using scenarios - sykes & trench - aug 2016 - centre for exploration targeting / the university...

Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting StrategiesUsing Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies

Using Scenarios to

Investigate the Long-Term

Future of Copper Mining

and Guide Exploration

Targeting Strategies

John P. Sykes12

& Allan Trench134

1. Centre for Exploration Targeting, The

University of Western Australia

2. Greenfields Research, UK

3. Business School, The University of Western

Australia

4. CRU Group, UK

[email protected]

[email protected]

24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 1 of 26

Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies

THE PROBLEM

Using Scenarios to Investigate

the Long-Term Future of Copper Mining

and Guide Exploration Targeting Strategies



Which of these is the future, if any?

Images: foxnews.com; mining.com; arizonageology.blogspot.com; bgk-udokan.ru; dawn.com; investroshub.advfn.com

Pebble, Alaska Pampa Escondida, Chile Resolution, Arizona

Udokan, Russia Reko Diq, Pakistan Kamoa, D.R. Congo


http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCNaMtcey0scCFaLmpgodv3kGkQ&url=http://www.foxnews.com/us/2012/07/24/proposed-pebble-mine-project-pits-big-coal-versus-sockeye-salmon/&ei=F8zjVZalDaLNmwW_85mICQ&psig=AFQjCNFCUtFntSx_lK_Ak6oE56dweiz_iA&ust=1441078669228459

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCIfeicez0scCFUMppgodnXMM5A&url=http://www.mining.com/chiles-escondida-mine-boosts-bhp-copper-output-55143/&ei=Is3jVYfFOcPSmAWd57GgDg&psig=AFQjCNGEsGA0p824n8qlgKnf1ip4vmXFpA&ust=1441078877436239

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCISd4YG00scCFYPlpgodHlMCmg&url=http://arizonageology.blogspot.com/2013/05/resolution-copper-project-could-go.html&ei=ns3jVYRWg8ubBZ6midAJ&psig=AFQjCNENpew8KicbvfLyYDwcfS3zCnrInA&ust=1441079058246457

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCNaxgOGT0ccCFWFbpgodpdEA3g&url=http://www.bgk-udokan.ru/en/press-center/multimedia/photo-gallery/85/&ei=kyXjVZacJ-G2mQWlo4PwDQ&psig=AFQjCNHwKwivVqvi6JsH5cLujLLg1F0v7g&ust=1441036042246226

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCMGFt6SU0ccCFQYcpgodrzIBmQ&url=http://www.dawn.com/news/1158808&ei=ISbjVYHxAoa4mAWv5YTICQ&psig=AFQjCNHpZn5z5VDSMy3TffNAp8SnwPw0aQ&ust=1441036161703016

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCPmLxsO10scCFcUrpgodj64CDw&url=http://investorshub.advfn.com/Ivanhoe-Mines-TSX-IVN-7001/&ei=NM_jVfmhGcXXmAWP3Yp4&psig=AFQjCNEK6N-zzocVsgzogId7__Qh9viTuA&ust=1441079453179692


The long-term future can be very different

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sh

are

of

Glo

ba

l C

u M

ine

pro

du

cti

on

United Kingdom Chile USA Other

0.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

14000.0

Glo

ba

l C

u M

ine

Pro

du

cti

on

(K

t)

United Kingdom Chile USA Other

Decline of UK

mining, rise of

Americas

Resurrection of

Chilean industry

Decline of UK

mining, rise of

Americas

Resurrection of

Chilean industry

Data: Crowson, 2012

…in 1898.. Bingham Canyon… was something of a joke… only barren quartz rock flecked with a trace of copper. Nobody could make

money out of so little. …the world’s most famous mining man [Chief Engineer for the Guggenheims] turned up his nose. It was ridiculed

by the most respected mining journal of the day. …The shovels started… in June 1906. (Lynch, 2012)



…and such change is very complex

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Cu

ore

gra

de

(%

)

Cornwall (UK) Average UK Average

Michigan (USA) Average USA Average

Western World Average World Average

Change from high

grade underground

mining in UK to low

grade open pits in USA

Data estimated

from: Crowson, 2012

Further low grade

copper mining

innovations

20th century copper

mining technology,

innovation & discovery

package

Dynamite

Steam power

The corporation

Mechanisation

Major public

infrastructure

Flotation

Improved smelting &

refiningAirborne

geophysics

Porphyry

geological

model

Better work

practices

SXEW

Computation

Low cost

drilling

Globalisation

Sources: Schodde, 2010; Lynch, 2012 & various

personal communications to the author

Free trade

Forward contracts

Regime change



THE SOLUTION?






