The road to recovery for Ontario's mining sector is paved in gold
Ontario is one of the top mining jurisdictions in the world. In recent years, the jurisdiction has been in a downturn.
The province, which is home to more than 40 operating mines, is the largest producer of gold, nickel, copper and platinum metals in Canada. Ontario’s mineral production is valued at $9.2 billion with more than $4 billion annually invested in research and development (R&D), exploration, construction and equipment.
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In a recent article by NorthernLife.ca, industry stakeholders agreed that Ontario is falling behind as a mining jurisdiction. The article spotlights that while the province has shifted its focus to the Ring of Fire, which many believe is moving slower than anticipated, key figures see the government neglecting other parts of the province.
“All we hear about is the Ring of Fire. Let me explain something about the Ring of Fire. It's not the only thing going on in this province. I'm sick to death of it,” said Gino Chitaroni, president of the Northern Prospectors Association.
“We have a lot of projects out there that could be economic very shortly, but we have to encourage them,” Chitaroni said. “I don't see it happening.”
To learn how Ontario is challenging the situation, we interviewed Michael Gravelle, Ontario Minister of Northern Development and Mines to discuss how Ontario is working to improve its current situation and reestablish itself as the powerhouse mining jurisdiction we all know.
Fall from grace
According to the Fraser Institute Annual Survey of Mining Companies: 2014, Ontario ranked #23 internationally for investment attractiveness, falling nine spots from last year. The province ranked #9 among the top 10 attractive mining jurisdictions in Canada despite being one of Canada’s geographically larger jurisdictions.
The survey, which was comprised of 122 jurisdictions worldwide, included comments such as:
“Revision of the Mining Act to include near-veto powers against exploration of First Nation traditional land use areas contrary to treaty assurances.”
“Provincial regulations different from federal regulations. Government entities not addressing First Nations consultation issues.”
“Lack of transparency, extreme conflict over land use with First Nations groups, high costs of permitting and new poorly organized regulations.”
“Poor decisions on infrastructure and lack of provincial First Nations agreements related to developments in the Ring of Fire.”
“Abandoning the mining industry and forcing it to deal directly with native groups, and providing support to native groups for negotiations, but not to junior mining companies.”
While Canada’s overall scores improved significantly in 2014, by almost 10 points, Ontario remained in the bottom category. One of the biggest problems for the province, especially with junior miners, has been raising capital.
“Globally, the junior exploration sector is experiencing difficulty raising capital because of a decline in investments resulting from lower commodity prices,” said Garry Clark, executive director of the Ontario Prospectors Association.
He continues, “While Ontario remains the top exploration jurisdiction in Canada, exploration spending in Ontario is down. Spending totaled $600 million in 2013 and $507 million in 2014, compared with $962 million in 2012.”
In addition, Ontario’s two largest mineral exports, gold and nickel, endured some of the most volatile commodity prices in recent years.
Despite the disappointing rankings, no other mining jurisdiction in the world has the level of mining expertise found in Ontario.
“It is important to understand the significance of the mining industry to Ontario’s economy,” said Gravelle. “There are 42 operating mines right now, and more people employed in the mining sector than there were 10 years ago. The mining supply and service sector employs 50,000 people. Nearly 25 percent of all exploration in Canada is done in Ontario.”
The mining sector for Ontario has been off to a great start in 2015. Earlier this year, the province announced its intentions to renew its mineral development strategy, which was first established in 2006. Needless to say, it couldn’t have come at a better time.
“Since I was re-appointed Minister of Northern Development and Mines in 2013, we have focused much effort on putting the necessary building blocks in place to foster private sector investment and secure future economic opportunity for First Nations and Northern Ontario,” said Gravelle.
The province’s Ring of Fire project, which is located in Northern Ontario, has dealt with lingering issues including a lack of infrastructure commitments from industry or government.
Global engineering firm Hatch sees the Ring of Fire as one of the most exciting areas of opportunity for the company in Ontario.
“There are many challenges presented by the geography, lack of infrastructure and social licensing which require new ways of thinking, and that makes it so exciting,” explained Jan Kwak, Hatch’s managing director of mining and minerals processing.
