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Mining's long, dark road to a supply Nirvana

This week I attended Aspermont’s Future of Mining Conference in Sydney. Smartly, the conveners of this event held a stream for a whole day on mining equipment, technology and services (METS) investment and the start-up tech developers in this area. I spent most of Tuesday in this stream – listening.
Mining's long, dark road to a supply Nirvana Mining's long, dark road to a supply Nirvana Mining's long, dark road to a supply Nirvana Mining's long, dark road to a supply Nirvana Mining's long, dark road to a supply Nirvana

Peter Johnson*

A group of very talented, very experienced and very determined people in the room, from Australia and elsewhere, were all solving some very valuable problems in the mining industry. Sadly, I was not surprised to hear almost all of them cite one of the major difficulties in succeeding as a mining tech start-up was the need to deal with major mining companies as customers.

Maptek is a significantly larger company than most in the room there, and we have some very productive working relationships with big mining companies, but we work in the same space, and so I get their point.

Large mining companies can be very difficult to do business with.

Unreasonably long payment terms being dictated by the buyer are a common complaint.

Shoehorning software supply conditions into supply agreement templates that were never drafted for that purpose add unnecessarily to the legal and administrative burden. Yesterday I reviewed a "software supply" agreement that included the requirement for all goods supplied to be loaded on a standard pallet to enable safe lifting by a forklift! Opaque and inordinately long buying processes that can drain not only the cash, but also the motivation of technology developers are common.

And don't even get me started on the mining companies who try to have their legal teams redraft the End User Licence Agreements for our software products.

The larger tech suppliers within the industry - Maptek and our peers - can manage these conditions only because we have a larger established business and cash flow and a lot of experience dealing with these buying practises.

It still has a detrimental impact on our business, but not to the extent that it would if we were eight people at a tech start-up managing cash month-to-month, as this environment creates overheads that become a major impediment to achieving success or even staying in business.

There are great opportunities for good, smart people to solve some big problems in mining right now, and I see a lot of great people who want to solve them. But the very customers they are trying to help put these barriers up to stymie the process. 

To add insult to injury, we are occasionally told that mining needs to use, and learn how to apply, technology from other industries and that the mining tech suppliers need to do the same. I suspect at least some proportion of the people promoting these ideas do so for some alternate purpose - some consultants love to make you feel inadequate in this way; that is how they make money - and are effectively ignoring an ocean of innovation, people and technology already working to solve the problems of the mining industry, and probably far more capable of it.

It is also well worth noting that the people working in technology development within the existing METS cohort are generally very well aware of the range of technologies being used in other industries and already do take any opportunity to deploy them in mining if they can solve a problem in that way.

To suggest that poor uptake of technology from other industries is the cause of the mining industry being slow moving when it comes to innovation is a red herring.

Any solutions available, regardless of what industry the technology originated in, are generally met with the same arduous and punitive commercial terms and buying processes.

The reason why not a lot of new technology is applied in mining is that mining companies make it generally very difficult for anyone to do exactly that.

Many of the barriers are artificial or unnecessary.

All of this investment to introduce a product to a market which will then demand to name the terms upon which you may do business? Investors will not be knocking the door down to get into that one

So we find ourselves in a perfect storm of difficult business conditions that actively discourage the introduction of new technology and innovation into the industry.

The start-up crowd find it particularly difficult, but even for larger players such as Maptek, introducing a new technology is a big undertaking and requires some serious commitment and acceptance that you will usually have virtually zero support and assistance from the industry you are trying to help.

There are, of course, exceptions and it is these anomalies that make running a METS business like a game of golf: It is the few, infrequent swings when it all comes together and you nail the result that keep you coming back and playing another round.

If the miners want to learn something from other industries take a good look at the software industry and look at the commercial models and practises that have made this work.

In comparison with how the mining industry currently engages with METS companies, those models provide far less buying friction, far greater engagement by and with users, far more flexible and open integration platforms and a better environment for investment in innovation, and a more vibrant ecosystem of smart people working to try to solve your problems.

The biggest loser

Mining companies compete with each other for capital and talent.

