Mining’s digital goals: in conversation with Sustainalytics

Michael Proulx, director of research at Sustainalytics. Image: Sustainalytics

Previously, the mining industry had been somewhat removed from the heightened consumer awareness that we have seen manifest over the last two or three decades. However, ethical investing and green investing has started to grab hold.

People are looking for better provenance and understanding about where the things they use and consume every day come from, right down to where it is pulled out of the ground, whether it’s jewellery or cell phones.

Legislation is increasing: conflict resourcing is restricted by the Dodd Frank Act, the Consumer Protection Act and the SEC [Securities and Exchange Commission], and the conflict minerals rule 1502 restricts cobalt, and other minerals from the DRC. And now there's a debate on the adoption of Section 1504 on payments to governments by the extractive sector. There’s also been several significant court cases in Canada that allow plaintiffs from poorer jurisdictions to seek restitution from companies in their home country.

This is behind the trend towards the larger contribution of SDG applications in the investment decision making process. Technology allows us to better trace and track the provenance of minerals and metals with blockchain, but also provides better governance and a smaller mining footprint.

The impacts on GDP will be different depending on whether a mine is in an emerging market, a frontier market, or a developed market. Across all three, the impacts can be felt in relation to procurement. If you think of a mining operation in a developing country in, say, Sub-Saharan Africa, it may have 3,000 employees on its payroll, plus contractors and the supporting infrastructure. However, if their back office becomes automated, their workforce will be smaller; there will be lost jobs not just on the mine site but on the procurement side.

Furthermore, with fewer people working, you're going to need less ancillary support. So that relates to SDG 9 [industry, innovation and infrastructure]. There will be less development and investment in the local infrastructure, as mine sites become a little further electrified or digitalised. And therefore, the procurement and the community it is supporting drops in numbers.

For high mining income countries, the contribution to GDP drops. However, royalties might go up because of increased production, or just stay the same. But there will be a reduction in income taxes and local payroll taxes. You’ll see the same thing in less developed economies, but their tax systems potentially aren't as robust, so therefore there could be more impact.

On the one hand, we think this is really good because in some cases workers will be upskilled, which requires education. Therefore, there will be educational infrastructure put in place for training. There will be improved injury rates because you are removing employees from being in dangerous situations, such as underground blasting rocks and around tailings facilities.

But, depending on how rapidly some of these changes take place, there are going to be displacements both at the local level, and for those jurisdictions that are a little bit more dependent on natural resources for revenue [the resource curse]. Those countries could be potentially impacted not because of the royalties or reduced production, but because of the reduction in payrolls and income taxes and any other types of taxes the company and/or its employees would be paying on a local basis.

This could be a good thing, but it depends on how it’s managed and unrolled. There will be some shocks as the mining community shifts towards it. But, these impacts can be minimised or mitigated if companies are looking at how to interpret implementing environmental, social and governance indicators and or mapping strategies to the SDGs.

Because there will be savings as miners won't need to hire as many people. These savings will translate through operations, via lower fatality rates which lower lost operation time due to injury rates.

For example, Rio Tinto in the Pilbara realised it could achieve 15% savings on the operations of its haulage trucks if there's less wear and tear on the mechanics and tires. There are savings to be made by becoming digital and electrified regardless of where you are in the world.

Rio Tinto is putting an automated haulage system on their trucks which costs $10,000 per truck and a million dollars in total. This is not a big deal for some mining companies. Automated haulage systems are low hanging fruit. On Newmont mines, the company laid its own fibre optic cables because they need data reliability.

However, a million is a large part of a smaller company’s capex budget; they might only have a million dollars in total. Not every small junior mining company will be able to do this, only the big ones.

The coronavirus and the impact of this slowdown which is now starting to be forecast economically around the world will spur a reallocation of resources away from the SDGs. Some of these programmes and initiatives are on the aspirational side for companies, so programmes could be stopped or started a bit quicker than other programmes or initiatives.

Nobody wants to really be the first to adopt something in case it doesn't work. So they're still a little bit on the ‘wait and see’ side. And this is again talking about the large firms that have the ability to withstand the application of something or test it on site and then roll it out at scale, versus a smaller company that may only have one asset or two assets and so doesn't have the opportunity to do it.

Yes. It can be expensive. There is also a potential impact for lower revenue countries or emerging markets or frontier markets. The lower revenues we are going to see could lead to increased social tensions.

You need the processes in place to handle the potential disruptions and community tensions that could arise from moving towards electrification and digitisation and putting people out of work. Especially in places like Sub-Saharan Africa with an artisanal and small-scale mining community in the millions and then all the people they support.

If you start to add to that by eliminating employees at legitimate mine sites it can create further tensions. The social licence to operate may come into question. Not to mention the further ramifications of reduced income taxes being collected in some countries which might not be a big issue in Canada, where there's some 600,000 people employed by the mining sector, but will be in the Dominican Republic, where one mine is 8% of GDP.

This trend will continue. I think all of this is coming forward and is going to drive efficiency gains. We are demanding billions in material and electrification and digitisation is going to spur a greater focus on the circular economy and recycling, so that maybe we don't need to draw as much out of the ground. But also, it's going to drive more efficiencies. Blockchain, AI and drones all feed into processes and minimise the risks that are associated with them, such as shutdowns, environmental damage and harm to personnel. This is going to continue. We're already seeing fully automated mines now.