“For instance, a construction strategy would probably require starting in the winter when the ground is frozen and it is easier to transport materials to the site. During the winter, we would need to create an island of solid ground where we can set up camp, store material and equipment, and use as a base to expand from when the ground thaws in summer.”
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To combat this, the government has established the ROF Infrastructure Development Corporation to provide $1 billion for investment in everything from infrastructure, signing of the landmark Framework Agreement with Chiefs of the Matawa First Nations as well as supporting education, training and health care initiatives for the First Nations.
According to Gravelle, Ontario’s government has taken important steps to modernize the province’s Mining Act to maintain a vibrant and competitive mineral development sector.
“Ontario’s clear laws and updated mining regulations are part of our commitment to promote mineral exploration and development, while respecting Aboriginal and treaty rights as well as the environment. Since updated regulations became mandatory we’ve worked closely with industry to guide them as they adapt to the process. I believe our province provides operational certainty for industry, just one reason why we have remained a leader in exploration spending.”
Another important aspect for Ontario’s recovery is incentives. The need to support companies at different stages of the industry cycle is vital for Ontario’s resurgence.
“We have flow-through share financing of public companies which serves as a permanent tax credit for individual investors as well as a tool for junior exploration companies to raise funds,” said Gravelle.
“Our government also works with industry associations to support mineral development and exploration activities with grants to prospectors through the Ontario Exploration Corporation. Not to mention, the Ontario Geological Survey has world class open data sets which make valuable geological information easily accessible to industry as they work to identify mineral exploration targets.”
One of the many bright spots for Ontario is its innovation in new technologies. The province has been actively involved in newer technologies in the mineral sector that are being used globally to make mines safer, green and more efficient.
“The mining supply and services sector in Ontario is of enormous economic significance, generating a direct economic impact of $6.6 billion in gross output value,” said Gravelle. “Our government recognizes the value of maintaining our position as a global leader in mining sector innovations. That’s why we’ve committed in excess of $4.5 million in the past five years to support mining supply and services companies in expanding their export capacity and increase sales to international markets.”
According to Gravelle, to maintain its competiveness, Ontario needs to maintain a business climate that attracts investment
“I certainly recognize that it is vital that Ontario maintain a business climate that attracts investment and I believe we’re doing just that. For example, one of the most important indicators of investment attractiveness is exploration spending and, from this measure, it’s clear that Ontario remains a leader.”
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He added, “We are the top jurisdiction in Canada and among the top jurisdictions in the world. In fact, the size of Ontario’s provincial mineral industry is comparable to the mineral industry of entire countries around the world.”
It’s true. In 2003, exploration expenditures in Ontario were $193 million; in 2014, that figure was over a half billion dollars. The mineral production side reached $11 billion in 2014, up from $7.1 billion ten years ago.
“I believe our province is very well positioned for a bright future in mineral development. To ensure that our large, industrial partners continue to be competitive globally, we announced on April 7, 2015 that the Northern Industrial Electricity Rate (NIER) program, a $120 million program to reduce electricity costs for large, industrial companies, would be permanently funded,” Gravelle said.
Moving forward, Ontario is expected to improve greatly. There are a significant amount of new gold districts opening up in Ontario, including an array of new mines set to open in the next two years.
“As Minister and most importantly, as a Northerner, I have a deep appreciation of the tremendous economic potential of the vast resources that are located primarily in the Northern part of the province. Our government has been driving economic development in Ontario with a major focus on the mining sector—an industry of tremendous significance to our economy,” said Gravelle.
“My mandate is to increase the prosperity of Northern Ontario and lead a mineral sector that is healthy, competitive and sustainable. And I’m proud to say that we are succeeding—Northern Ontario is well positioned as a world class destination for investment.”
Mining 4.0: How innovation is shaping mines of the future
Mining may be the gateway to the world’s carbon neutral future. Green energy storage systems, for one, are largely dependent on minerals. According to the World Bank Group, clean energy needs will escalate demand for rare earth minerals by nearly 500% by 2050.
While this growing demand holds much promise for mining companies, it also creates new challenges. Mining operators must navigate the ever-present highly cyclical market conditions and capital-intense operations. Recent trends layer on additional challenges, such as the progressive retirement of the industry’s most experienced workers, increasing regulatory pressures, and rising energy costs. To proactively manage these multiple challenges and capitalize on rising demand, mining companies must innovate and lower operating costs to remain both profitable and viable.
