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Investment & innovation: mining’s perfect storm

With a wave of fresh capital and startups from outside of the mining ecosystem comes opportunity, but also risk. 2023 could be the year that mining innovation changes for good, writes Carly Leonida

I’ve spent a large portion of my journalistic career writing about innovation in the mining and metals industry.

Time and time again, mining equipment, technology and service (METS) providers, both large and small, have told me how hard it is, not just to develop a new technology or process, but to commercialise and, crucially, operationalise it.

Funding plays an important role in achieving that. But, so to do the knowledge, skills and contacts that the right investors can bring.

As the mining industry’s fundamental role in the energy transition becomes clearer, a push from the markets for innovation which far outweighs the pull of mining companies is developing. Is the mining industry ready for this change in dynamic and the disruption that rapid acceleration in innovation will inevitably bring? I wondered.   

I asked Peter Bryant, Board Advisor at venture capital (VC) firms, Chrysalix Venture Capital and Foundamental, and Charles Gillies, Co-Founder and Director of RCF Jolimont, a mining-innovation focused private equity fund, to chew the fat with me.

How is mining innovation funded today?

But first, it’s important to understand how mining innovation is currently funded. The industry’s persistent underinvestment in innovation is a source of frustration for Bryant, and he set the scene for me.

“The industry gutted its innovation and R&D capability in the late 1980s to early 90s, and its supply base has never really recovered,” said Bryant, who’s also a board chair and managing director at Clareo.

“While mining companies have increased investment in innovation since 2015, the gap remains significant when you compare the investments by oil & gas and manufacturing sectors.”

Because of this underinvestment, until recently, there’s been very little VC in the mining space. This is a problem because, in mining, as in other industries, most innovations originate from startups.

Startups need VC in order to grow and commercialise, and the lack of that has resulted in a stunted startup system where companies tend to stay perpetually small.

If mining companies don’t signal to the market that they’re interested in innovation and ready to align with macro themes, like the energy transition and environmental sustainability, then investors will likely stay away. And that has been the situation for some time now.  

“There is finally a change in narrative from the mining industry,” said Bryant. “That, because of the energy transition and the level of energy, water and waste intensity involved in current extraction practices, mining has to change dramatically. And there’s a clock ticking.

“That’s different to any challenge we’ve seen in the past. Mining companies tend to favour incremental process improvements and being fast followers, but this time, rapid, transformational change is required.”

Push and pull for change

Before we dive deeper into how to attract that VC, it’s important to know that most industries have multiple dedicated investment funds. Mining, however, has only a handful.

Many of the technologies needed to improve the impacts of mining processes are not mining specific. For example, high-pressure grinding rolls (HPGRs) originated in the cement industry and have been introduced into mining by diversified OEMs. These are what’s known as ‘enabling’ technologies.

Despite its role in providing the minerals and metals that underpin modern living, mining is still considered a relatively niche industry; one which has a pretty bad image in the eyes of the general public. It isn’t a desirable place for tech companies which develop these types of enabling technologies to be.

Likewise, until recently, there has been very little mining-focused corporate venture capital (CVC) – VC funds created and/or supported by mining companies to foster the industry’s startup community.

It’s important to find investors who bring, not just capital, but also the right knowledge and skills to help accelerate the commercialisation and adoption of new mining solutions. Image: Unsplash
It’s important to find investors who bring, not just capital, but also the right knowledge and skills to help accelerate the commercialisation and adoption of new mining solutions. Image: Unsplash

In the 2023 edition of its Tracking the Trends report, Deloitte highlighted the fact that this is beginning to change and a number of tier one miners, including BHP and Vale, have recently created VC divisions to collaborate with innovative startups.

Other organisations have branded their internal innovation efforts – Anglo American’s FutureSmart Mining programme is a good example. Bryant explained that this type of action demonstrates commitment to innovation and gives stakeholders confidence that these programmes will not be shelved come the next downturn.  

The combination of greater CVC and both internal and collaborative innovation efforts is slowly starting to signal to the market that mining is in fact an interesting and potentially lucrative place to be.   

Supply chain pressures are also ramping up. Downstream companies are beginning to realise the inherent risks – whether environmental, climate change or human rights based – associated with an energy system that is mining and metals dependent.

Many are also concerned about security of supply given that the average time taken to develop a new mine is over 12 years and peak production of metals like copper, nickel and lithium is required by 2035.

“We are seeing pockets of movement,” said Bryant. “Chrysalix is becoming increasingly diversified and continues to invest in mining technologies. There are private equity investors, like Resource Capital Funds, which has a fund dedicated to investing in high-growth METS companies.

“There are big diversified funds which are beginning to dip their toes into mining. For instance, Breakthrough Energy Ventures invested in the direct lithium extraction leader, Lilac Solutions, in 2020.

“Foundamental, which is a VC fund focused primarily on construction technology, is moving into mining too. Then Orion Resource Partners, which is a private equity fund, is about to start a venture fund purely focused on mining. Its size is yet to be announced, but I expect it to be significant.”

