Tag Archives: Wood Mackenzie

Gold price rise revealing exploration deficit, Wood Mackenzie says

Even though the resurgent gold price has garnered a renewed sense of optimism in the gold industry, a lack of exploration spend from miners means it is facing a potential period of secular decline over the long-term, according to Wood Mackenzie’s gold team.

Exploration budgets were slashed following the fall in the gold price from the highs that were reached in 2011/2012 and they have since failed to recover, according to Wood Mackenzie.

“The slight rebound in exploration spend we have seen over the past couple of years has largely been focused on brownfield projects and near-mine development,” the analysts said. “This has not been sufficient to replenish mined ounces and, as such, peak gold supply is now a very real possibility.”

Over the past couple of months, with gold breaking through $1,500/oz, it seems that exploration activity may be turning a bit of a corner.

The analysts provided evidence:

  • In late June, Agnico Eagle Mines started an exploration drilling program at its Amaruq site in an effort to convert underground indicated resources;
  • On September 4, Polyus announced the completion of an exploration drill program at its Sukhoi Log project (pictured) that totalled 203,647 m and is planning 30,000 m of infill drilling in 2020; and
  • On September 10, Newcrest reported that its exploration program on the Havieron project, located 45 km east of Telfer in Australia, has four operating drill rigs, which have cut 6,166 m and a fifth drill will begin in September.

It will be some time, however, before this activity translates into reserves and ultimately into production.

Proposed exploration budgets for the largest producers in 2019 remain fairly conservative compared with the levels reached in 2012, according to the analysts. It would therefore seem unlikely that the trend in declining reserves will be abated this year.

Producers have been very vocal in reaffirming their strategy of cost control, portfolio management and capital discipline, particularly since the run up in the gold price, ensuring they do not get criticised for the same type of costly M&A and marginal project spend they carried out in the previous gold price highs.

“How steadfast miners will be to this strategy into 2020 and beyond, if prices continue to remain well supported, remains to be seen,” the analysts said.

Due to insufficient exploration spend, gold reserves have depleted significantly with the global average mine life falling from 16 years in 2012, to an estimated 11 years in 2018, they said. However, the largest producers are not facing quite such an acute situation, with their collective average mine life still over 16 years. “It is perhaps therefore not so surprising that they can afford a more calculated approach to replenishing reserves.”

To secure their longevity as pillars of the gold industry, Wood Mackenzie said it has seen heightened M&A activity and miners focusing on their core assets. While this may help to bolster balance sheets through improved operational performance and realised ‘synergies’, it seemingly does little to address the problem the industry is facing with regards to how to sustain current production levels.

“We have, as of late, noticed an uptick in some majors opting to increase their footholds in a select few juniors with promising exploration opportunities,” the analysts said.

Agnico Eagle, AngloGold Ashanti, Kinross and Newcrest are actively investing in, or entering into joint-ventures with junior gold companies to create long-term value.

Agnico Eagle announced a proposal on June 24, 2019 for an all-share acquisition of Alexandria Minerals Corporation at a $0.05 per share premium to the Chantrell Ventures Corp offer; however, O3 Mining acquired Alexandria on August 1, 2019.

AngloGold Ashanti upped its stake in Pure Gold Mining to 14.3% on July 16, 2019, which owns the Madsen gold project in Red Lake, Ontario.

Kinross purchased the near-surface, early-stage Chulbatkan project in Russia from N-Mining Limited for a total consideration of $283 million on July 31, 2019.

And, Newcrest entered into a 70-30 joint venture with Imperial Metals on August 16, 2019, where Newcrest will be the operators of the Red Chris mine, a potential ‘Tier One’ asset in British Columbia, Canada, the gold miner has said.

The analysts said: “We expect to see this trend of increased M&A activity to continue, particularly amongst the more mid-tier gold producers as they look to solidify their own positions in the industry. This will likely encompass mergers with peers to unlock shareholder value and the acquisition of assets that majors have determined to be non-core.

“This may help to progress some later stage projects into production that have been sitting on the shelf for a number of years, but we are not anticipating a knee jerk reaction to current prices. Smaller projects which have a short payback period, in a low sovereign risk jurisdiction, are an attractive proposition and we could see a number of these projects being fast tracked into production.”

And, going forward, to address the predicament of declining reserves, if prices remain elevated miners may be inclined to review their reserve and resource price assumptions, the analysts said.

Adani Mining’s Carmichael coal mine plan gets the thumbs up

Adani Mining’s plan to build a 10 Mt/y open-pit thermal coal mine and associated infrastructure in the Galilee Basin of Queensland, Australia, looks like moving forward after the company sealed the final approvals it requires to start construction.

Lucas Dow, CEO Adani Mining, confirmed that the company had received advice from the Queensland Government’s Department of Environment and Science (DES) that the Groundwater Dependent Ecosystems Management Plan (GDEMP) had been finalised and approved.

“This is confirmation the plan complies with all regulatory conditions set by the Australian and State Governments, bringing to a close a two-year process of rigorous scientific enquiry, review and approvals,” he said. “This includes relevant reviews by Australia’s pre-eminent scientific organisations CSIRO and Geoscience Australia.”

