Technological Innovation and Sustainable Competitive Advantage in the Copper Industry – The Case for Corporate Investment in Step Change Technology

Proceedings, Vol. Proceedings of the 58th Conference of Metallurgists Hosting Copper 2019, 2019

Marsden, John O.

Technology development and innovation has played a crucial role in the copper industry throughout history. The effective development and implementation of new technologies allows mankind to produce copper at progressively lower cost of production at a given feed grade and mineral type. This progress serves to counteract cost escalation over time and, depending on the magnitude of the cost benefit, allows ore cut off grades to be reduced thereby improving the availability, accessibility and utilization of mineral resources. The development of step change technologies that can offer >$0.15/lb total cost benefits provides a significant opportunity for producers to achieve competitive advantage, but it has been argued that rapid dissemination of technology makes such competitive advantage unsustainable over time. This paper presents the results of a recent study that evaluates a number of historical and emerging step change technology case studies in the copper industry and quantifies the associated cost benefits for users, the impact on the production cost curve, and the duration of such cost benefits for various categories of implementers: first mover, fast follower, conservative followers and laggards. The results provide a compelling case for major, mid-tier and emerging copper producers to invest in technology development initiatives if they wish to achieve and sustain competitive advantage over the long term. INTRODUCTION AND BACKGROUND A key issue for mining companies is how much time, effort and cost to spend on research and technology development (R&TD). The economic drivers for technology development and implementation are poorly understood in our industry and the business case is clouded by some notable and well-publicized failures (McNulty, 1998). Mining companies are in business to deliver financial returns to investors. This means delivering short term results on a quarter-by-quarter reporting basis as well as sustaining and growing the company to retain and reward a sustainable longer term investor base. The cyclical nature of the commodity metal markets makes it challenging to maintain investment in research and step change technology development: Mining companies must manage through the highs and the lows of price cycles, typically ranging from 5-15 years in length. The discounted cash flow approach to investment evaluation results in weak financial justification for R&TD expenditures. A clear and compelling rationale to support longer term investment in research and step change technology implementation is required.

Keywords: Copper 2019, COM2019