The Development of Mining Equipment, Technology and Service Suppliers [METS] in Australia

1. The Development of Mining Equipment, Technology and Service Suppliers [METS] in Australia Don Scott-Kemmis, October, 2014

2. Upgrading New products & services Internationalisation Knowledge Base Research, Transfer Talent –knowledge & skill resources Firm Growth Market Entry to MTSE Sector Demand, customers [primary & intermediate] Role of the customer New Venture Formation Entrepreneurship Prior experience Exemplars, Mentors Networks, Angel investors Risk Capital Knowledge Base Research, Transfer

3. Cluster Dynamics: Drivers & Shapers of Specialisation & Capability Development Challenge, Competition & Technological Opportunity Competitors Customers Collaboration & Problem Solving with customers Rivalry, competition & collaboration Complementary suppliers Collaboration & Acquisition Specialisation, Capability Upgrading & Innovation Investment in R&D & Knowledge acquisition Internal Knowledge Development Labour Market Hiring Education & Training Organisations Networks Hiring & coordination Coordination & promotion of research & education initiatives Coordination & Collaboration Sectoral, regional & cluster organisations Research & Technology Organisations

4. Major role in economic and industrial development in many countries: United States, Canada, Sweden, Finland, Norway, South Africa, Australia. These histories suggest: • A strong foundation of capability is important in capturing the opportunities • New challenges/ discontinuities often present major opportunities • Relationships with the mining firms, Tier 1 suppliers, and ‘owners of the problem’ are important • Opportunities for entry are often better in the production than in the investment phase • Entry is only the starting point for evolution and capability upgrading • Wider knowledge resources and infrastructure vital for upgrading • In most cases an active industrial development strategy was necessary to address barriers to entry and to promote upgrading. Resource-Based Industry Development

5. Largest exporter: coal, iron ore, bauxite, lead, zirconium, titanium • Second largest exporter: gold zinc & uranium • Third largest exporter: silver, nickel, aluminium • More recently major gas exports • Mining accounts for 8% of GDP, but indirectly for probably 20%. • Exports about $140b in 2011 – approx 50% of exports • Investment approx $86b in 2012 • Exploration approx $6b in 2011 • R&D by mining companies approx. $4.2 b in 2011. • Currently cooling quickly • Economic resources increasing over time not depleting. Australia – a major minerals producer

6. Low visibility of the Mining Supplier (METS) sector; • Mining seen as extractive, old, low tech • Not metropolitan – most very remote • Diverse minerals and locations– no geographical focus • Supplier (METS) sector diverse and not a statistical sector and hence low visibility. • Recent rise very fast after a long quiet phase But….

7. Size – at least 250 significant firms (40% <10 employees) • Turnover – A$71b in 2012 • Employment – Over 250,000 • Rapid growth – increased 500% over 15 years to 2012 • Diverse • Exports – about 20% of sales in 2012 • Offshore expansion – 27% of firms had offshore offices METS Sector in Australia

9. Major Categories of METS

10. METS Sub-groups

11. Changing role of the major mining companies – greater outsourcing released staff and grew a constellation of suppliers; • Local ‘unique’ challenges eg regolith • Long history of development of the knowledge infrastructure / strong knowledge base: education, organisational development (associations, AMIRA & tech organisations), research (univ, CSIRO, specialist, CRCS) • Increasing knowledge intensity – cost pressure, safety, environment • Technological discontinuity • Assets (knowledge, networks, relationships) development & reuse Australian METS Development -Critical Factors

12. Services (eg maintenance)  specialist equipment or components • Problem solving  new software, equipment or service • Tier 3 project management  Tier 2  Tier 1 • Entrepreneurial spin-off  professional service provider • Research organisations  specialist supplier (few cases) Overall • Systems integration  innovation on a wide frontier • Local  national  international  other user markets? Paths of Evolution for METS

13. Vital for METS firms: • Most collaboration is with the mining companies or higher tier suppliers For innovation/research activity: • Major mining companies prefer to collaborate with platform mechanisms eg AMIRA or CRCs • METS most likely to collaborate with universities • Some METS can see universities and CSIRO as competitors Collaboration

14. Mining Companies CSIRO Divisions & Mineral Down Under Flagship AMIRA International ACARP Universities CRCs GeoScience Australia University Centres Australian ‘Minerals Innovation Complex’ Mining Technology Innovation Centre Mining Equipment & Services Suppliers

15. Supplier Development Opportunities – Scope & Effort

16. Solves a Significant Problem Reputation Proven Product/ Service Commitment to support Proximity Supplier Attractiveness Familiarity with key people Fit with existing Technology/systems

17. Finance and human resources for firm growth • Spatial dispersion- mining areas distant from major centres and from each other • Core technology and major project management largely imported • Research METS links not strong • Development of new learning processes- limitations of problem solving and experience-based learning Cluster Development Constraints in Australia

