R&D prospects in the mining and metals industry

Resources Policy 36 (2011) 276–284

Contents lists available at ScienceDirect

Resources Policy journal homepage: www.elsevier.com/locate/resourpol

R&D prospects in the mining and metals industry Dimitrios Filippou a,n, Michael G. King b a b

Rio Tinto Iron & Titanium, 1625, route Marie-Victorin, Sorel-Tracy, QC, Canada J3R 1M6 Saltire Services, 806, Northpoint Drive, Salt Lake City, UT 84103-3346, USA

a r t i c l e i n f o

a b s t r a c t

Article history: Received 28 October 2010 Received in revised form 8 April 2011 Accepted 9 April 2011 Available online 24 June 2011

The mining and metals industry is considered more-or-less technology mature as it spends less than 1% of its revenues on R&D. In the period 2003–2008, that sector saw a very significant increase in profitability. Yet, during the same period, mining and metals companies continued to trim R&D spending, a trend that started in the early 1980s. In the near future the mining and metals industry will face significant challenges including an increased demand from the developing world counterbalanced by an overall trend to lower ore grades and with high pressure to reduce energy consumption and carbon dioxide emissions. To overcome these challenges, the mining and metals industry will likely face the need to considerably increase its R&D efforts. As the world enters a period of economic uncertainty, the sector will need to revise its approach towards R&D, reconsider its position against collaborative research with academia and other institutions, and be more creative when it comes to R&D funding. & 2011 Elsevier Ltd. All rights reserved.

JEL classification: O300 Keywords: Mining Metals Research and development

Introduction The mining and metals industry (coal mining included) is notorious for its boom–bust cycles. The latest boom cycle was a rather long one; it started around 2003 and ended quite abruptly in 2008 with the subprime mortgage crisis, the subsequent nearcollapse of the US financial industry and the near insolvency of several European Union nations. As Humphreys (2010) pointed out, the last boom cycle was not only fairly long, but it also saw metal prices ‘‘surged to levels never before seen,’’ even in real (inflation adjusted) terms. This exceptional boom cycle has been attributed to a combination of strong demand, mainly from China, and underperforming supply. The 2003–2008 boom period was also marked by continued consolidation, resulting in the disappearance of some powerhouses in the Western World, and the emergence of new global players in the mining and metals industry (Sinding, 2009). The most spectacular ascent was that of Mittal, which absorbed several medium to large size competitors and in 2006 took over Arcelor to become the top steel producer under the name of ArcelorMittal. In the USA, in 2007, Phelps Dodge, a mining giant with more than 100 years of history, became part of Freeport McMoRan. At the same time, three of the biggest Canadian mining and metals houses—Inco, Falconbridge and Alcan—were taken over by non-Canadian interests. Chinalco, Baosteel, Tata Steel and other metal companies based in

n

Corresponding author. Fax: þ1 450 746 9412. E-mail addresses: dimitrios.fi[email protected] (D. Filippou), [email protected] (M.G. King). 0301-4207/$ - see front matter & 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.resourpol.2011.04.001

the developing world have now replaced the names of Reynolds, Corus (British Steel), Bethlehem Steel and the like. The very significant returns in the minerals and primary metals industry between 2003 and 2008 were not accompanied by similarly upbeat changes in the way this industry prepares for its future. On the contrary, the decline in R&D spending in the minerals and primary metals industry, which had started several years before 2003 (Hitzman, 2002; King, 2007), accelerated as the number of companies with significant R&D programmes was reduced through mergers and acquisitions (Bartos, 2002). Thus, one may conclude that the drive for short-term profit and consolidation in the primary minerals and metals industry brought a significant blow to that sector’s R&D. However, the low level of R&D spending in the primary minerals and metals industry is not a symptom of profit hunt just in the last decade or so. Data from 14 OECD members (OECD, 2007) show that in the 1990s, the R&D intensity, which is defined as the ratio of annual R&D expenditures over annual gross revenues, was only about 0.6% for the industry of basic metals and fabricated metal products and 0.8% for the industry of non-metallic mineral products. The OECD (2007) statistics also indicate that the R&D intensity for these two sectors has been on the decline since the 1990s. This is certainly the case in the USA, where the R&D intensity of the mining and metals industry in the 1990s was considerably lower than in the 1970s and 1980s (Morbey, 1988), reflecting essentially the massive contraction of the US nonferrous metals industry in that time period. To illustrate this point further in 1995 the US had 5 major domestic copper producers whereas in 2010 there are two major

D. Filippou, M.G. King / Resources Policy 36 (2011) 276–284

project in Australia (Jenkins et al., 2009), the Bulong nickel laterite pressure leach project in Australia (Nice, 2004; King, 2005a) and most recently the BHP Billiton Ravensthorpe nickel pressure leaching project also in Australia (Anonymous, 2009). These failures were attributed in part to bad market conditions, i.e., high operating costs and low metal prices due to competition from developing countries (Holywell, 2005). Nonetheless, the hasty use of unproven technology without conclusive engineering scaleup was also a significant factor (Nice, 2004; King, 2005a). Some innovative projects turned into technical disasters (Bulong, Magnola) with unsustainable operating costs, while other projects ended up with huge capital cost overruns (Ravensthorpe). Thus the extractive industry has every reason to shy away from big and high-risk investments. The industry has a very poor track record of not committing the appropriate time and money for the research and development needed to bring new technology to market (and it is in the early phases that a project is less costly). The decline in R&D in the extraction of minerals and primary metals is also reflected in trends in academia. By the year 2000, most schools of mining and metallurgy in North America had their names changed to something more politically attractive like ‘‘Earth and Environmental Engineering’’ (the former Department of Mining, Metallurgical, and Mineral Engineering of Columbia University) or ‘‘Materials Engineering’’ (what once was the Department of Metallurgical Engineering of the University of British Columbia). That change was presumably done ‘‘to incorporate advancing science and technology and to meet the industrial and social needs of the times’’ (Flemings, 2001). Yet the title change—to something more broad, vague but trendy—can also be considered as (part of) an effort to slow down the decrease in student enrolment in mining and metallurgy/materials schools (Fig. 1). The end result is that mining and metallurgical companies were struggling to recruit new engineers during the boom years of 2003–2008. Despite all the drawbacks mentioned above, one has to remember that research and development is an integral part of our economic life. As such, it follows the waves, trends and general situation of the economy. Moreover, being at the forefront of government or corporate developments, R&D is the first to feel the consequences of any strategic decisions—good or bad.