Maybe foxy rather than hedgehog thinking

"The fox knows many things but the

hedgehog knows one big thing.”

- Archilocus / Isaiah Berlin

Ilbury & Sunter: The Mind of a Fox: Scenario Planning in Action

(2011)

Tetlock: Expert Political Judgment: How Good Is It? How Can We

Know? (2006)



Oxford Scenarios deductive methodology

Company

Transactional

Contextual

Strategic landscapes:

contextual linkages

Drivers from the past

and future

Key contextual

linkages?

Clarify and cluster key

drivers

Explore polar outcomes

and select independent

pairs

Combine axis to

develop scenario

framework

Play with different

combinations

Deepen scenarios and

prepare to engage

Designed by Angela Wilkinson



Mapping the key driving forces

Contextual

Environment

(‘factors’)

Transactional

Environment

(‘inter-actors’)

NGOsCompany

Equipment

Suppliers

Investor

sEmployees

Local

Regulator

s

Lobbies

Competitors

Industry

Clients

Exchange

Rates

Legislation

Macroeconomics

International

Commerce

Geo-political trends

International

Finance

Energy Prices

Social Values

Technology

Environment

Demographics

Science

Water

Availability

InnovationCommodity

Prices

Natural

Disaster

s

Conflict & Security

Climate

Consumables

Suppliers

Utilities

Commodity

Traders

National

Regulators

International

Regulators

Financiers

“Driving

forces”

Survey &

appreciate

Influence & co-

design

Control

Template from: Ramirez et al., 2014



And how they’re evolving over time

Chinese

IndustrialisationPost-War European & Japanese Reconstruction

Global

Financial

Crisis

Asian &

.com

Crises

Oil Crises

Rise of Modern Environmentalism

Rise of Sustainable

Development

Movement

Increasing Focus

on ‘Social Licence’

COMMODITY

DEMAND

2010s

FINANCIAL

CRISES

SOCIAL TRENDS Resurgence of ‘Strategic

Resources’ Concepts

LABOUR TRENDS

TECHNO TRENDS

POLITICAL

TRENDS

World

War II

Better

Work

Practices

Cold War (Separation of East & West)

Airborne Geophysics

2000s1990s1980s1970s1960s1950s1940s

Substantial

Globalisation

Porphyry

ModelSXEW

Low Costs in

Developing

World

Labour

Cost

Inflation

Computers, Modelling &

Scheduling

Decline of Unionism

Eastern-bloc

Privatisation



Then seeking the commonalities

Template from: Ramirez et al., 2014

Increased support for

mining

Decreased support for

mining

SOCIAL

ECONOMICBOOM BUST

TECHNOLOGYTechnology drives

lower costs

Technology lags cost

inflation

POLITICAL Increasingly

restrictive regulation

Decrease in restrictive

regulation

ENVIRONMENTMore land becomes

availableLess land available

Broadly similar:

increase/decrease in land

availability either physically

or conceptually

Broadly similar:

increase/decrease in

industry margins



THE SCENARIOS






The ScenariosIncreased

Decreased

ECO

NO

MIC

MA

RG

INS

Inc

rea

se

dD

ec

rea

se

d

CONCEPTUAL SEARCH SPACE

CRUSADES COUNTING HOUSE

PEASANTS’ REVOLT UNDER SEIGE



UNDER SIEGE

• Industry struggling with current profitability and with few future options for growth;

• Falling commodity prices and falling productivity have reduced economic margins at

existing operations;

• A breakdown of the global order limits access to foreign projects and talent;

• State mining companies, backed by governments concerned about the limited number of

operating mines, are the main long term beneficiaries in this scenario;

• The ‘declining-sum’ nature of the copper mining industry means that outside industries

also benefit, particularly those willing to take over the long-term management of the

copper supply chain.

