In September 1998, the National Mining Association in the U.S. presented its vision for the mining industry for the year 2020. 2009 is the halfway point in the grand plan. How well did the visionaries do? And what does it mean for the industries that supply the mining sector?
Despite the dreams of 1998, U.S. research funding for mining continued to fall and is now well below the 1998 level. Bush’s 2009 budget gave the U.S. Geological Survey (USGS) a budget increase of 3.3 per cent, but almost all of that went to a new climate change program. R&D funding was cut for all of the divisions that were central to mining. Obama asked for a 5.2 per cent increase for the USGS for 2010 and the House recommended 5.9 per cent, but the increases went to the biological sciences and the study of earthquakes. Support for mining-related research fell again.
To make matters worse, the U.S. coal industry has been desperately fighting the pressure to cut carbon emissions. Since coal provides fully half of the value of U.S. mine production, there is a lot of money at stake. The industry is banging the national security drum: American coal reserves are all that stand between the U.S. and a perilous future grovelling to the OPEC nations. One result is that far too much of the American research funding is flowing into clean coal projects that are probably doomed to fail.
American energy politics may be helping undermine U.S. mining leadership, but rising world demand for metals will boost North American metal production and a falling U.S. dollar will make American (and Canadian) miners more profitable. However, the falling U.S. dollar will also increase foreign takeovers of U.S. miners. The overall effect is that mining R&D will continue to shift away from the U.S.
Falling government support is only one way the vision went wrong. Industry, too, has been withdrawing from the research arena. John Dow, former Newmont Australia managing director, points out that today’s mining companies tend to be run by financial and legal types. These companies abandoned their in-house research groups many years ago. Canadian resource companies, for example, have cut the share of value added devoted to R&D in half since 1990.
Dow says that the companies thought they could contract out research to universities. Government funds did not materialize, and now the number of universities with the necessary research capacity is falling.
But something has been driving up productivity. Although the resource sector spends less on R&D than most industries, the productivity gains in mining and forestry are almost double the gains in the rest of the economy (3 per cent vs. 1.7 per cent). In the primary metals sector in Canada, productivity growth exceeded that of the U.S. sector’s rate by a significant margin (2.42 per cent vs 1.46 per cent).
It turns out that the creative heart of the mining industry has moved outside the gates. Both governments and companies are relying on suppliers to provide the innovation that the industry needs.
The shift has only begun to be recognized. By 2005, Canada’s Center for the Study of Living Standards was pointing to suppliers as at least part of the explanation for rising productivity in the face of falling industry R&D. Industry Canada and Natural Resources Canada still haven’t realized that the mining supply and services sector is now the key to the success of the mining industry.
Going back to the 1998 vision for mining, it turns out that the technological innovations are roughly on track for 2020. There has been progress on emissions, safety, energy use, remote sensing, communications, modelling, mine planning and education. However, the vision was a bit blurry when it came to who the players would be. Governments didn’t step up to the plate with funding for all the research that was called for. Mining companies have actually stepped back. Only the supply sector has exceeded expectations.
