Mining giant Rio Tinto PLC (RIO) is willing to go to hell and back for copper.
Its new mine near Superior, Arizona, bores nearly 7,000 feet below the Earth’s surface. There, temperatures routinely hit 175 degrees Fahrenheit. Warm water falls from overhead rocks like rain.
The 1.3-mile-deep shaft is being excavated by Resolution Copper Mining, a subsidiary of London-based RIO and Australian-based BHP Billiton Ltd. (BHP).
It’s a project no sane executive would have green-lighted a decade ago. The technical challenges are that daunting. The attraction is the opportunity to change the business of mining with more sensors, autonomous vehicles and data analytics than ever before.
If it all works, millions of hard-hatted miners will be the stuff of folklore.
It wouldn’t be the first time technology changed the landscape of the natural resources industry. Just as data analytics and advanced modeling made it easier to fracture shale and find natural gas, these tools will figure prominently at Resolution.
After engineers figure out how to deal with the heat and the water, they plan to completely reimagine mining. Caterpillar Inc. (CAT) and Komatsu Mining Corp. are already building custom electric loaders, excavators and other robotic gear. They will be equipped with thousands of sensors to achieve full automation.
The machines will find the ore, mine it and transport it to the surface under the watchful eye of technicians many hundreds of miles away.
None of this has come cheap. The Wall Street Journal reports the project will cost at least $6 billion. And operation is not scheduled to begin until the mid-2020s, thanks to a byzantine regulatory process.
However, the payoff is potentially huge. The mining industry has exhausted the supply of easy-to-find, high-grade copper ore available at open pit mines. Copper deposits exist, but they are hard to get at.
The Resolution mine may have 1.6 billion tons of ore, and a 40-year productive life. However, because the development will lean heavily on automation, costs are expected to be on par with open pit sites.
And future prices are expected to be strong.
That’s because copper plays an outsized role in electric vehicles. EVs represent a tiny fraction of all vehicles sold today but their numbers are growing quickly.
BHP, a minority partner in the Resolution project, expects there will be 140 million EVs on the road by 2035. Today, there are 1 million. The Financial Times reports EVs use roughly four-times as much copper as internal combustion cars.
If BHP is right, and EVs displace 8% of traditional vehicles by 2035, the math works out to 8.5 million tons of new demand. That is about one-third of the total current demand. You can imagine what that imbalance would do to copper prices.
More importantly, think about the new business models possible. Think about the opportunities available to astute investors willing to look into the future.
I believe we are living through an age of invention unrivaled since the Gilded Age. Increased computing power, robotics and sensors allowed Rio Tinto executives to dream about mining copper more than a mile below the Earth’s surface.
Data analytics will allow the mine to operate as cost effectively as a traditional open pit.
That’s the story of the New Gilded Age. Likely productivity gains from digitalization are not yet reflected in share prices. Finding the companies that will benefit is the service I provide to my members.
Likely productivity gains from digitalization are not yet reflected in share prices. Finding the companies that will benefit is the service I provide to my members.
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