• The copper mining industry may feel that it is in the ‘Under Siege’ scenario presently:

– Falling copper prices;

– Asset write-downs;

– Curtailment of capital investments, exploration, and research and development.

Defending current operations with few new opportunities available



COUNTING HOUSE

• A short term return to profitability, but a lack of long term options;

• Resurgent economic growth increases commodity prices, whilst low gas, oil and coal

prices reduce operating costs;

• However, resource nationalism, environmental and social licence issues, and

competition for resources limits the availability of new projects;

• The major private mining companies are the main short-term beneficiaries as their

already profitable assets further reinforce their advantage;

• However, over the long-term industry outsiders begin to encroach;

• This arises due to the continued failure to develop new projects, an echo of the recent

boom.

• The future becomes based on the running down of current assets and the present

project pipeline, requiring higher commodity prices to be economic.

• This is the conventional view of the future of copper mining, arising from the

scientific and economic analyses.

Focus on extracting economic rents from current operations



CRUSADES

• A profitable mining industry investing in a range of new ideas and projects, able to

successfully transition into the future.

• A profitable industry benefitting from a temporary period of increased commodity

prices and reduced input costs.

• Industry able to invest in technologies and innovations increasing abilities to

discover and develop less energy and water intensive, targeted mining operations.

• At the same time the mining industry participates in a global proliferation of multi-

lateral agreements opening up the developing world to major mining investment.

• The first movers in technology, innovation, and increasing environmental and social

access to projects are the long term beneficiaries in this scenario.

• At the beginning of the recent boom in copper prices existing operations were very

profitable, and initially there seemed to be many new options for development and

exploration, assisted by the latest phase of globalisation.

Many exciting opportunities in old and new areas



PEASANTS’ REVOLT

• A struggling mining industry, but one in which there are still many future options

available that could provide a route to profitability.

• Bulk mining operations fail in the face of lower commodity prices, higher input costs and

increased environmental and social costs.

• A radical switch to more targeted, less energy intensive mining is required.

• As the mining industry struggles, outside industries are able to make significant

advances into the industry, particularly by reforming the metals supply chain around a

circular economy.

• Reminder of the mining industry in the early 1990s, when the industry was enduring a 30

year spell of declining copper prices and increasing environmentalism, sapping long

term investment in exploration and technology.

• Global uncertainty was increasing as the Soviet Union collapsed, whilst a number of key

mining economies were in decline. The mining industry was seen as ‘old industry’ as the

high technology and internet industries began to establish themselves.

Current plans not working, desperate switch to new ideas required



THE IMPLICATIONS






Aim for robust rather than optimal

No worries – asset is robust against all

scenarios; it may not thrive, but it will

survive. Chill out!

Real option – asset may or may not

survive or thrive in a range of

scenarios. Wait and see…

Big bet – asset will thrive (or survive)

but only in one scenario; these are

brittle assets. Hold your breath!

24 August 2016AusIMM International Mine Management Conference, Brisbane

Based on: Erdmann et al., 2015

Slide 19 of 26


No truly ‘robust’ minesMines Under Siege Counting House Crusades Peasants’ Revolt

Escondida X √ X X

Andina √ X ? X

Chuquicamata √ ? ? X

El Teniente √ X ? X

Olympic Dam √ √ √ X

Collahuasi X √ X X

Grasberg X ? ? ?

Talnakh √ X ? √

Lubin √ X ? √

Los Pelambres X ? X X

Los Bronces X √ X X

Cananea ? ? X X

Toquepala X ? X X

See associated paper for further detail.



Whilst projects are even more brittle

Company Type / Scenario Under SiegeCounting

HouseCrusades

Peasants’

Revolt

Oyu Tolgoi X ? ? X

Pampa Escondida X ? X X

Pebble X X ? ?

Resolution X X √ X

Udokan √ X ? ?

Reko Diq X X X X

Kamoa X X √ ?

See associated paper for further detail.



Industry is forced into a make-do strategy

A few ‘wait &

see’ options

24 August 2016AusIMM International Mine Management Conference, Brisbane

A few ‘big bets’ A ‘no worries’ strategy?

What would be an

original ‘no worries’

strategy?

