Using scenarios - Sykes & Trench - Aug 2016 - Centre for Exploration Targeting / The University of Western Australia

1. 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
john.sykes@research.uwa.edu.au
allan.trench@uwa.edu.au
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 1 of 26

2. 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
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 2 of 26

3. 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
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 3 of 26

4. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
The long-term future can be very different
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ShareofGlobalCuMineproduction
United Kingdom Chile USA Other
0.0
2000.0
4000.0
6000.0
8000.0
10000.0
12000.0
14000.0
GlobalCuMineProduction(Kt)
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)
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 4 of 26

5. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
…and such change is very complex
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Cuoregrade(%)
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 &
refining
Airborne
geophysics
Porphyry
geological
model
Better work
practices
SXEW
Computation
Low cost
drilling
Globalisation
Sources: Schodde, 2010;Lynch, 2012& various
personalcommunications to the author
Free trade
Forward contracts
Regime change
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 5 of 26

6. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
THE SOLUTION?
Using Scenarios to Investigate
the Long-Term Future of Copper Mining
and Guide Exploration Targeting Strategies
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 6 of 26

7. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
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)
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 7 of 26

8. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
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
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 8 of 26

9. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
Mapping the key driving forces
Contextual
Environment
(‘factors’)
Transactional
Environment
(‘inter-actors’)
NGOsCompany
Equipment
Suppliers
Investor
s
Employees
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: Ramirezet al., 2014
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 9 of 26

10. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
And how they’re evolving over time
Chinese
Industrialisation
Post-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
TECHNOTRENDS
POLITICAL
TRENDS
World
War II
Better
Work
Practices
Cold War (Separation of East & West)
Airborne Geophysics
2000s1990s1980s1970s1960s1950s1940s
Substantial
Globalisation
Porphyry
Model
SXEW
Low Costs in
Developing
World
Labour
Cost
Inflation
Computers, Modelling &
Scheduling
Decline of Unionism
Eastern-bloc
Privatisation
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 10 of 26

11. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
Then seeking the commonalities
Template from: Ramirezet al., 2014
Increased support for
mining
Decreased support for
mining
SOCIAL
ECONOMIC
BOOM BUST
TECHNOLOGY
Technology drives
lower costs
Technology lags cost
inflation
POLITICAL Increasingly
restrictive regulation
Decrease in restrictive
regulation
ENVIRONMENT
More land becomes
available
Less land available
Broadly similar:
increase/decrease in land
availability either physically
or conceptually
Broadly similar:
increase/decrease in
industry margins
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 11 of 26

12. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
THE SCENARIOS
Using Scenarios to Investigate
the Long-Term Future of Copper Mining
and Guide Exploration Targeting Strategies
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 12 of 26

13. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
The Scenarios
Increased
Decreased
ECONOMICMARGINS
Increased
Decreased
CONCEPTUAL SEARCH SPACE
CRUSADES COUNTING HOUSE
PEASANTS’ REVOLT UNDER SEIGE
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 13 of 26

14. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
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 breakdownof the global order limits access to foreign projects and talent;
• State mining companies, backed by governments concernedabout 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
coppersupply chain.
• The coppermining industry may feel that it is in the ‘Under Siege’ scenario presently:
– Falling copperprices;
– Asset write-downs;
– Curtailment of capital investments, exploration, and research and development.
Defending current operations with few new opportunities available
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 14 of 26

15. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
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
alreadyprofitableassets 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 coppermining, arising from the
scientific and economic analyses.
Focus on extracting economic rents from current operations
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 15 of 26

16. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
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, targetedmining 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 developmentand
exploration, assisted by the latest phase of globalisation.
Many exciting opportunities in old and new areas
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 16 of 26

17. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
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
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 17 of 26

18. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
THE IMPLICATIONS
Using Scenarios to Investigate
the Long-Term Future of Copper Mining
and Guide Exploration Targeting Strategies
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 18 of 26

19. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
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
Basedon: Erdmannet al., 2015
Slide 19 of 26

20. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
No truly ‘robust’ mines
Mines 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.
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 20 of 26

21. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
Whilst projects are even more brittle
Company Type / Scenario Under Siege
Counting
House
Crusades
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.
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 21 of 26

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

23. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
THE KEY LEARNINGS
Using Scenarios to Investigate
the Long-Term Future of Copper Mining
and Guide Exploration Targeting Strategies
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 23 of 26

24. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
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 approachis ‘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.
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 24 of 26

25. 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 YOU
Contact:
john.sykes@research.uwa.edu.au
allan.trench@uwa.edu.au
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)
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 25 of 26

26. Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies
References
Main 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 andYeung,L, 2015.Overcoming obstacles to effective scenario planning, McKinsey Quarterly, June:1–6.
• Ramirez,R, Khong, C & Selin, C. (2014)Oxford ScenariosProgramme.28 April-1 May, Oxford: Said BusinessSchool (University of Oxford). PDFlecture notes.
• Ramirez,R, & Wilkinson, A. (2016) Strategic Reframing:The Oxford Scenario PlanningApproach, Oxford University Press:Oxford.
• Sykes, J.P. (2015)Using the Oxford Scenarios deductive methodology to understandthe long-term future of copper mining and guideminerals exploration targeting strategies, Curtin BusinessSchool
Higher Degree by Research Students’ Colloquium, Perth, Australia, 30 September
• Sykes, J.P., & Trench, A. (2014a)Chapter 14 – Findingthe Copper Mine of the 21st Century:Conceptual Exploration Targeting for Hypothetical Copper Reserves. InSpecial Publication Number18: 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) Resourcesversus Reserves – Towardsa Systems-basedUnderstandingof Exploration andMine Project Development andthe Role of the Mining Geologist. InMining Geology
through the Value Chain: Proceedings of the Ninth International Mining Geology Conference held in Adelaide, South Australia, 18-20August2014,243-270.Carlton, Victoria: AustralasianInstitute of Mining
andMetallurgy (AusIMM)andAustralian Institute of Geoscientists (AIG).
• Sykes, J P andTrench, A, [2015a]Mining in 2040:anindustryundersiege [online], 2 November, MiningNewsPremium.net. Available from: http://www.miningnews.net/insight/strictly-boardroom/mining-
2040-an-industry-under-siege.
• Sykes, J P andTrench, A, [2015b]Mining in 2040:major minersascounting 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 andTrench, 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 andTrench, 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.
24 August 2016AusIMM International Mine Management Conference, BrisbaneSlide 26 of 26