10

500 Metallurgy / Materials All engineering disciplines

8

400

6

300

4

200

2

100

0 1965

1970

1975

1980

1990 1985 Year

1995

2000

2005

0 2010

BSc in all engineering disciplines per million of population

BSc in Metallurgy / Materials per million of population

producers and one smaller one. All of the current copper producers are business units of companies with much larger overseas holdings. The CEO of one such company (Magma Copper) boasted in 1995 that his company was being run as the model of the future of the industry due to novel labour contracts, price protection through hedging and by the implementation of new technologies (Winter, 1995). Within weeks that particular company was taken over by a bigger multinational (BHP) and by 2003 most of its US assets were closed. Not surprisingly the US based technical groups responsible for developing technology (vs. operational improvements) have all disappeared. The decline in R&D intensity in the mining and metals industry continued in the early 2000s. Batterham (2004) compared the R&D intensity of four big mining and metals firms (Alcoa, Anglo American, BHP Billiton and Rio Tinto) in the period 2000–2002; from these firms only Alcoa increased its R&D spending levels. The Canadian Mining Innovation Council (2008) found that in Canada, a country with a very significant resource industry, ‘‘intramural’’ (in-house) R&D spending in the mining industry dropped by almost 70% in the decade 1995–2004. In contrast, the R&D intensity in the global pharmaceutical industry in the 1990s and early 2000s was about 10%, showing strong upward trends (OECD, 2007). Consolidation and outsourcing may have been two significant factors for the decline in R&D spending. For example, starting in the 1980s Outokumpu, the Finnish mining and metals conglomerate, absorbed several technology providers for the mining and metallurgical industry. After Outokumpu divested most of its assets (except stainless steel) in 2005, its technology group was spun off as an independent company, which is now called Outotec Oyj. The merger between the Canadian mining and metals companies Noranda and Falconbridge in the early 2000s resulted in the permanent closure of the Noranda Technology Centre. Some spectacular project failures may have also contributed to the shrinkage of R&D in the mining and metals industry (or vice versa). In the 1990s, some research projects ended up in huge investments and then in huge write-downs (Twigge-Molecey, 2003). Such big failures include Noranda’s Magnola magnesium plant in Quebec, Canada (Ficara et al., 1998), the AMC magnesium

277

Fig. 1. BSc degrees granted in Metallurgical Engineering and Materials Science compared with BSc degrees granted in all engineering disciplines in the USA between 1966 and 2006 per million of population. Constructed with data from the National Science Foundation (2008).

278

D. Filippou, M.G. King / Resources Policy 36 (2011) 276–284

In this paper, which is exploratory in nature, the authors try to understand the current trends in R&D in the mining and metals industry, and the consequences these trends may have in the long run. For this paper, the term ‘‘mining and metals industry’’ or ‘‘extractive industry’’ includes essentially the ISIC Rev. 3.1 (United Nations, 2002) industrial classification divisions 10 (coal mining), 12 (uranium and thorium mining), 13 (metal mining), 14 (other mining and quarrying) and 27 (manufacture of basic metals, including iron and steel). The extraction of oil and natural gas (ISIC division 11) is not considered. Starting from some earlier thorough reviews by King (2005a, 2007) and Bartos (2007), the authors of the present paper try to draw a realistic picture of R&D in the extractive industry in the past decade or so. Furthermore, the authors make an attempt to sense whether the current R&D effort is sufficient to overcome the challenges of the extractive industry in the near future.

R&D spending trends in the decade 2000–2009 Fig. 2 shows the consolidated R&D intensity of twelve mining and primary metal companies with global presence in the past decade. The total R&D expenditures of these companies were very low (about 0.5% of their total revenues) and in steady decline, at least until 2006. The slight increase in R&D intensity since 2007 is due to an increase in R&D spending in 2007 and 2008, and a rapid decrease in company revenues in 2009. Obviously, there is always some delay between a decrease in revenues and cuts in R&D. Therefore, any cuts made in R&D spending in the year 2009 will show up as a decrease in the R&D intensity in 2010 and in the years to come. Only few mining and metals companies spent more than 0.5% of their revenues on R&D in the past decade. Somewhat surprisingly, some mining firms boasted in their annual reports that they spend about 1% of their revenues on R&D, a figure ‘‘higher than for most mining companies.’’ As explained further herein, this level of R&D intensity is very low in comparison to what companies spend in other so-called high-tech sectors, even if exploration costs are considered as R&D expenditures. For example, in 2009, which was a year of recession, the R&D intensity of three big corporations in high-tech sectors, IBM (information technologies), Boeing (aeronautics and defence) and AstraZeneca (pharmaceuticals), was 6.1%, 10.7% and 13.4%, respectively. The chemical industry, excluding pharmaceuticals, rubber and plastics, and pulp and paper, has an R&D intensity almost three times higher than that of the mining and metals industry (OECD, 2007).

