Toronto - An unlikely collaboration between the world’s largest gold miner and a California tech giant began with a meeting about cars.
Earlier this year, John Thornton, executive chairman of Barrick Gold, found himself in a room with Cisco Systems Chairman John Chambers. Thornton, a Ford Motor trustee, was there to learn how technology is transforming the auto industry. Instead, he came away with a plan to reshape a business he says is at least a century out of date.
“Sitting there listening to it, it was perfectly obvious to me that everything he was saying had dramatic applicability for the mining industry,” Thornton said on Monday, speaking alongside Chambers from Cisco’s San Jose, California headquarters. “This is like the 19th century meets the 21st century.”
Thornton on Monday announced that Toronto-based Barrick will invest an initial $100 million in the first phase of a “digital re-invention” of the company’s global operations, which will last 15 months and start with the Cortez mine in Nevada. If the first wave of measures generates a strong return, and the Barrick culture can handle the changes, the next stage is ambitious enough that even Thornton says he’s wary of sounding hyperbolic.
Ultimately, the idea is to cut costs significantly, boost production and head off potential mishaps by closely tracking everything from water quality to necessary equipment maintenance. However, the two men - who have known each other for more than 20 years - say there is potential to transform entirely how miners get natural resources from the ground by being able to quickly adjust mine plans with computer algorithms that factor in variables that can range from market prices to weather patterns.
Position to expand
The competitive advantage could be so meaningful, Thornton said, it will put Barrick into a position to expand by buying less efficient mines, or companies, and turning them around.
In that case, “the number of people working for Barrick will increase not decrease”, according to Thornton. “I wouldn’t say we’re going to gobble up everybody, but we’re going to intelligently invest in places where we can make good money.”
From Chambers’ perspective, the deal gives Cisco a chance to demonstrate the kind of sweeping changes it is aggressively peddling to world governments as it shifts toward more software-based networking, security and management products, and away from mainly relying on hardware switches and routers. Countries have the potential to boost jobs and their economies by digitising everything from health care to education and security and by building smart cities on a large scale, according to Chambers.
Industries and companies can do the same, he said. “Their profitability will be dramatically different than any of their peers and you’ll see them lead in an industry that will consolidate,” Chambers said of Barrick.
Although much of this technology has already being used, to varying degrees - and with mixed success - the two men say the degree to which Barrick plans to embed and integrate technology across almost every aspect of its operations is unique. Virtually every scrap of data, from fuel use to tailings waste, would be digitised.
“This is where basically at the chairman level, CEO level, you’re saying we’re completely aligned, we’re going to change an industry,” Chambers said. “It’s the first time that we’ve done it with this type of commitment from the very top.”
For miners, the question will be what will happen to them as tech takes over. Thornton wouldn’t be drawn into a discussion about the potential for job losses, saying it’s too soon to know. Instead, he said that as workers learn new skills, the opportunity to deploy them elsewhere in the business will increase.
Room to backpedal
By rolling out the technology in stages, the company has left itself room to backpedal if the first 15 months don’t go as planned. However, the key for markets will be whether Barrick goes beyond the “bits and pieces” approach to adopting industrial software that has been typical of global miners, said Michael Siperco, an analyst with Macquarie Capital Markets.
“I don’t think mining is quite there yet, just because of how immediate and near-term focused it is, and the tendency to not want to invest in new technology unless you have to,” Siperco said in a telephone interview from Toronto.
Thornton has long bemoaned the fact that gold mining techniques are antiquated human-driven processes and sees this as the next step in an overhaul of Barrick that included the sale of $3.2 billion in assets last year alone, the closing of offices in Perth, Australia, and Salt Lake City, Utah, and the adoption of a decentralised management model that shifted more power to mine operators.
After five straight annual declines, Barrick shares have rallied 123 percent this year, beating the average gain among major bullion producers. Gold is up 25 percent this year.
It’s an incongruous partnership between a company that makes its money digging metal out of the ground and one that profits, at least in part, from floating information above it. But Siperco says it may also prove to be key to solving the major limitation all miners face: namely the product they sell is finite.
“As we get into a world where grades are falling and new deposits are harder and harder to find, and more remote, and in more typically environmentally sensitive areas, then innovative ways to find new deposits and innovative ways to mine those deposits with minimal environmental impact - that’s got to be the way of the future.”
* With assistance from Dina Bass