The development of the first stage 10 Mt/y coal mine will also lead to the building of a circa-200 km narrow gauge rail network that connects to existing rail infrastructure and goes from the mine to the Port of Abbot Point. The initial design capacity of this line is for 40 Mt/y, with the ability to further expand, according to Adani.

The project has faced significant opposition from non-governmental organisations and other associations worried about the impact the mine may have on the local area.

Dow continued: “The finalisation of the GDEMP and Black-throated Finch Management Plan paves the way for construction to commence on the Carmichael project and the delivery of much-needed jobs for regional Queenslanders.

“Moving forward, our priority is ensuring the safety of everyone who works on the project and that all construction activity meets the strict environmental requirements we have agreed to meet in our management plans and approvals.”

Wood Mackenzie Principal Analyst, Viktor Tanevski, said, in another statement, the firm remained “cautious” on the timeframe for delivery of first coal onto a vessel from the operation given the “sizeable task of building out both a new large-scale mine and greenfield rail connection”.

He said: “We anticipate at least a 12-month delay to Adani’s target of first coal exports, approximately two years from the commencement of construction, predominantly associated with delays in the construction of rail.”

The DES, in a separate statement, said it requires additional commitments from Adani to undertake further scientific work over the next two years. This is needed to identify any potential contribution from other aquifers and strengthen the GDEMP.

“Adani is also required to review hydrological, hydrochemistry analyses and seismic information as part of its second geological and groundwater remodelling after box cut mining starts, and review seismic information pertaining underground mining impacts (which is scheduled to start in year 10 of the project),” DES said. “Further seismic studies may also need to be undertaken.”

According to DES, underground mining at Carmichael will not commence until the actions are completed and only if “predicted impacts are consistent with approved impacts”.

“Likewise, if the hydrogeological conceptualisation differs from that of the approved project, approval must be sought prior to relevant impact causing activities,” it said.

Adani’s Dow said, over the coming days, preparatory activities such as finalising contracts, mobilising equipment, recruitment and completing inductions will continue. These actions will enable the company to start construction activities, including fencing, bridge and road upgrades, water management and civil earthworks on the mine site, with the level of construction activity then steadily increasing over the coming weeks.

The original plan at Carmichael, as stated in the Environmental Impact Statement, was for an open-pit and underground coal mine with a yield of 60 Mt/y. The planned A$16.5 billion ($11.2 billion) investment would see the development of six open pits and five underground mines, five mine infrastructure areas, a coal handling and processing plant, heavy industrial area, water-supply infrastructure, rail line and off-site infrastructure, including workers’ accommodation village and airport, according to the EIS.

Wood Mackenzie poses mine electrification and automation question

Electrification and automation will be key priorities for mining companies in 2019, new research from Wood Mackenzie has claimed.

In reviewing the research firm’s ‘Global trends: what to look for in 2019’ report, Wood Mackenzie Research Director, Prakash Sharma, said: “Building a world-class low-cost mining business seems to be the mantra.

“Major players, such as BHP, Rio Tinto and Vale, are increasing the share of electricity and automation in mining operations. The objective is to not only reduce scope 1 emissions (from their own activities) and air pollution, but also to lower human involvement and operating expenditure.

“By employing data analytics, companies are chasing productivity and efficiency and lowering costs as a result. The aim is to stay at the lower end of the cost curve should demand for traditional mining commodities fall.”

In 2017, BHP set a long-term goal of achieving net-zero scope 1 and 2 emissions in the second half of this century, while, in 2018, Rio Tinto announced successful deployment of AutoHaulTM (pictured), “establishing the world’s largest robot and first automated heavy-haul long-distance rail network in the Pilbara region of Western Australia”, Sharma said.

“The key question will be whether other mining majors follow this trend in 2019.”

In terms of adopting automated technologies, BHP and Rio are far from being alone.

Vale’s Brucutu iron ore mine in Minas Gerais, Brazil, is set to go fully-autonomous this year – as a fleet of seven new Caterpillar 240 ton (218 t) 793F CMD fully autonomous trucks is expanded to 13 – Fortescue Metals is continuing its manual-to-automation fleet conversion at Christmas Creek, in Australia, and Norilsk Nickel recently told IM it was looking to introduce a “fully-automated mine”.

This is only the start.

NGEx Resources and Filo Mining, which are looking to develop open-pit copper operations in South America, confirmed in the past few months they were looking to incorporate autonomous haul truck technology from the off. These admissions came in their prefeasibility studies, which are likely to pre-date mining operations by three to five years.

And, underground, Resolute Mining and Sandvik plan to fully-automate the Syama block cave mine in Mali this year. The mine started commissioning at the back end of last year, hit the first production stopes in December and is expected to ramp up to steady-state output of over 300,000 oz/y by June.

This is but a handful of trials and projects going on in the automated mining space, with the process plant end also seeing a number of innovative trials or installations to move away from manual mode.

On the electrification question, specifically, Sharma told IM that grid-connected mines were acting faster when it came to adoption compared with those operating remotely. “Shovels and drilling machines at surface mines are already using electricity. Up to 100 t dump trucks are using electric-motors (battery-operated) at some mines in China,” he said.