(R&D exp. / Gross revenues) / %

1.50 1.25

a. Indirect non-R&D expenditures such as design and engineering activities, plant experimentation and market exploration are mostly ignored in R&D statistics. b. Mineral and metal producers rely heavily on equipment manufacturers and engineering firms for new technology (Bartos, 2007). Nonetheless, high R&D value embodied in capital goods acquired by the extractive industry is mostly ignored in R&D statistics. c. Mineral exploration is misstated or ignored in R&D statistics. However, for mining firms mineral exploration is a form of vital R&D. Hence, many Level 3 mining companies may have very high exploration expenses, but otherwise little or non-existent R&D expenses. This is also true for some Level 2 companies. It is also worth noting that, in the past two decades, exploration spending also lagged behind the growth in revenues (Ericsson, 2005). For example, one of the biggest mining firms, Barrick Gold, spent US$141 million on exploration in 2009, almost as much as it spent in the year 2000 (US$149 million, not adjusted for inflation). During the same period, Barrick quadrupled its sales revenues, profiting mainly from a sustainable rise in the price of gold. d. Last but not the least, in big mining corporations with several affiliates and subsidiaries, important R&D expenditures may occur in different sites and may never be included in the consolidated financial statements of the parent company. Hence, the financial statements of a mining corporation may include incomplete figures on R&D spending. In any case, no matter if the R&D intensity index gives a very representative image or not, the mining and metals industry is definitely a mature industry (Bartos, 2007). As such, this industry is nowadays considered a follower rather than a pioneer in R&D. One obvious question that arises from the above: Is that level of R&D effort in the extractive industry adequate for sustainable growth? To answer this question, one has to make a step back and consider the nature of R&D in the mining and metals industry. This is done in the next section.

1.00 0.75 0.50 0.25 0.00 2000

The results of Fig. 2 can be seen somehow differently, if the twelve companies are split into three groups (‘‘levels’’) according to their asset base, using an ad hoc classification done by King (2005a). At that time Level 1 companies, each with an asset base of more than US$40 billion, could elect to spend significant amounts on R&D; yet their R&D expenditures universally represented a very small percentage of their revenues (Fig. 3a). Level 2 companies, each with total assets between US$10 billion and US$40 billion, tended to spend a higher percentage of their revenues on R&D (Fig. 3b), particularly those which focus on one metal and are more vertically integrated. Fig. 3c shows that some Level 3 companies, each with assets less than US$10 billion, spent a relatively high percentage of their revenues on R&D. However, Fig. 3c is not overall very representative of Level 3 companies. Companies with a relatively small asset base often focus on one metal, e.g., gold, and rely mostly on mature technology purchased from outside (King, 2005a). Because of that, most Level 3 companies do not report any R&D expenditures at all. Arguably, the reported level of R&D spending, or the R&D intensity, may not reflect the total research effort in the mining and metals industry. Upstill and Hall (2006) give several reasons for this, among which:

2002

2004

2006

2008

2010

The nature of R&D in the mining and metals industry

Year Fig. 2. Consolidated R&D intensity of twelve mining and metals companies (Alcoa, Anglo American, ArcelorMittal/Arcelor, BHP Billiton, Boliden, Cameco, Codelco, Eramet, Iluka, Rio Tinto, Sumitomo Metal Mining and Teck) in the decade 2000–2009 as a percentage of their total revenues. Constructed with data from annual company reports.

The mining and metals industry has some unique characteristics that affect the nature of its R&D: a. Prohibitive startup costs—Bartos (2007) states that the mining industry has very difficult entry conditions. Indeed, a new

D. Filippou, M.G. King / Resources Policy 36 (2011) 276–284

(R&D exp. / Gross revenues) / %

1.5

1.2

Rio Tinto Anglo American BHP Billiton ArcelorMittal

0.9

0.6

0.3

0 2000

2002

2004

2006

2008

2010

Year

(R&D exp. / Gross revenues) / %

1.5

Alcoa Alcoa Teck Codelco Sumitomo Metal Mining

1.2

0.9

0.6

0.3

0 2000

2002

2004

2006

2008

2010

2006

2008

2010

Year

(R&D exp. / Gross revenues) / %

1.5

Iluka Cameco Boliden Eramet

1.2

0.9

0.6

0.3

0 2000

2002

2004

Year Fig. 3. R&D intensity of twelve mining and metals companies (Alcoa, Anglo American, ArcelorMittal/Arcelor, BHP Billiton, Boliden, Cameco, Codelco, Eramet, Iluka, Rio Tinto, Sumitomo Metal Mining and Teck) in the decade 2000–2009 as a percentage of their respective revenues. (a) Level 1 companies (asset base above US$40 billion); (b) Level 2 companies (asset base US$10 billion to US$40 billion); and (c) Level 3 companies (asset base less than US$10 billion). Constructed with data from annual company reports.

mine or a new extraction process can take significant time and capital to be brought to operation. A mine may have to go through several years of exploration, evaluation, design and especially environmental permitting red tape, before it starts production. The most important

279

parameter is the longevity of the mine, which ideally should be 20 years or more. This allows for the extreme shifts expected in commodity prices over a long time period and greatly enhances the likelihood of obtaining the expected return on investment. Metallurgical plants—mineral processing and smelter sites— have their own difficulties too. The construction of a new metallurgical plant requires significant capital investment, no matter where it is located. In developed countries the cost of process development can be hindered by factors such as high labour costs, but may benefit from in place infrastructure such as roads, rail, power, etc. A typical example is Rio Tinto’s HIsmelts iron smelting technology, which took more than twenty years and hundreds of millions of dollars in R&D before a full-scale plant was constructed in Western Australia (Leczo, 2009). Conversely, in developing countries, the labour costs are low, but the cost of construction can be very high because very often those countries lack the necessary infrastructure noted above. A typical example is the Xstrata Koniambo nickel laterite project, originally scheduled for a 2005 startup. This project needs roads, power generated from imported coal, a port and a trained labour force and now has a projected startup of 2012 at the time of writing. Other examples include the Rio Tinto’s QMM mine in Madagascar, where exploration started in the late 1980s and the mine (together with a mineral processing plant) was commissioned in 2008, and Vale’s Goro nickel laterite project in New Caledonia coming on stream at the time of writing after a failed startup in 2004. Of course, one should not also forget that project delays can be imposed by unfavourable market conditions. b. Low profitability—The mining and primary metals industry has not been very profitable in the past three to four decades. According to Humphreys (2001) and Batterham (2004), the real (after inflation) shareholder return in the global mining industry was less than 5% in the period 1973–2001, almost 2.5% points below the total world market return during the same period. The low profitability of the mining and metals industry has been attributed to a long run price decline in mined products, which in turn has been attributed to the ‘‘price–cost spiral,’’ i.e., the cost reduction measures during bad times and the industry’s inability to raise prices back again during the boom periods (Humphreys, 2005). Metal commodity prices are subject to the whims of market speculation and it is only in times of severe physical shortage that prices can rise predictably. Consolidation, which has been much in fashion since the mid1990s, has been considered as the ultimate company growth tool without the pains and risks of exploration and R&D, particularly when commodity prices are weak (Warhurst and Bridge, 2003). Yet, mergers and acquisitions in the mining industry during boom periods can be very costly and may fail to produce the anticipated financial results (Sinding, 2009). Moreover, national and international regulatory authorities always frown upon companies that grow significantly and seem to reach market control power. c. Little product differentiation and price control—Another obstacle (or limitation) of the extractive industry is the fact that there is a little product differentiation. With few exceptions, the product of a mine or a smelter—a mineral concentrate or a primary metal—is a commodity and does not differ significantly from the product of other mines and smelters. As Bartos (2007) put it, ‘‘copper is copper, gold bullion is gold bullion.’’ Despite this, some mines have the luck (and sometimes the technology) to produce cleaner ores and concentrates, hence avoiding contract price penalties for impurities in their treatment charges. Primary metal smelters and refineries try to

