areces.
“We were taught that governments in private business are bad, and I believe that concept is somehow changing because of the impact that governments can have to customers, in the community, in the building of societies,” he said.
This was something that could be seen globally, he argued.
“If you take a look at some of the countries in the world, the most important investor in some of the major companies in the world is the government.
“Governments can help mining companies – every time that you have a new mining project you need infrastructure and you have a lot of value creation for the communities and the customers, and it’s important that the government sits at the board of a mining company, for instance.
“I have the feeling that mining companies will have to [increasingly] involve the community and governments into the governance of the company, and I have the feeling that mining companies will have to be more adaptive to the evolution of the market.
Manufacturers’ Monthly attended the recent Synergy 2014 Industry User Conference as a guest of Schneider.