“At underground mines, electric machines are increasingly used but batteries are yet to take off.”

The latter isn’t the case in Ontario, Canada, where Goldcorp (Borden) and Kirkland Lake Gold (Macassa) are using battery-powered equipment underground in their load and haul and utility fleets. In Sudbury, Canada, too there have been a number of deliveries of such machinery to some of its world-renowned base metal mines. (You can hear more about this at the inaugural Electric Mine conference in April).

As with the majority of technology projects, finance is the biggest hurdle for widespread adoption, according to Sharma.

“Another issue is around the financial health of the mining companies. Some are not willing to re-invest due to uncertainty around the commodities they mine. Some are focused on diversification of portfolios. There are others who want to act quickly, consolidate and take first mover advantage to decarbonise,” he said.

“We believe the electrification and automation in mining will continue to expand and tightening environmental policies will drive the shift. But a ‘one-size-fits-all’ approach will not work,” he concluded.

Australia coal mine automation could increase post-2025, says WoodMac

While autonomy has started to catch on in Western Australia’s iron ore sector, coal miners on the eastern side of the country have been slow to adopt such technologies. Research firm Wood Mackenzie thinks that could change with a number of new, large projects starting to come online after 2025.

The reasons East Coast coal miners have shied away from autonomous trucks, drills and trains now operating across the iron ore ranges of the Pilbara are mostly tied to mining complexity and high capital spend, according to WoodMac’s Brent Spalding.

Without labour reductions or output increases, autonomous retrofits produce minimal operating cost savings, he said.

But, that hasn’t stopped Whitehaven Coal from signing up to an Autonomous Haulage System (AHS) development at its Maules Creek operations in New South Wales.

Earlier this month, the company agreed to mobilise a fleet of six autonomous Hitachi EH5000AC3 haul trucks at one of the mine’s operating pits by 2019 as it looked to improve safety and efficiency. If proven successful, the technology could be rolled out across the mine.

The collaboration between the two companies will entail scoping the delivery and commissioning of phased AHS deployment for the fleet at Maules Creek and the establishment of the physical and technological infrastructure to support AHS capability.

But wider adoption among the Australia coal sector is some way off, Spalding said. This is despite numerous operating cost and safety benefits already seen in Western Australia iron ore operations.

“In iron ore, we have seen increased productivity levels of 15-20% mainly driven by higher output levels. Output levels have increased at autonomous mines because of improved equipment utilisation, less downtime due to fewer shift changes and breaks, and a drop in labour absenteeism,” he said.

“Safety has also proven to be a key driver of automation. To date, there have been no injuries attributed to autonomous vehicles within the Australian iron ore sector.”

Yet, these results require additional upfront capital not necessarily paid back with higher financial returns.

“For iron ore, we estimate no real change in net present value across automated and non-automated sites, because the operating cost savings are presently offset by the high capital spend,” he said.

Autonomous retrofits of haul trucks, which Fortescue Metal Group and Rio Tinto are in the process of carrying out, cost in the order of $500,000 per truck, according to Spalding.

He sees this capital outlay falling as access to autonomous technology improves and becomes more readily available, while added productivity improvements could lead to further cost savings.

Yet, at current costs, the return on investment in coal doesn’t make sense, according to Spalding’s numbers.

He applied the same 15-20% improvement in unit rates (excluding diesel) for truck haulage and the same increase in labour productivity seen in WA iron ore across Australia coal.

This analysis was based on an average surface coal mine operating at the mid-point of the Australia cost curve and assumed a surface coal mine with a strip ratio of 6.5 bank cubic metres per raw tonne, producing 10 million tonnes per year of raw coal with a productivity of 13,333 raw tonnes per employee.

“When adjusting at 15%, we estimate a decline in raw total cash costs of 10% (or $2.69 per tonne) to $25.44/t. At 20%, we estimate costs 12% lower at $24.66/t,” Spalding said, noting raw costs do not take into account processing yields.

“In this Australia coal scenario, the total labour component accounts for close to one-third of the total raw unit cost. However, for the 15% and 20% productivity improvement scenarios, we estimate the labour component will account for more than 60% of the total cost saving. So, it stresses that if labour is not reduced – or output increased – as part of the automation process, cost savings will be limited to approximately $1/t for both scenarios,” he said.

But, OEMs and autonomy specialists should not despair; a slate of new, large projects could be ripe for such solutions.

“Beyond 2025, there could be more opportunities for driverless trucks through the development of some larger projects in excess of 20 Mt/y, which include Glencore’s Wandoan coal project in the Surat basin and Adani’s Carmichael in the Galilee basin,” he said.

Wandoan is expected to produce 22 Mt/y of thermal coal at full tilt, while Carmichael is reported to have a 60 Mt/y capacity.

The reason these greenfield projects are more likely to adopt such technologies – aside from the obvious safety benefits – is because “they represent a clean slate, where the mine plan can be geared towards automation from the start, rather than be retrofitted or changed as the mine develops”, Spalding said.

“There could even be a further option for driverless trains given the rail infrastructure still needs to be developed for these Queensland coal basins.”