280

D. Filippou, M.G. King / Resources Policy 36 (2011) 276–284

increase their profit margins by producing slightly different products that fetch higher premiums. One such product differentiation is with metal powders, which are usually sold at higher premiums than ingots, e.g., Vale Nickel (formerly Inco) has a dominant position in nickel powder produced by a unique technology. Some vertically integrated companies dealing with just one metal or one mineral commodity spend more on R&D in product development. A characteristic example of a vertically integrated one metal company is Alcoa, which outperforms many other extractive companies in R&D intensity (Fig. 3). Inco, Falconbridge and Alcan had a relatively high R&D budget (R&D intensity around 1%) up until 2005/ 2006, when they were independent and more vertically integrated companies (Fig. 4). In most cases, the mine or the smelter does not control the price of its product. Large tonnage primary metal prices are rather dictated by the status of the global economy, the global demand and supply. Other metals such as precious metals, platinum group metals, minor metals (bismuth, antimony, selenium and tellurium, which are almost always produced as by-products), rare earths, etc. can show huge price swings, because they are traded in small volumes and the supply– demand balance can be easily tilted one way or another. This has happened for example with rhodium, the price of which in 2008 reached $10,000/oz and dropped sharply in 2009 to about $1000/oz as the global economy went into recession. d. Relatively low knowledge diffusion—In the mining and metals industry there is limited technology trade (licensing) among companies in this sector. Also, the mobility of professionals seems to be relatively low in comparison to other industries. The fact that mines and smelters are mostly located in remote areas probably acts as a barrier for new professionals who aspire to rise fast in their career by moving from company to company. But in any case, it is not clear to what extent these factors hinder technology diffusion in the extractive industry as reliable statistics do not exist (Bartos, 2007). e. Conservative business approach—R&D entails significant business risks, and taking risks is what can bring significant growth. Nonetheless, R&D is just one of several possible strategic choices for company survival and growth and was actually in vogue until the downturn of the early 1980s. Since then mining and metals firms have become much more conservative and they will turn to new technology only when all other options seem non-viable.

(R&D exp. / Gross revenues) / %

2 Inco Falconbridge Alcan 1.5

1

0.5

0 2000

2002

2004

2006

2008

2010

Year Fig. 4. R&D intensity of Inco, Falconbridge and Alcan in their last years before being taken over by Vale, Xstrata and Rio Tinto, respectively. Constructed with data from annual company reports.

Such characteristics, i.e., difficult market entry, no price control, relatively little (or low) knowledge dissemination and conservative business attitudes, contradict strongly with the characteristics of very flexible, high-tech industries like pharmaceuticals, telecommunications and information technologies. Given those characteristics, innovation in the extractive industry nowadays means mostly reduction of production costs through evolutionary development. The word technology in the extractive industry usually implies automation with computers and other information technologies (now common practice), and bigger and more productive equipment to reduce production costs by economies of scale (McNulty, 1998; Bartos, 2007). Just as mines rely more and more on equipment suppliers for bigger excavators and haul trucks, primary metal plants turn to engineering firms for bigger and more efficient furnaces, bigger and more efficient electrolytic cells, etc. Most R&D spending in the mining and minerals industry is directed on improving existing processes. Marginal productivity gains are realised in brownfield projects by levering developments from the few remaining mining and metallurgical technology providers, or from other industries (Hitzman, 2002). On-stream analysers and other similar real-time monitoring devices, which were introduced in the 1970s, improved tremendously the performance of mineral processing mills and smelters (McKee, 1991). Remote control systems and robots were developed for underground mines with elevated safety risks. In the 1980s and early 1990s, metallurgical processes were translated into complex computer models that shed new light into very complex operations (Brimacombe, 1993). Revolutionary technology developments do not appear often in the extractive industry. According to Bartos (2007), the extractive industry saw about ten to twelve revolutionary developments or ‘‘discontinuities’’ in the 20th century. The number of technology discontinuities in the mining and metals industry is higher than those of other mature industries like window glass and cement, but it is far from the number of breakthroughs in the microcomputer industry. With the exception of the aforementioned HIsmelts process, the last big discoveries in mineral and raw metal production, such as heap leaching, pressure leaching, solvent extraction, and the intense smelting of sulphide concentrates with bulk oxygen were made between 1960 and 1980 (McNulty, 1998). From time to time, rapid increases in production are achieved by returning into old and believed bygone technologies. Such examples include the reappearance in China of the Pidgeon process for the production of low-cost magnesium in the early 2000s, and the use of blast furnace technology to make nickel as a pig iron ferronickel in the late 2000s. But the Chinese are merely taking advantage of a playing field that is not currently level. While these technologies rapidly increased the amount of available magnesium and nickel in the market, they could only be implemented in a country which has much lower environmental and compliance standards than the Western World (Ramakrishnan and Koltun, 2004; Eckelman, 2010). In time, countries like China will be forced to meet higher compliance standards and the supply and cost issues will reappear. As productivity gains reach their limits (Bartos, 2007), some mining and metals companies are struggling for new breakthrough discoveries, new ‘‘step changes.’’ Hence, it is not surprising that, in the absence of significant in-house R&D resources, in 2007, Barrick Gold had to turn to the Internet to solicit ideas—in a kind of auction—on how to recover silver from a silver–gold deposit in Northern Argentina (Barrick Gold Corporation, 2007). In essence, Barrick Gold has embraced the concept of Open Innovation, which is yet at its embryonic stage in the mining and metals industry.