Why the urgent need for innovation?
Leading mining companies have shown that lower operating expense (OpEx) is a pre-requisite to on-going business success. This need is driven by the cyclical mining market and ever present,, hefty capital requirements, both of which are inherent in the mining industry. And, when demand is high, the OpEx cost component of unplanned downtime grows steeper. Data indicates that, in mining operations, the root cause of OpEx overages lies in maintenance issues that impede operating efficiencies and incur unnecessary costs. Left unaddressed, these gaps will prevent mining companies from fully capitalizing on increasing demand.
According to McKinsey, mining companies have historically struggled with significant productivity declines, as shown below. In recent years, there is evidence that a slow recovery is underway, however, full resolution is in its’ infancy, primarily rooted in maintenance cost optimization.
Other data points on current mining operations underscore the urgent call for innovation and change:
- 70% operating efficiency due to breakdowns and stalled production, which translates to real potential for increased productivity and throughput
- 30-50% of mining operations costs spent on maintaining plant, fleet and equipment, so, the magnitude of potential improvements on bottom-line profitability is significant
- 3-5X cost for urgent repairs and corrective work requests versus planned maintenance, often made evident by tracking the percentage of work orders managed through the planning office.
While change is always difficult, the promise of technology (and Industry 4.0, Mining 4.0) is a welcome and required one for mining companies. Digital technologies and automation, or Mining 4.0, is defined by smart equipment, drive data-driven (and thus better) decisions, catalyze connected communications and provide easier, more affordable maintenance. From there, mining companies will be able to speed up production, reduce downtime and boost employee safety – three pillars that have challenged mining operations for years.
The first step: Predictive maintenance via condition monitoring
As the first step to regain operational optimization and lower costs, mining companies must get “ahead of the curve” and prevent process interruptions and unplanned downtime. The key is predictive maintenance via condition monitoring systems. By proactively assessing equipment health, mining operators can be alerted to developing failures before they occur and schedule planned repairs at the lowest possible cost and with minimal impact to production.
Condition monitoring systems are based on the principal that failure is a process, not an event. By monitoring asset characteristics, latent anomalies become apparent well before full failure, allowing for low-cost interventions, root-cause analysis and proactive planning for resolution, thereby mitigating process interruptions. Concurrent with deployment of well-engineered predictive maintenance strategy, a thorough rationalization review can minimize unnecessary or redundant maintenance tasks and, in many cases, eliminate human-induced failure modes.
Maintenance optimization is a powerful lever – and the first step -- to achieving and sustaining lower production costs in mining.
When 14% equals $8 million
Consider this PwC mining example, where predictive maintenance enabled a 14% reduction in maintenance spend by mitigating unplanned downtime to deliver US $8 million savings in operating expense (OpEx).
Goal: Reduce unplanned downtime
Solution: Condition monitoring system on critical equipment
- Condition monitoring insights provide operator alerts of potential failures.
- Proactive scheduling of repairs moves resolution to occur during planned maintenance, partial outage periods or normal equipment rotations.
- Asset availability and reliability increases, production interruptions are minimized and maintenance costs are reduced.
Result: 14% reduction in maintenance spend generates US $8 million in OpEx
Source: PwC “Balancing Uptime and Working Capital: Maintenance and Inventory Strategies in Mining”
Reliability and employee safety
The example above illustrates the dramatic improvements to operating expense as mining operators move from reactive / unplanned to proactive / planned maintenance. With decreased downtime, overall operational reliability also improves and with it, a metric of paramount importance in mining: employee safety.
Studies indicate that more reliable operations are safer operations. That’s because technology serves to reduce human-to-machine interaction and urgent, reactive work declines. For one industrial company, as shown in the graph below, an OEE (Overall Equipment Effectiveness) improvement of 52% delivered a safety improvement of 69% during a 10-year period.
Customer Case Study: Slurry pumps
Let’s look at specific mining applications ripe for optimization and maintenance cost savings. The first is slurry pumps. In mining pumping stations, pump failures are responsible for 97% of unplanned maintenance costs. Pump reliability, however, is crucial in the areas of safety, environmental impact, and efficient transportation.