Most interesting is the entry of big investment and private equity firms into mining. For example, T Rowe Price, a massive investment manager in the US, has invested in KoBold Metals and Lilac Solutions, and JP Morgan has invested in the mining startup MineSense Technologies.

“CVC and VC tend to go hand-in-hand,” explained Bryant. “CVC in the USA is now almost at the same level as VC. I think the USA has the potential to overtake Canada and Australia as the next hotbed for mining innovation; there’s lots of risk capital, lots government funding, and lots of innovative entrepreneurs .”

He continued: “The world is starting to realise that the energy transition is dangerously dependent upon metals supplies. Investors understand the need for technologies which speed up mineral exploration, reduce the energy and water intensity of mining, and reduce the need for deep mines.

“These companies are serious about the energy transition, and they could become the biggest funders in mining for certain categories of technology.”

Overcoming structural barriers to innovation

Yes, the mining industry needs more startups, both with generic and mining-specific technologies, it needs more VC to commercialise and scale those innovations, but capital is only one part of the innovation puzzle.

To benefit from these innovations rather than be disadvantaged by them, mining companies also need to have internal processes and pathways that enable them to work effectively with those startups and adopt new technologies.

Gillies explained: “At the macro level, the mining industry does a good job in innovation given the pressures it faces surrounding issues like social licence to operate, cost reduction and increasing productivity. But, at the micro level, there are structural barriers within mining companies that can make the adoption of new technologies difficult.

“Mining companies are highly reliant upon OEMs to drive operational innovation, and those companies don’t necessarily want to disrupt themselves. It’s hard for large OEMs to provide interesting pieces of small innovation, although they are trying.

As the mining industry’s role in the energy transition becomes clearer, a push from the markets for innovation which far outweighs the pull of mining companies is developing. Image: Unsplash

“The step change we’re seeing is that large mining companies, with billion dollar, long lead assets – companies which, in the past, have tended to be very conservative – are now looking to small METS companies to provide innovations that play a key role in their operations.

“They realise that increasingly, this is where innovation that provides a strategic advantage is going to come from, and that they have to get better at working with these companies.”

An important part of trialling and testing new technologies is failure but, given the weight that is placed on production at the mine site level, anything that could potentially jeopardise that, even if beneficial in the long run, is often dismissed.

In large mining companies, particularly, innovation managers and teams are usually located in a head office, away from the assets and that too can make operationalising innovations tricky.

Gillies explained: “When we coach companies in our portfolio to speak to mining companies, we always advise them not to focus on innovation, because mine managers generally associate that with production losses,” he said. “Instead, talk about how the technology can reduce the operation’s costs and improve its productivity.”

Gillies believes that one way in which large mining companies can become more innovative is through being better customers to small METS providers. In doing so, both parties can get more out of the relationship.  

“Today, we also see a lot of innovation from mid-tier miners whose innovation managers are closer to the assets,” he said.

“Because they’re not always in such a good cost position, these companies have more incentive to innovate, to try new technologies and techniques. And once the majors and the mid tiers prove out these solutions, then they the juniors follow too.”

More than just money

From the METS company point of view, raising capital is challenging because very few investors know the mining industry and all its nuances inside out.

It’s not just about the funding they bring, but about finding investors with the right knowledge and skills to help accelerate the commercialisation and adoption of new solutions.

Gillies said: “At RCF Jolimont Innovation, we’ve seen more than a thousand deals and we’ve invested in 12 or 13, which gives you an idea of the success rate. It’s really important, not just for investors to find the right deal, but also for the METS company to find the right investor to help them grow.”

In significant mining destinations like Australia and Canada, there are government funding programmes available to METS startups. These are usually focused on scaling early-stage companies, taking interesting ideas and energy technologies and making them into products.

That capital is non-dilutive and can be very useful in getting a company to the point where it’s ready to go down the traditional VC or private equity investment route, or to call in angel investors to continue their journey. Again, it’s about finding the right fit for each business.

“The world is awash with capital and with investors,” said Gillies. “Speaking to the right capital to help accelerate a company’s business growth is the tricky part.”

Prepare for change

To summarise, there’s no silver bullet for the challenges the mining industry faces. It’s going to take a sustained effort from lots of different companies with different solutions, and a range of capital to create a better future.

However, it’s clear that the ‘push’ for innovation from outside of mining could quickly overtake the ‘pull’ from mining companies. Whether the industry is ready for the disruption that’s going to bring, or not, remains open to debate.

One thing’s for sure, 2023 will be an interesting year for reshaping the innovation investment landscape.

1 comment on “Investment & innovation: mining’s perfect storm

  1. davidchristineandjack

    Well captured synopsis of a key issue to crossing the “valley of death” in innovation. Funding is an important part, but as Carly writes, so to is the need to have internal processes and pathways within the mining firm.

    The good news is that closing the gap between innovator and miner is achievable. Commercial tensions can be overcome. Most importantly, the proliferation of collaboration helps all of us get to a place of sustainable mineral resource development for the betterment of all.

    David Corriveau

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