D. Filippou, M.G. King / Resources Policy 36 (2011) 276–284

R&D and future challenges in the mining and metals industry There is a general perception that R&D and company growth can go hand-in-hand. This belief apparently stems from the analysis of the financial performance of research intensive industries (see for example, Hsieh et al., 2003). However, this is not the case in the mining and metals industry. More than two decades ago, Morbey (1988) assessed the correlation between R&D intensity and sales and profit growth; he found that for non-research intensive industries with an R&D intensity less than 2.5%, including the mining and metals industry, there is not any strong correlation between R&D intensity and sales and profit growth. This may lead to the conclusion that R&D is relatively insignificant in the mining and metals industry and hence it has no impact—but is it so? One cannot expect that the conservative business approach of mining and metals firms will change radically to more risk-taking attitudes in the near future. In the next years, the extractive industry will continue to spend relatively little, in comparison with other business sectors, on the development of fundamental or applied new technology. There are, however, a few signs that sooner or later, the extractive industry will have to considerably increase its R&D efforts.

281

New challenges include the reduction of carbon dioxide emissions (believed to cause a rise in the mean global temperature), and the generation of more waste rock from lower grade remote resources (the low hanging fruit has been picked). The carbon tax and the carbon cap-and-trade schemes, which are already a reality in Europe, will cause an increase in production costs and may force a radical change in the way minerals and bulk metals are produced. For example, low temperature aqueous electrolytic processes that use clean power (hydropower, etc.) and have low CO2 emissions will become more important. Yet, several metals can be produced only by pyrometallurgical methods. For pyrometallurgically produced metals, a reduction in CO2 emissions can be achieved by switching to clean power (from renewable sources and non-fossil fuels) and by CO2 capture and storage. The technical or economic feasibility of artificial carbon capture and storage (CCS) is yet to be proven (Yang et al., 2008), and will definitely add significant capital and operation costs (Gielen, 2003; Anderson and Newell, 2004). Huge investments in CCS R&D may be required, and probably the industry will have to face this challenge as a whole, and not each company alone. Several energy producers all over the world are already planning CCS projects for the immediate future (International Energy Agency, 2011). However, most mining and metals companies have not yet embarked on such projects.

Market pressures Rising energy costs It is now well established that the appetite for metals from the developing world, particularly from China and India, will greatly increase in the next decades (Streifel, 2006). Some mining firms see this as a great opportunity but it is also a great challenge. A higher demand may bring more profits, but it will certainly add more stress on operations for higher recovery, higher production rates, etc. For some metals companies in the developed world, sustained strong growth in the developing world will add more competition. Mines cannot be moved around, but some metallurgical sites may close either because costs (labour, energy, etc.) are lower elsewhere, or because of competition from low-cost producers based in developing countries. Because of the increasing market domination of developing economies in Asia and decreasing commodities consumption in Western economies at some point the R&D focus for extractive metallurgy will become centred in countries like China and India. This has already happened in some high-tech industries (Lohr, 2006). The first signs of this are seen in events since 2005 like the mining giant BHP Billiton signing agreements with the Chinese Academy of Science, China’s Baosteel Corporation and Russia’s St. Petersburg and Moscow State Universities for cooperation on technical R&D and education. Environmental challenges Besides market pressures and competition from the developing world, the mining and metals industry faces some serious challenges on the fronts of environment protection and sustainable development. The legendary environmental disasters of the past still haunt the sector to the point where mining and smelting projects are no longer welcome close to populated areas in the Western World. In the period 1970–2000, most emphasis was placed on sulphur dioxide capture (acid rain) and effluent treatment (acid mine drainage, arsenic immobilisation, etc.). Today, these challenges have diminished but still persist in both Western and ¨ non-Western countries (Brundenius, 2003; Goransson, 2003; Kuznetsov and Budanov, 2003). The technology to control acid rain is known, but as Mudd (2010) points out, the technology to control acid drainage from mine wastes has still to be proven.

Energy conservation is another significant challenge. The bulk metals industry is very energy intensive and must reduce its energy consumption for two reasons: (a) the price of energy, which is very significant in most countries, will rise even more because of higher demand and (b) the carbon tax and the carbon cap-and-trade schemes, which are still in their infancy, appear destined to dramatically increase the industry costs in the years to come. Like carbon tax, energy conservation may become the driving force for intense R&D on new processing methods in the mining and metals industry. Sustainable development and product stewardship Two other significant challenges requiring new R&D efforts are sustainable development (Batterham, 2006) in combination with product stewardship. The mines and the smelters soon will have to take responsibility for their products throughout their entire life. This may force more vertical integration, partnerships and alliances for better control of the life of a product (Humphreys, 2005), and more interaction and transparency with local communities and other so-called stakeholders. To illustrate this point there was a comment made in the mid1990s by the CEO of a major US copper company relating to environmental compliance at an open pit mine in which he said: ‘‘What’s next—will they ask us to back fill the mine?’’ The answer to that question is progressing inexorably to ‘‘Yes!’’