Slide 22 of 26


THE KEY LEARNINGS






Key learnings from the scenarios

The methodology

• The future of the copper mining industry is uncertain; yet mineral explorers need to

know about the long-term future of the industry for effective exploration targeting;

• Scenario planning may assist with such long-term exploration targeting – this research

provides ‘proof of concept’.

The implications

• The copper industry is currently brittle – it is leveraged to a narrow range of futures;

• The industry may be too focused on extracting rents from existing assets (mines and

projects) rather than generating impactful new discoveries and ideas;

• The industry has to invest in the long term, either as exploration, research &

development, or increasing ‘accessibility’ via a stronger social licence to operate.

• Currently no strategic approach is ‘future-proof’, so some strategic choices will have to

be made, with companies balancing a series of ‘big bets’ and ‘real options’ to make a

robust ‘no worries’ strategy.


Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting StrategiesUsing Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies

THANK YOUContact:

[email protected]

[email protected]

Acknowledgements:

PhD Committee: T. Campbell McCuaig, Mark Jessell & Nico Thebaud

Funding: Centre for Exploration Targeting (University of Western Australia)

Colleagues: Centre for Exploration Targeting (Curtin University & University of

Western Australia)


mailto:[email protected]

mailto:[email protected]


ReferencesMain Reference:

• Sykes, J.P. (2016) Using scenarios to investigate the long-term future of copper mining and guide exploration targeting strategies,

AusIMM International Mine Management Conference, Brisbane, Australia, 22-24 August.

Other References:

• Erdmann, D, Sichel, B and Yeung, L, 2015. Overcoming obstacles to effective scenario planning, McKinsey Quarterly, June:1–6.

• Ramirez, R, Khong, C & Selin, C. (2014) Oxford Scenarios Programme. 28 April-1 May, Oxford: Said Business School (University of Oxford). PDF lecture notes.

• Ramirez, R, & Wilkinson, A. (2016) Strategic Reframing: The Oxford Scenario Planning Approach, Oxford University Press: Oxford.

• Sykes, J.P. (2015) Using the Oxford Scenarios deductive methodology to understand the long-term future of copper mining and guide minerals exploration targeting strategies, Curtin Business School

Higher Degree by Research Students’ Colloquium, Perth, Australia, 30 September

• Sykes, J.P., & Trench, A. (2014a) Chapter 14 – Finding the Copper Mine of the 21st Century: Conceptual Exploration Targeting for Hypothetical Copper Reserves. In Special Publication Number 18: Building

Exploration Capability for the 21st Century, edited by Kelley, K.D., & Golden, H.C., 273-300. Boulder: Society of Economic Geologists.

• Sykes, J.P., & Trench, A. (2014b) Resources versus Reserves – Towards a Systems-based Understanding of Exploration and Mine Project Development and the Role of the Mining Geologist. In Mining Geology

through the Value Chain: Proceedings of the Ninth International Mining Geology Conference held in Adelaide, South Australia, 18-20 August 2014, 243-270. Carlton, Victoria: Australasian Institute of Mining

and Metallurgy (AusIMM) and Australian Institute of Geoscientists (AIG).

• Sykes, J P and Trench, A, [2015a] Mining in 2040: an industry under siege [online], 2 November, MiningNewsPremium.net. Available from: http://www.miningnews.net/insight/strictly-boardroom/mining-

2040-an-industry-under-siege.

• Sykes, J P and Trench, A, [2015b] Mining in 2040: major miners as counting houses [online], 16 November, MiningNewsPremium.net. Available from: <http://www.miningnews.net/insight/strictly-

boardroom/mining-2040-major-miners-as-counting-houses>

• Sykes, J P and Trench, A, [2015c] Mining in 2040: peasants’ revolt [online], 23 November, MiningNewsPremium.net. Available from: <http://www.miningnews.net/insight/strictly-boardroom/mining-2040-

peasants-revolt>

• Sykes, J P and Trench, A, [2015d] Mining in 2040: the commodity crusades [online], 9 November, MiningNewsPremium.net. Available from: http://www.miningnews.net/insight/strictly-boardroom/mining-

2040-the-commodity-crusades

• Trench, A and Sykes, J P, [2016] Strictly (Mining) Boardroom: Volume II: A Practitioner’s Guide for Next Generation Directors, Major Street Publishing: Highett, VIC.
