Mining unearths new value
Don Scott-Kemmis, 8 December 2011
PEOPLE who think mining is just quarrying and Australia a quarry fail to see the reality of mining and the opportunities it brings.
Yes, mining in Australia is booming. It accounts for 2% of jobs, 8% of GDP and 50% of exports. After the resource boom, will we have more options for economic development? Can Australia avoid the ‘Dutch Disease’? Are we leveraging our mineral resource to build more sustainable assets?
Mining in Australia generates enormous opportunity, not least for suppliers. Capital investment is more than $A50 billion each year, and the inputs are required for exploration, production, processing and transport. While many suppliers are international firms a strong Australian mining technology, services and equipment (MTSE) industry is developing.
Our impressive MTSE firms have led the way in applying IT in mining – most software used in the world’s mines was developed in Australia. These firms are at a key stage of evolution.
Many of these MTSE firms emerged from the nexus of new problems and new technological opportunities. Those opportunities were harnessed by capable entrepreneurs working with their customers – the mining companies.
There are two important messages:
- Challenging demand can provide a powerful focusing device for innovation. Resources, energy, environment, health, and urban development, all have high levels of investment and challenge. In a small economy with limited research resources these opportunities must be harnessed. That needs a strategy.
- It is competence and entrepreneurship in industry, at the coal face, that is essential. High-level capability in research organisations is often vital, but it is not a substitute for this competence and entrepreneurship. It appears we lack effective policy and support mechanisms to address this challenge.
In assessing how well we are capturing these opportunities there is a wider context to consider. Deregulation is taking the windbreaks out of global trade. Super innovations, like the internet, are amplifying the speed of change. Knowledge and information diffuses more rapidly, the costs of search decline, and new entrants more rapidly catch up. This is great for driving efficiency, good for consumers, and challenging for many established firms, industries, regions and nations.
Comparative advantage has to be built and renovated more quickly and more often. It is more resilient, but takes longer to evolve, when based on networks of production, knowledge and innovation, rather than individual firms, and when deeply rooted in specialised skills and knowledge and culture. New ventures explore new opportunity – they are the business experiments which signal profitable paths for investment. As the winds of creative destruction blow, how well economies stimulate and support new ventures is vital.
The value of minerals to an economy is dependent on having capabilities for identifying, exploiting and processing them. The history of the United States and other countries show that developing those capabilities requires strategy and investment in capability. The US and several other countries have leveraged resource development to stimulate a wider process of industrial and technological deepening. They have shown the importance of capability development in industry, coordination and the wider processes of cluster evolution. Are we doing this in Australia?
The mining industry is becoming more knowledge-intensive, more specialised and more global. Investment by mining firms in R&D accounts for almost 25% of total business investment in R&D in Australia. A strong mining-related research base has attracted research collaboration between mining companies and public sector research organisations. The global mining industry is increasingly dominated by such global firms and they often draw their Australian suppliers into global relationships.
The transformation of mining is also transforming the suppliers. The broader MTSE sector (including contract mining) employs over 80,000, with total sales near $A30 billion and exports of at least $6 billion. This is bigger, more export-active, growing more rapidly and arguably has more prospects than the heavily subsidised automotive sector. The technology-based core MTSE sector employs at least 30,000 people, and in 2008-9 had total sales of at least $9 billion, exports over $A2.5 billion and invested at least $1 billion in R&D – much more than our celebrated wine industry.
Most MTSE firms were formed by entrepreneurs from the mining industry or their suppliers. Spin-offs from research organisations, venture capital-backed start-ups, and innovation supported by government grants have played only a minor role.
There are signs of consolidation. Some Australian firms have acquired local and international firms (often with support from investors) and some leading Australian firms have been acquired by offshore firms. Many MTSE firms are transforming – recruiting professional managers and staff, and putting business systems in place, and deepening capability development. Collaboration for innovation is usually with mining firms but leading MTSE firms also collaborate with CSIRO and universities. However, it appears that the research infrastructure is neither designed, nor has it evolved to support the MTSE sector. Skill shortages limit development despite being identified repeatedly as a key problem?
Global trade has deregulated. This is institutional innovation through new global organisations and agreements. Nations and regions must also continue institutional innovation to support adjustment to the winds of ‘creative destruction’. The resource boom brings with it a substantial opportunity to help ensure that Australia has more options and more capabilities for an uncertain future.
*Don Scott-Kemmis is a senior fellow at the University of Sydney’s Centre for Innovation. His full report, The Formation of Australian Mining Technology Services and Equipment Suppliers, was prepared with support from the Merck Innovation Program, United States Studies Centre, University of Sydney, and is available from USSC.edu.au/publications
Also in the December 8 - 14, 2011 edition
- ASIA DESK
- G-Resources demonstrates underlying strength
- Life and death struggle in China loan market
- AUSTMINE
- Sedgman wins national export award
- COAL
- A different proposition
- Raising the bar
- CONTRACTING
- Haves and have-nots
- FINANCE
- Ditching the Straits-jacket
- Good for business
- Sector set for new round of fusion
- Taking a shine to tin
- FROM THE CAPITAL
- NSW government tells Nucoal to stop
- GOLD
- Captain leaves ship on rougher seas
- INSIGHT
- ‘Resources curse’ or untapped opportunity?
- MINING
- No end in sight for Aquila iron ore journey
- MINING IT
- Coming up: HighGrade Mining IT Outlook 2012
- IT notebook: Modular Mining, US tech, Mintec, Maptek, Gemcom, Geosoft
- PEOPLE
- People on the move: Atacama, AngloGold, Gekko Systems, ZYL, OM Holdings