Going forward in a more intelligent way Notwithstanding the inherent challenges in mining per se (exploration and extraction from the earth), the processing of ore to mineral concentrates and bulk metals will become more complicated. This fact, combined with the demands for reduction in CO2 emissions and in energy consumption, will give rise to R&D on retrofit, evolutionary or brownfield projects (Canadian Mining Innovation Council, 2008). However, beyond such projects, there is a need for new R&D on breakthrough technologies for exactly the same reasons. For example, several research teams are presently

282

D. Filippou, M.G. King / Resources Policy 36 (2011) 276–284

working on revolutionary technologies for the production of titanium to replace the presently used Kroll process, which is and will always remain high energy consuming (van Vuuren, 2009). Other research teams are working on new reagents that will replace gold leaching with cyanide salts, which has been in practice for over 100 years (Hilson and Monhemius, 2006). To take the development of new technologies to extremes, the mining and metals industry will have to think outside the box, and probably revisit ideas that were probably once considered unrealistic or obsolete. For example, in the case of non-ferrous metals, the initial treatment of ore—stripping, mining the graded ore, crushing and grinding—still represents by far the largest cost sector in the chain of production processes. The real breakthroughs must come in this part of the chain and an example of how this might be achieved is given below. In the 1960s there was thought of using nuclear bombs to rubblise ore underground to assist in the ease of underground mining. While such an idea is now socially unacceptable it does segue into a couple of present day scenarios, which should be considered. The concept of in-situ leaching of unrubblised or unfractured ore underground was attempted in Arizona for copper in the mid-1990s at Casa Grande (US Bureau of Mines, Asarco, Freeport McMoRan) and at Florence (Magma). The Casa Grande project failed because of geological porosity problems limiting the amount of pregnant liquor that could be brought to the surface for processing. The Florence project failed because it was not deep enough and there was contamination of the aquifer. These projects were failures because they were not well thought out and had engineering and environmental flaws. However, the concept, particularly the one used for the Casa Grande project, could be revisited using state of the art technology from the oil and gas industry. These industries have no problem drilling to great depths, at all angles, and inserting pressurised fluids to fracture the rock formations. If metals ore deposits can be fractured at depth then leaching solutions can be introduced to bring the metal values to the surface, leaving essentially no mining footprint. Although this particular idea may not stand up in a true test, the argument needs to be made that the answer to finding breakthrough concepts for the metal industry may well come from the crossover of technology from another industry. [As an aside, it is known that vast mineral deposits lie under the two-thirds (2/3) of the earth’s surface, which is covered by water. Initial attempts at mining under the sea have not met with economic success and the technologies employed are fraught with environmental issues. But necessity is the mother of invention and it may be that one day (20–30 years from now?) breakthrough technologies will allow ocean mining to be successfully implemented.] Big greenfield projects involving novel technologies (never tested before in large scale) and significant capital spending can be undertaken by very large corporations, and sometimes only by consortia of several corporations. Any R&D programme related to greenfield projects should start at the bench-scale level and extend all the way to pilot plant trials and startup support. As R&D budgets are reduced, particularly during downturn periods, shortcuts are used to accelerate the front end (lab- and pilotscale) test work. This practice however can have grave consequences: the eventual full-scale plant may include untested critical elements and it may fail altogether (Twigge-Molecey, 2003; King, 2005b). Thus, proper piloting and gradual scaleup must be the rule of the day. The R&D budget and project portfolio of each mining and metals company should reflect its size, its mission and its short- and long-term outlook (Marsden, 2004). Essentially, every company must have a balanced project collection—short-term/long-term,

brownfield/greenfield—and at least a core team dedicated to development for future survival and growth. As money is hard to find, particularly during a recession, mining and metals companies should adapt to the times and become more flexible and more streetwise. Despite some significant success stories in the past, the mining and metals industry has lately lost contact with academia and with public R&D funds in general. Public research institutions dedicated to the extractive industry were left to die neglected equally by governments and by the private sector. Mining and metals companies must regain their share in public R&D funding. Some public research institutions like the US Bureau of Mines will never be revived again, but the industry has a lot to benefit from a renewed collaboration with the academia. Collaboration with universities in developing countries may cost relatively little to the industry and may have great potential, yet the universities in the developed world have still a lot to offer. Besides, a renewed interest in academic R&D will lead in the future to the extractive industry having access to more technical and managerial professionals for their organisations. Another way to reap the benefit of a new technology is to try to licence the intellectual property to other users. This is a strategic decision with the possible drawback of losing a competitive advantage. However, experience suggests that the value of intellectual property is often overrated and, in several cases, it has been better to bring technology openly to the market. In pyrometallurgy, there is the example of flash smelting. Inco (now Vale) and Outokumpu (now Outotec) both developed the autogenous (flash) smelting of metal sulphides in the 1950s, but only Outokumpu decided to market that technology aggressively. Inco regarded its flash smelter technology as a means to reduce its own process costs and thus retain an advantage over the other nickel producers and consequently wound up only licensing the technology to two copper producers (Warhurst and Bridge, 2003). In hydrometallurgy, there is the example of pressure leaching, a technology developed in the 1950s by Sherritt Gordon Mines (now Sherritt International Corporation) and later widely commercialised by the same company. In contrast, Rio Tinto’s QIT Iron & Titanium subsidiary (now Rio Tinto Fer et Titane) developed the UGSTM pyro/hydrometallurgical technology for titania slag upgrading and decided to keep it for its own use only. Too often companies (Asarco, Teck and Noranda are examples) with novel technologies did not demonstrate good marketing skills and commitment to keep developing the technology. Consequently, their attempts at commercialisation failed because of unrealistic expectations, particularly in revenue generation. Whatever the approach taken by mining and metals companies, there are more and more signs that the industry as a whole will have to make some serious R&D investments in the near future. The state of the global economy and the low profitability of the extractive industry will not allow for a return in the era of free spending on R&D of the 1950s and 1960s (King, 2007). Hopefully, the mining and metals industry has learned from its past mistakes in overvaluing or misunderstanding technology (Dermer, 1992). On the other hand, paying lip service to future challenges will not do the industry any good.