18. Drivers of Supplier Development

19. Risk– that the use of local suppliers, in response to political pressure, will lead to higher costs and project delays, reducing returns to investors; • Compliance – meeting regulatory requirements may avoid sanctions and delays with approvals etc.; • Reputation – with the host government as a firm able to develop strategies to effectively build local capability and potentially be a preferred investor; • Cost reduction – greater development and use of local suppliers may lead to cost savings on imported equipment, parts and services; • Social licence to operate – use of suppliers based in local communities can provide benefits from resource projects to those communities, hence providing some compensation for the costs of such projects. • Maintenance and problem solving – capable local suppliers can reduce downtime and deal with production and development problems quickly. Procurement strategies resource - project developers

20. Demand– particularly whether that demand is specialised, unusual or ‘leading’, in that it anticipates patterns of demand that will be more widespread in the future; • Input factors – The availability of high quality inputs of eg capital, labour, natural resources, infrastructure, knowledge; • Complementary and supporting industries and organisations – which provide goods and services (including research and education) to different stages of the value chain; • Competition and rivalry in the core sector – which drives competition and the ongoing search for sources of improved performance Eg Porter Frameworks for Cluster Development

21. Four key processes which reinforce each other: • New Entrants - the entry or formation of more, and a more diverse range of, organisations (suppliers, customers, intermediaries, sectoral organisations, research and education organisations etc.) • Interaction - increasing interaction (user-producer, competition, collaboration) among these organisations • Specialisation- increasing specialisation and capability upgrading within organisations (and through complementarity and cooperation at the level of groups), and • Institutional innovation - the development of institutions, policies and shared priorities. The role of “cluster” development

23. High Level Challenges Human Resources *ageing workforce *skill shortages *hazardous workplaces Social & Corporate Resources *accountability *community devel’t *sovereign risk *scrutiny Environmental Resources *water scarcity *energy costs *fragile ecosystems *more waste • Find high quality resources High Level Objectives Mineral Resources *deeper *lower grade *more remote *more complex Increasing: * Costs * Technical complexity * Social & polit.complexity * Risk * Capital requirement • Win license to operate • Mine & refine efficiently

24. Performance Objectives Challenges Environmental Resources *water scarcity *energy costs *fragile ecosystems *more waste Mineral Resources *deeper *lower grade *more remote *more complex Find Discover Tier 1 deposits Explore deeper deposits Improve resource assessment Secure rights Mine Lower mining costs- labour, capital & energy efficiency Mine in more remote locations Lower mining impacts – water, emissions, safety, localcommunitybenefits Human Resources *ageing workforce *skill shortages *hazardous workplaces Refine More efficient extraction Process complex ores Lower impact separation – energy, water, waste Sustain Attract talent & capital Maintain reputation Sustain ‘licence to operate’ Respond to greater regulation Social & Corp. Resources *accountability *community develop’t *sovereign risk *scrutiny

25. Innovation Trajectories Performance Objectives Sustainability Whole of life social & env’l assessment & planning Lower energy & water using techniques Smart Machines Automation & remote control Robust low maintenance equipment Find Discover Tier 1 deposits Explore deeper deposits Improve resource assessment Secure rights Sensing & Interpreting Satellite remote sensing Rapid & mobile field geochemical analysis On-line analysis Continuous slope and wall stability detection Fragmentation Block caving & low energy mining Smart blasting design & formulation Extraction Smaller in-mine primary recovery Dry processing & on-line automatic sorting In-situ leaching Decision Support Tools Data integration & 3D modelling Whole of mine planning & scheduling software Mine Lower mining costs- labour, capital & energy efficiency Mine in more remote locations Lower mining impacts – water, emissions, safety, community benefits Refine More efficient extraction Process complex ores Lower impact– energy, water, waste Sustain Attract talent & capital Maintain reputation Sustain ‘licence to operate’ Respond to greater regulation

26. Mining Innovation Roadmap Deepening and Distributed Knowledge Base Geology, Geo-Chemistry, Mining Engineering, Fluid Dynamics, Mechatronics, Signal Processing, Civil Engineering, Mechanical Engineering Software engineering, Microelectronics, Communications Technology, Simulation, Artificial Intelligence, Plant and Animal Ecology

27. Corporate Innovation • Miners / Suppliers • Strategic differentiation • Appropriation of IP • Collaboration • Complexity • Cost & risk • Avoid dependence on one supplier • Shared knowledge platform • Equity in cost & benefit Coordination Global/National Standards Organisations Funding Step Change Innovation in Mining: the case for institutional innovation

28. Drivers of Opportunity, Innovation and Capability Development Mining co’s outsourcing exploration Mining co’s outsourcing mining operations Contract Operations Other Services Innovation in management systems to underpin productivity General Equipment & Components Mining co’S outsourcing EDPM Core Engineering Design & Project Management (EPCM) Local innovations and adaptations to replace, improve, extend imported equipment Increasing scope and capability Consulting Services Mining co’s outsourcing specialist analysis Specialised Technology Rising knowledge intensity of mining Local innovations to meet new needs Core Mining & Processing Equipment Demands for improved control & safety Local innovations & adaptations to imported equipment Information Technology Equipment and Related Services General Support Services Local innovations to meet new needs