Flip the script to win, McKinsey’s Sellschop tells IMARC
- 30 October 2024
The global mining industry needs to flip negative recent vital performance indicators to get adequate returns from up to US$5 trillion of capital investment over the next decade and meet ambitious production and decarbonisation goals, McKinsey & Co senior partner Richard Sellschop told IMARC 2024 in Sydney, Australia.
“We believe mining in the near future will need to be more sustainable to achieve the energy transition targets that have been set [and] more capital efficient in order to both grow profitably and to deliver on the sustainability commitments,” he said.
“It will need to be more talent centric to unlock the full potential of our people in the industry and attract the next generation to the industry.
“And it’ll need to be more productive to maintain reasonable returns and productive growth.
“Or, to put it simply, to pay for the above.”
Sellschop said the industry could deploy almost twice as much capex as it had averaged in the past two decades to meet critical and other material demand projections, and decarbonise. It simply couldn’t afford typical cost and schedule overruns of that period.
“Increasing capital expenditure efficiency is going to be critical to not squander our resources and actually be able to achieve the targets that have been set,” he said.
A negative-6% industry-wide productivity decline in the past 20 years also needed to be reversed to “pay for the growth required in the industry”.
“Of course, delivering productivity gains in mining is more difficult than in many other industries,” Sellschop said.
“I came originally from the automotive industry where, of course, you don't have head grade changes. You don’t have mining pits getting deeper.”
Sellschop said the industry had no choice but to leverage technology advances across different industries, and a foundation built in mining over the past decade or so and be far better than its recent track record at attracting, training and managing people.
“What we believe it will take to win in the future is, firstly, it’s going to require more collaboration and interoperability,” he said.
“A big part of the reason here is scale.
“One of the biggest ways to bring costs down of new technologies is scale.
“Secondly, we believe it’s going to require more data-driven operations, which will contribute significantly to productivity and talent retention.
“Thirdly, we believe it’s going to require more innovative capital project delivery to both be more efficient and timely in delivering the growth capital that’s required and the sustaining capital that's required in this next decade.
“And finally, we believe there’s going to be a need for a greater focus on people to both unleash the discretionary energy of the people in our industry and to attract and retain the next generation.”
McKinsey estimates only about 10% of technologies available to decarbonise mining and improve productivity have “truly been scaled globally”.
“Many of these technologies require a rapid and steep cost ramp-down curve,” Sellschop said.
“Fortunately we don't need to solve this problem by ourselves. We can leverage what's happening in other industries.
“For example, global battery electric value chains are very valuable if we think about the future of haulage in mining. If we look at the numbers on this historically climate technologies have shown a two-to-eight-fold decrease in cost for every 100-fold increase in scale. So this scaling is really important.
“If we take an example of a 240-ton battery-electric haul truck, and [ask], can we achieve cost parity by 2030? We believe that we can for most mines. This is important because if we look at diesel haulage today it’s often about 30% of total mining cost. It's often 40% of maintenance cost, and it's often two-thirds or so of scope one emissions.
“So this matters.
“Even available technologies today like LFP batteries are starting to approach the [parity] cost point at around $70 a kilowatt hour, and energy densities that are good enough in the 170-180 watt hours per kilogram range.
“And of course, they’re improving on these cost ramp down curves, as are pretty much most of the battery technologies that could be applicable to us.
“If we take these available technologies and we combine them with rethinking how mines are laid out and optimising footprints, we believe that there are numerous technologies and numerous mines that can get to this diesel parity point by 2030.
“When you also then overlay autonomous haulage you start getting really interesting questions.
“For some mine layouts we believe, according to our analysis, that smaller starts making more sense than ultra-class, and that really starts changing paradigms in how mines are laid out on site.
“How do you actually achieve the scale? A big part of it is through collaboration and interoperability.
“If we shift to thinking about being more data driven there are of course many ways we can be harnessing and achieving more with data in mining.
“One example is drilling and blasting through to material tracing and ore blend optimisation which we've seen, when done right in an innovative way, can achieve 2-to-3% additional metal production. Fuel analytics can achieve 5% additional cost saving.
“Globally, metals and mining is in the bottom quartile of analytics adoption.
“The good news is that there’s been significant investment in our industry over the last decades on actually getting the foundations in place. So we don’t believe there is any reason to wait.”
Sellschop said mineral processing plants were potentially one of the “biggest value unlocks”.
“Of course these are typically very complex, with non-linear relationships, multiple variables to optimise and operators are typically relying on personal experience, learnt experience, and this can lead to variability in operations.
“We've seen leading companies really push the thinking on revolutionising how to use AI to build, for example, set point advisors that leverage this and give co-pilot-like advice.
“If we look at capital projects … and how we actually develop capital projects faster, equally, Generative AI has started to prove to be very valuable here [in creating] Generative AI developed resource loaded plans which are far more optimised for equipment, spatial constraints and buildability than developing plans in the traditional way.”
Sellschop said while technology could be a game-changer, the real key was people.
“I really do want to emphasise that this is as much a people challenge as a technology challenge,” he said.
“We believe to make all of the innovations I've been talking about work, and to be able to run stable, highly productive operations, we need to be able to unlock the most from our people.”