Conclusions The mining and metals industry has seen its profits rise significantly for most of the past decade. The boom times of the mid-2000s resulted in the merger and takeover of several large mining companies (Phelps Dodge, Alcan, Falconbridge and Inco in North America alone) and in significant downsizing of their internal R&D organisations. When coupled with the economic

D. Filippou, M.G. King / Resources Policy 36 (2011) 276–284

recession of 2008–2009, the large mining houses have now essentially abandoned strategic and long term internal technology development. However, sooner or later, mines and smelters will face some new challenges never seen before, most commonly due to lower grade ore deposits found in infrastructure challenged locations. The pressures to reduce greenhouse gas emissions and to save costly energy will grow as years go by. Other environmental issues, including product stewardship, may force the industry to seek alternative mining and processing technologies. To overcome these challenges, the extractive industry may have to increase significantly its R&D effort. A balanced R&D portfolio, a staged approach to high-risk greenfield projects and clever R&D funding, including a renewed collaboration with the academia, could help the industry to tame the difficulties it will face in the near future. It would seem reasonable to suggest that many mining and metals companies have now high enough capitalisation so that they can come to the conclusion that they should control their own fate and not rely on outside markets to take off their problems for them. Will there be an epiphany in the near future at which point R&D expenditures in hard dollar terms begin to rise again?

Acknowledgements One of the authors (DF) would like to thank Rio Tinto Iron & Titanium for permission to co-author and publish this paper. However, the views expressed herein do not necessarily reflect the position of Rio Tinto. Mr. Yves Pe´pin, Director TiO2, Quality & Product Stewardship in Rio Tinto Iron & Titanium, is thanked for some very valuable comments and suggestions. Finally, the authors want to express their gratitude to two anonymous reviewers for their constructive criticism. References Anderson, S., Newell, R., 2004. Prospects for carbon capture and storage technologies. Annual Review of Environment and Resources 29, 109–142. Anonymous, 2009. BHP Billiton shuts down Ravensthorpe. Engineering & Mining Journal 210 (2), 14–16. Barrick Gold Corporation, 2007. Unlock the Value. /http://www.unlockthevalue. comS (accessed on April 21, 2010). Bartos, P.J., 2002. SX-EW copper and the technology cycle. Resources Policy 28, 85–94. Bartos, P.J., 2007. Is mining a high-tech industry? Investigations into innovation and productivity advance. Resources Policy 32, 149–158. Batterham, R.J., 2004. Has minerals industrial technology peaked? In: Dowling Jr., E.C., Marsden, J.I. (Eds.), Plant Operators’ Forum 2004. Society for Mining, Metallurgy and Exploration Inc., Littleton, Colorado, pp. 95–101. Batterham, R.J., 2006. Sustainability—the next chapter. Chemical Engineering Science 61, 4188–4193. Brimacombe, J.K., 1993. Prosperity into the next millennium built on the process engineering of materials. In: Henein, H., Oki, T. (Eds.), Proceedings of the First International Conference on Processing Materials for Properties. The Minerals, Metals & Materials Society, Warrandale, Pennsylvania, USA, pp. 7–15. Brundenius, C., 2003. Technological change and environmental imperative in Chile: challenges to the largest copper producer in the world. In: Brundenius, C. (Ed.), Technological Change and the Environmental Imperative: Challenges to the Copper Industry. Edward Elgar Publishing Limited, Glos, UK, pp. 44–72. Canadian Mining Innovation Council, 2008. Innovation, research and development needs in Mineral Processing and Extractive Metallurgy. Draft Report, xviþ 75 pp, April. Dermer, J., 1992. Traps in technology management. IEEE Transactions on Engineering Management 39, 412–416. Eckelman, M.J., 2010. Facility-level energy and greenhouse gas life-cycle assessment of the global nickel industry. Resources, Conservation and Recycling 54, 256–266. Ericsson, M., 2005. Structural changes in the minerals industry. In: Bastida, E., W¨alde, T., Warden-Ferna´ndez, J. (Eds.), International and Comparative Mineral Law and Policy. Kluwer Law International, The Hague, The Netherlands, pp. 469–492. Ficara, P., Chin, E., Walker, T., Laroche, D., Palumbo, E., Celik, C., Avedesian, M., 1998. Magnola: a novel commercial process for the primary production of magnesium. CIM Bulletin 91 (1019), 75–80.

