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Posts Tagged ‘processing’

ICMM: Trends in the Industry

October 21, 2012 Comments off

The International Council on Mining and Metals (ICMM) published 2 new reports this week:

Trends in the Mining and Metals Industry

This 16-summary of where the industry is coming from and where it is going mainly gives an interesting perspective on geographic developments in the mining industry. The report shows how center of mining activity has shifted from Europe, via the US, to the BRIC countries and new frontiers. At the same time the report illustrates how a large part of processing capacity still is located in the developed world, though China’s processing surge is instrumental in changing this situation.

The report in summary:

  • Center of mining is shifting to new frontiers, including BRIC countries;
  • Iron ore, gold, and copper continue to account for roughly two-thirds of value of global mined metals;
  • Large companies are responsible for an increasing share of global production;
  • With lower average ore grades, bulk open-pit mining is more and more the mining method of choice;
  • Human resource challenges are becoming restrictive;
  • China-led nationalized mining is leading to a global increased in state participation in mining companies.

The role of mining in National Economies

This report presents a Mineral Contribution Index (MCI), ranking countries’ dependency on the mineral industry. The index includes:

  • The percentage contribution of the mineral industry to export value;
  • The change in this contribution over a 5 year period;
  • The mineral production value as percentage of GDP.

The top 25 countries according to the ranking with their respective scores are displayed below.

Vertical integration in mining: the trader’s value chain

May 21, 2010 3 comments

Vertical integration has been a significant driver of acquisitions in the mining industry in the past decades. As steelmakers and other mineral processers were trying to secure supply of resources, they increasingly decided to buy mines and mining companies. The next decade will show another interesting development. The vertical integration will increasingly include the next step in the value chain: trading.

Vertical integration in mining

The looming merger of Glencore and Xstrata will create the first of a new type of companies. The integrated mining, processing and trading companies will span the entire value chain of the resource world. This development is not unique. In many other industries the drive to become more customer-centric has resulted in similar moves.

The fact that a large part of the global resource production never enters the global trade and the nature of commodity markets, in which price is the key differentiator, has made the development in mining and metals slower than elsewhere. Furthermore, there is a large difference between the corporate cultures of the trading houses and the large mining companies.

Why integration?
Now why would the resource producers want to merge with traders? What synergies will be achieved in such a combination? The key of the answer is improvement of supplier power. A significant cost reduction and productivity improvement will be achieved by eliminating the trading department of the resource company after transferring the crucial activities to the trading house. However, most money will be made because of improved trading terms.

An exiting additional benefit in the long term could be that mines are going to produce on demand and just in time. If customer A in Japan sends its specified needs to the traders, the next step should be to translate the order into a production schedule for the mine and plant.

Consequences for mining
What will the integration along the value chain imply for miners? First of all they will slowly be forced to think more about the customer and less about the technology. Secondly, the production schedules will need to become more flexible in order to be able to deliver what is demanded. Finally, as the new company will be able to better respond to changes in commodity prices, more mines will start aligning their output volume with demand. In the extreme case this will mean that more mines will temporarily be shut down or sleeping mines temporarily opened again.

Concluding: Mining will become more flexible. Vertical integration including trading houses will not cause a revolution in the industry, but it will change priorities and slowly make the mining industry a more customer-centric environment.