Continuing to treat the mining technology suppliers such that they cannot confidently invest in projects, deliver new technology and get paid for it, deprives those suppliers of the ability to attract and invest in talent. The mining industry is the loser.

Mining technology start-ups need investment. This costs money. Typically, a new technology product will take about 2-3 years after it is introduced to the market to begin to see any reasonable commercial results, and then it may be another two or three years before it is really consistently profitable.

That is after the development of the product, which requires time and money.

All of this investment to introduce a product to a market which will then demand to name the terms upon which you may do business?

Investors will not be knocking the door down to get into that one. The mining industry is the loser.

Mining companies demand integration between technical systems.

Some mining companies see the GMSG work on common data interchange formats as a solution to this. While a common data interchange format may be useful for some things, it is not a solution to your integration needs. If you go and look at software in virtually any other industry vertical, the software integration points that enable proper connections between systems to deliver business value are all offered commercially on terms that recognise the value they deliver to the customer business. This enables a sustainable way for an ecosystem of developers and technology to work together to enable bigger outcomes.

Technology companies which may not have interests aligned can still integrate because there is a commercial framework that can be agreed upon and everyone can move forward on the same understanding of how that works. 

The combination of jetlag and a few hours of hearing METS start-ups talk about their difficulties set me thinking.

The way forward

After lying awake for a long time mulling over how this situation came about, I came up with several recommendations.

Mining tech developers and suppliers need to recognise that they are technology developers and they need to act like it.

The commercial exploitation of software and technology is not new, however, mining is unique: In no other industry sector is there such a high concentration of the potential end-user market buying from such a fragmented and unconsolidated supplier population.

The defence industry may be an exception. But doing business there is even more difficult than in mining.

The top 10 global miners make up a large proportion of the addressable market for mining technology, giving them huge influence and leverage over those suppliers. Technology developers in other industries have seen several waves of consolidation in tech developers and are now the reverse - a selection of large suppliers selling to a broad diverse market.

Yes, the mining industry is a finite size, but consolidation within the industry can help broaden the potential addressable market for technology companies by considerable multiples. METS companies need to work together, consolidate and collaborate.

I was impressed to see a number of small tech start-ups who take the approach of simply not promoting their solutions toward the large mining companies.

This is partly as a result of the poor business terms and treatment of suppliers by those companies.

And also partly due to the practice of large mining companies working with a tech developer to prove a technique, demonstrate, trial, test or prototype their solution; and then either putting the supply of the solution out to public tender or taking the requirement to their ‘preferred supplier' (which often really means outsourced offshore development because some genius in the technology department decided they could do the same thing cheaper).

The small tech companies, and even the larger ones, can really do nothing to counter the behaviour of these behemoths. METS companies need to refuse to take risks if their potential customers are not committed to dealing with them properly and fairly.

I was impressed to see a few (you could count them on one hand) representatives from mining companies actively involved in the METS stream at this event and obviously keen to understand how better to engage.

I sincerely hope they get the results their companies are striving for as this is a much more effective way to engage with the people who can, and want to, help.

METS companies should be working with companies in this mindset and doing whatever they can to showcase how a different approach can yield significantly greater successes for both the miner and the METS company.

The key message for the METS industry is that the future of mining is not about how we are doing technology, but how we are doing business.

I could probably go on, but there is enough here to surmise that what is holding back the adoption of innovation and new technology - and immense potential improvements in mining industry performance - is not an inability of the companies involved in mining technology to deliver it, nor an inability of mining professionals to conceive of the practical implementations to exploit it, but rather the buying practices and commercial conditions imposed upon the transactions and the METS industry in general by a large proportion of mining companies who refuse to take any responsibility for innovation risk.

The only way for a mining tech start-up to get ahead today is to find one of the few mining companies acting differently and willing to engage and participate in innovation as a proponent and on fair terms, not acting averse to the objectives, and willing to support and engage properly with a tech developer, large or small.

There are companies within the industry doing this now, and they will reap the benefits.

When this happens, innovation can be proven to be alive and well.

You're welcome.

*Peter Johnson is managing director of Maptek, the world's largest privately-owned mining software developer and supplier. The views expressed here are his own.