Key characteristics of slurry pumps can be monitored so that timely analysis of impending issues enable early detection of issues at inception and prior to failure. This avoids unplanned maintenance, unplanned downtime, and averts lost revenue.
In slurry pump applications, dynamic pressure sensors can be used to detect reciprocating diaphragm failures, providing a novel diagnostic to increase pump reliability. The solution is based on these design principles:
- The hydraulic fluid flexes the diaphragm
- When the diaphragm flexes, slurry is discharged
- Abrasive, corrosive slurries prohibit pressure sensor installations in slurry valves
- Thus, dynamic pressure monitoring of the hydraulic fluid assesses the effectiveness of slurry discharge
The result? A savings of US $3 million per year, based on maintenance cost recovery and capacity increases for a 10-pump station.
Customer Case Study: Haul Trucks
In mining operations, haul trucks are another critical asset, as they are relied upon to move raw materials. Alignment of extraction speed to transportation speed is required to keep operations flowing smoothly. Mining operators have invested in larger, automated haul trucks to facilitate this timing alignment and optimize logistics. Thus, haul trucks and their operational health is a key enabler of production reliability in mining operations.
Monitoring haul truck health to ensure reliability, however, presents unique challenges. Because haul trucks are in constant motion, data collection at precise and crucial times with linkage to a monitoring center and diagnostics requires innovative thinking and design.
For one mining company, a custom engineered solution for the haul truck’s control system was designed and installed. The system was devised to monitor haul truck health in two distinct operating states so that changes in the various failure mode characteristics could be accurately identified:
- Running and loaded. In this state, vibration data is collected while the truck is running, loaded and in reverse mode (braking the truck using the electric motor of the electric wheels).
- Unloading. During unloading, vibration monitoring data is collected when the haul truck dump or bucket is being raised.
The result? An estimated savings of US $5 million per year, based on an iron mine fleet of 30 trucks operating at 80% capacity.
Outcomes like the examples above are possible for mining operations via innovative condition monitoring systems. There are many other condition monitoring mining applications, such as wireless sensors for hoist systems and continuous monitoring for SAG (semi-autogenous grinding) mills that deliver transformational outcomes. The ultimate payoff for mining companies occurs when these applications and systems scale and interconnect into an operation-wide solution, enabling more holistic optimization.
Benefits of condition monitoring
Condition monitoring is part of Mining 4.0, the transformation driven by the adoption of automation and digital technologies. Mining 4.0 inherently supports the infrastructure and process requirements for condition monitoring systems. Specifically, Mining 4.0 will facilitate capabilities such as digitization, automation, analytics, artificial intelligence and machine learning, establishing a powerful foundation for predictive maintenance solutions and innovation.
Technology and predictive maintenance benefits have the potential to transform mining operations, starting with condition monitoring. In addition to managing and minimizing the impact of failures, mitigating downtime and reducing maintenance costs, condition monitoring systems also help to increase worker safety, reduce energy consumption and meet environmental requirements.
These benefits unleash significant potential for radical and positive changes in mining operations. All condition monitoring systems, however, vary in scope and effectiveness, so proper selection of a design and enablement provider with full-scale capabilities and proven expertise can impact outcomes significantly.
Innovation beyond technology
While innovation and transformation hold great potential, mining companies must go beyond reducing maintenance costs and implementing technology solutions. Companies must work differently and work smarter to capitalize on the full potential of digital technologies and holistic data strategies that deliver operation-wide benefits. For successful adoption, overcoming internal organizational barriers and cultural challenges to digital adoption is equally essential.
To reduce pressure on capital-intense mining operations, condition monitoring solutions can be “self-funding” initiatives on the journey toward Mining 4.0 as operational benefits of condition monitoring are realized progressively from the early stages of implementation.
The way forward for mining companies is clear -- and full of promise. As the world increasingly relies on mining to produce the minerals needed for green energy, innovative mining leaders will usher in an era of profound global transformation that ultimately benefits us all.
To learn more about condition monitoring systems in mining operations, please reach out to speak with one of us or another experienced professional at Baker Hughes.