Commodity Watch: The Robots are Coming

AHMAD AL-SATI
PORTFOLIO MANAGER

Ahmad is the President and portfolio manager for Gemcorp Capital Advisors LLC, based in New York. 

Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser. 

Anthony Levandowski attempted to lead Uber’s foray into self-driving cars after co-founding Waymo. Those efforts did not end well for him. Bloomberg now reports that Mr. Levandowski is helming a new venture to create autonomous vehicles (AV) for the mining industry. Mining pits are perfect for AVs. They require the continuous hauling of materials across a large area (they also don’t have those pesky pedestrians). AVs are integral to Mining 4.0: the mining stage that integrates robotics, AI and big data to automate and enhance production.
 
In the last decade miners have reduced their capex by 50% and underinvested in new mining operations as they returned capital to their shareholders. That underinvestment is now colliding with increasing demand for a new set of minerals. At the same time, new deposits are increasingly difficult to find or are in locales difficult to mine. These challenges are starting to materialize as the costs of building and operating a mine are increasing, driven by higher costs of capital and labor shortages.
 
Mining 4.0 can be a solution. In essence, Mining 4.0 builds fully automated mines that operate 24/7 while minimizing human error and lowering production costs. In doing so, it optimizes operations, improves safety and lowers costs (the cost of U.S. labor has increased by 80% since 1990 while the cost of robots has decreased by 50%). It also may broaden the number of sites that can be developed economically.

The adoption of technology is ongoing. Today, Australia has over 700 AVs in mining operations. Drones are accessing points above and below ground that are difficult or dangerous for humans to access and mapping areas in 3D for better assessment by humans (underground drones are also being used in India). 

AVs utilize advanced sensors and monitoring systems to provide real-time data about ongoing operations. Real-time data transmitted can then be assessed by algorithms that enhance decision-making. AI has been able to predict potential equipment failure with 89% accuracy, thus decreasing work stoppage time. Safety is further improved as human participation in the most dangerous activities is minimized.
 

Robots and AI go to work: What both can do and where

^{Source:  Review of Transition from Mining 4.0 to Mining 5.0 Innovative Technologies}

AI can also increase the probability of success and speed of decisions as equipment instantaneously transmits results to an AI that can then modify or improve drilling and exploration. This feedback loop has already improved water usage and product recovery. The numbers are favorable. McKinsey estimates that productivity will increase by 20% (after decreasing by 3.5%/y over the last decade) while costs can be lowered by as much as 40%.
 
We live in a material world. We need to produce more minerals to meet the ever-increasing demands of a larger and richer population (more electricity, more food, more stuff). Utilizing technologies that lower costs, improve yields and enhance safety are key to meeting the demand that is coming our way.