283

Flemings, M.C., 2001. Why Materials Science is good for metallurgy. Metallurgical and Materials Transactions 32B, 197–204. Gielen, D., 2003. CO2 removal in the iron and steel industry. Energy Conversion and Management 44, 1027–1037. ¨ Goransson, B., 2003. Technological change and the environmental imperative: the case of copper smelting in China. In: Brundenius, C. (Ed.), Technological Change and the Environmental Imperative: Challenges to the Copper Industry. Edward Elgar Publishing Limited, Glos, UK, pp. 73–103. Hilson, G., Monhemius, A.J., 2006. Alternatives to cyanide in the gold mining industry: what prospects for the future? Journal of Cleaner Production 14, 1158–1167. Hitzman, M.W., 2002. R&D in a ‘‘declining’’ industry (mining): support for the development of revolutionary technologies? Technology in Society 24, 63–68. Holywell, G.C., 2005. Magnesium: the first quarter millennium. Journal of the Minerals, Metals and Materials Society 57 (7), 26–33. Hsieh, P.-H., Mishra, C.S., Gobeli, D.H., 2003. The return on R&D versus capital expenditures in pharmaceutical and chemical industries. IEEE Transactions on Engineering Management 50, 141–150. Humphreys, D., 2001. Sustainable development: can the mining industry afford it? Resources Policy 27, 1–7. Humphreys, D., 2005. Corporate strategies in the global mining industry. In: ¨ Bastida, E., Walde, T., Warden-Ferna´ndez, J. (Eds.), International and Comparative Mineral Law and Policy. Kluwer Law International, The Hague, The Netherlands, pp. 451–468. Humphreys, D., 2010. The great metals boom: a retrospective. Resources Policy 35, 1–13. International Energy Agency, 2011. RD&D Database. /http://www.ieaghg.org/ index.php?/RDD-Database.htmlS (accessed on March 31, 2011). Jenkins, D.H., Sheehan, G.J., Frost, M.T., 2009. Piloting the Australian magnesium process. Mineral Processing and Extractive Metallurgy (Transactions of the Institution of Mining and Metallurgy, C) 118 (4), 205–213. King, M.G., 2005a. 21st century technology support for non-ferrous metal corporations—bricks and mortar or virtual? Erzmetall 58 (5), 255–262. King, M.G., 2005b. Nickel laterite technology—finally a new dawn? Journal of the Minerals, Metals and Materials Society 57 (7), 35–39. King, M.G., 2007. The evolution of technology for extractive metallurgy over the last 50 years—is the best yet to come? Journal of Management 59 (2), 21–27. /http://www.tms.org/pubs/journals/jom/0702/king-0702.htmlS (accessed on June 7, 2010). Kuznetsov, B., Budanov, I., 2003. Growth, competitiveness and sustainability: technological change in the Russian copper industry. In: Brundenius, C. (Ed.), Technological Change and the Environmental Imperative: Challenges to the Copper Industry. Edward Elgar Publishing Limited, Glos, UK, pp. 135–159. Leczo, T., 2009. HIsmelts technology: the future of ironmaking. Iron & Steel Technology 6 (3), 33–49. Lohr, S., 2006. Outsourcing is Climbing Skills Ladder. New York Times, February 16. Marsden, J.O., 2004. Technology development and competitive advantage: sustainable or short term? In: Dowling Jr., E.C., Marsden, J.I. (Eds.), Plant Operators’ Forum 2004. Society for Mining, Metallurgy and Exploration Inc., Littleton, Colorado, USA, pp. 127–137. McKee, D.J., 1991. Automatic flotation control: a review of 20 years of effort. Minerals Engineering 4, 653–666. McNulty, T., 1998. Developing innovative technology. Mining Engineering 50 (1010), 51–55. Morbey, G.K., 1988. R&D: its relationship to company performance. Journal of Product Innovation Management 5, 191–200. Mudd, G.M., 2010. The environmental sustainability of mining in Australia: key mega-trends and looming constraints. Resources Policy 35, 98–115. National Science Foundation, 2008. Science and Engineering Degrees: 1966–2006. Detailed Statistical Tables NSF 08-321. Arlington, Virginia, USA. /http://www. nsf.gov/statistics/nsf08321/S (accessed on January 15, 2010). Nice, R.W., 2004. The Western Australian nickel laterite projects—what have we learned? In: Collins, M.J., Papangelakis, V.P. (Eds.), Pressure Hydrometallurgy 2004. The Canadian Institute of Mining, Metallurgy and Petroleum, Montreal, pp. 155–179. OECD, 2007. OECD Science, Technology and Industry Scoreboard 2007, Paris. /http://puck.sourceoecd.org/vl=2972847/cl=15/nw=1/rpsv/sti2007/S. Ramakrishnan, S., Koltun, P., 2004. Global warming impact of the magnesium produced in China using the Pidgeon process. Resources, Conservation and Recycling 42, 49–64. Sinding, K., 2009. Consolidation, fragmentation and the structure of the mining industry. The Journal of the South African Institute of Mining and Metallurgy 109, 187–190. Streifel, S., 2006. Impact of China and India on global commodity markets; focus on metals & minerals and petroleum. Draft Paper, World Bank, Washington, DC, USA. /http://siteresources.worldbank.org/INTCHIINDGLOECO/Resources/ ChinaIndiaCommodityImpact.pdfS (accessed on June 10, 2010). Twigge-Molecey, C., 2003. Knowledge, technology and profit. In: Lagos, G.E., Sahoo, M., Camus, J. (Eds.), Proceedings of the Copper 2003–Cobre 2003 (The Fifth International Conference), vol. 1, Plenary Lectures, Economics and Applications of Copper. The Canadian Institute of Mining, Metallurgy and Petroleum, Montreal, pp. 41–57. United Nations, 2002. International Standard Industrial Classification of All Economic Activities. Statistical Papers, Series M, No. 4, Rev. 3.1. United Nations Publication, Sales No. E.03.XVII.4, New York. /http://unstats.un.org/unsd/cr/ registry/regdntransfer.asp?f=137S (accessed on June 17, 2010).

284

D. Filippou, M.G. King / Resources Policy 36 (2011) 276–284

Upstill, G., Hall, P., 2006. Innovation in the minerals industry: Australia in a global context. Resources Policy 31, 137–145. van Vuuren, D.S., 2009. A critical evaluation of processes to produce primary titanium. The Journal of the Southern African Institute of Mining and Metallurgy 109, 455–461. Warhurst, A., Bridge, G., 2003. Economic liberalization, innovation and technology transfer. In: Brundenius, C. (Ed.), Technological Change and the Environmental Imperative: Challenges to the Copper Industry. Edward Elgar Publishing Limited, Glos, UK, pp. 11–43.

Winter, J.B., 1995. Magma: a high performance company. In: Diaz, C., Bokovay, G., Lagos, G., Larraride, H., Sahoo, M., (Eds.), Copper 95–Cobre 95, vol. I, Plenary Lectures, Economics, Applications and Fabrication of Copper. The Canadian Institute of Mining, Metallurgy and Petroleum, Montreal, pp. 3–11. Yang, H., Xu, Z., Fan, M., Gupta, R., Slimane, R.B., Bland, A.E., Wright, I., 2008. Progress in carbon dioxide separation and capture: a review. Journal of Environmental Sciences 20, 14–27.