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Sustainability, divestment, adding value: mining after the China boom

Adapting to the post-China boom times
will involve miners concentrating on sustainability, optimised efficiency and
creating value within communities, according to the head of MMM for Schneider,
Diego Areces. He shares some of his observations and predictions with Brent

It is not news that miners are adapting
to shifts, with a major one being lower demand from China.

The 13 per cent Chinese GDP growth of 2007 – and the
need to feed this with resources – has slowed, with single figure expansion tipped for the near future.

At the time of writing, the price of
iron ore had just hit a five-year low, and some analysts are predicting it
could fall below $US80 in the next year

Areces of Schneider
, which is a
partner to some of the world’s biggest miners, believes the recent slowed
demand for resources could be a positive: it’s more sustainable and less likely
to be volatile. Times are different and miners will have to behave differently
in response.

Growth will be slower overall than it
used to be, though this isn’t all bad.

“The pace is going to be slower because
we are no longer going to have these demand shocks that China created, for
instance,” Areces told Manufacturers’ Monthly. “We’re going to have
India, Africa, but this is not going to be like China.

“The population will continue growing,
urbanisation will continue, the middle class will continue growing, therefore
the consumption will continue growing, but at a different pace,” he said.

“Mining companies need to adapt to

Markets other than China will have to
be located.

According to Areces, who is the vice
president of Mining, Minerals and Metals Solutions
at the French-headquartered energy and automation specialist, there are three
key aspects that will drive the industry: sustainability,
optimising efficiency and value creation

No longer just a reporting requirement
and something seen as an impediment to growth, “sustainability is a must to
operate,” said Areces.

“Today if mining companies are not
sustainable they will not be able to operate… So that kind of accountability
is a must. And it’s no longer about just being sustainable – it’s protecting
the environment in a productive way.”

Optimising operations seems a no-brainer.

“That for us is about people
efficiency, production optimisation, and assets utilisation and optimisation,”
said Areces.

Values will be more important than
volume, and companies will be driven to be the best at what they do rather than
the biggest.

Consider BHP’s recent decision to split
its assets, praised by supporters as good
for the clarity and focus of the miner

Return on capital investment will also
be something mining businesses care more and more about, with divestment of
what’s not being used.

Assets at a mine site that aren’t being
fully utilised will look more and more like waste.

“If you have 50 per cent of your capacity
sub-optimised, you can cut your plant in half and get 4 per cent [on what’s
gained from the sale]” said Areces.

Another value-related prediction was
the extension of companies’ value chain, with gasification of coal cited as an
example. Again, it is to do with getting more out of assets.

“These are things that happen, these
are market trends that come and go, if you look at aluminium, they are bauxite
mining companies,” he said.

“And they are even making cans of Coke or
wings for airplanes and then they pull back but I believe the value chains are
going to be long.”

Another trend was the shift in how
mining companies are governed. In line with the expectation that mining
companies will create value for the communities and customers they are involved
with, there would be more community representatives wanting a seat at the

The government and the community would
both be part of the governance of the mining company of the future, said

“We were taught that governments in
private business are bad, and I believe that concept is somehow changing
because of the impact that governments can have to customers, in the community,
in the building of societies,” he said.

This was something that could be seen
globally, he argued.

“If you take a look at some of the
countries in the world, the most important investor in some of the major
companies in the world is the government.

“Governments can help mining companies
– every time that you have a new mining project you need infrastructure and you
have a lot of value creation for the communities and the customers, and it’s
important that the government sits at the board of a mining company, for

“I have the feeling that mining
companies will have to [increasingly] involve the community and governments
into the governance of the company, and I have the feeling that mining
companies will have to be more adaptive to the evolution of the market.

Manufacturers’ Monthly attended the recent Synergy
2014 Industry User Conference as a guest of Schneider.

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