|Summary: New trends in mining production and processing can bring about major change, but these disruptive technologies can upset the mining industry balance as much as in any other sector.|
|Key take-out: Current game-changing technologies in mining include new processing treatments for titanium and nickel, and in the production of the graphite derivative, graphene.|
|Key beneficiaries: General investors. Category: Commodities.|
Successful investing in resources stocks involves more than watching mineral demand trends. It also involves watching out for disruptive technologies that can dramatically lower the price of a commodity, such as the 75% price cut promised by a new way of making titanium.
Normally this is an issue for investors in technology stocks to fret about, but the same process of inventive change can be seen in basic industries. The Metalysis method of making titanium is the latest in a line of game-changing technologies which have turned, and will continue to turn, the mining world upside down.
Other examples evolving in the mining world include the development of new, low-cost, ways to make nickel, and even in the way bulk commodities such as iron ore and coal are mined using advanced automation and computer-controlled technology that give the user a significant cost advantage.
Further into the future, there is the development of entirely new mineral forms such as the production of graphene, a material made of graphite. It is just one atom thick but has properties that could displace other metallic elements, thanks to its excellent electrical conductivity, and extreme “thinness”, which might even have a use in the manufacture of condoms.
An earlier example of a disruptive technology was the invention of the Hall Heroult process to make aluminium, a step which dramatically reduced the price of the metal. One spectacular example of the price change was an 1855 dinner party in Paris, when less important guests of Napoleon III used gold cutlery while special guests used aluminium. Back then, the lightweight metal was more expensive than gold.
Changes to titanium
Titanium made from the Metalysis process is the game-changer of today, with ASX-listed Iluka Resources, the biggest independent producer of titanium dioxide and zircon in Australia, spotting what might be about to happen to titanium. The metal has never achieved the potential of its physical properties because it is so expensive to make.
Last week, Iluka moved to be a player in the change process rather than a victim by outlaying $22.5 million to buy an 18.3% stake in UK-based Metalysis, joining a group of venture capital providers and another big miner on the Metalysis share register, BHP Billiton.
What the Metalysis process promises, though it is yet to be demonstrated on a commercial scale, is a direct route to produce titanium powder. This is expected to have a significant market in another rapidly-emerging technology, 3D printing.
In its metallic form titanium has the highly desired properties of being lightweight and flexible, as well as being corrosion and heat resistant. Unfortunately, until Metalysis demonstrated a way to make the metal directly by electrolysis, titanium could only be produced by the 80 year-old, multi-stage, Kroll process.
In theory, all producers of minerals rich in titanium, such as ilmenite and rutile, should benefit from a reduced price for titanium metal and a corresponding increase in demand for a material popular with aircraft and carmakers, but which would have many more uses if the price was cut.
Iluka has opted to be at the cutting edge of a potential sea change in the market for titanium, and while the step from laboratory trials to commercial production is a big one, the indications are the Metalysis process is the real thing. Boeing and BMW are already in talks about using titanium powder to 3D print parts of their aircraft and cars.
If titanium is unleashed as a genuine “metal of the future”, thanks to a cheaper production process, it will not be the first, nor the last, to undergo a disruptive change.
Changes to nickel
Nickel, as investors in most nickel-mining stocks know to their cost over the past few years, has been hit by a new production technology called Nickel Pig Iron (NPI). It is not so much a technology as a cheap and heavily polluting way of extracting nickel from low-grade Indonesian ore.
Virtually unknown until a few years ago, NPI involves shipping unprocessed ore grading little more than 1% nickel directly to China, where it is fed into furnaces to produce a pig iron rich in nickel – which is then used to make stainless steel.
Indonesia hates the trade and is moving to ban it – while one of its biggest companies is also investing in another nickel-making technology called Direct Nickel. This process is owned by an Australian company of the same name, which has an ASX listing (DIR) but has been under trading suspension at its own request since mid-2009.
The Direct Nickel process is based on the use of nitric acid rather than the sulphuric acid currently used in processing low-grade ores at projects such as two in Western Australian They are Murrin Murrin, owned by Glencore, and Ravensthorpe, built by BHP Billiton but now owned by Canada’s First Quantum Minerals.
The big advantage of Direct Nickel, which has been successfully demonstrated at a CSIRO site in Perth, is that the nitric acid can be recycled, unlike sulphuric. This means the cost structure of a Direct Nickel plant will be less about recovering nickel and more about savings costs by recycling acid.
Automation is a disruptive technology primarily evolving inside the world’s biggest mining houses, because they have the capital and professional skills to invest in smarter ways to mine.
At Rio Tinto, a game-changing advantage is emerging under the trade-marked banner of “mine of the future”, with multiple streams of change being researched and introduced. These include driverless trains and driverless trucks, automated drill rigs, remote sampling and assaying.
The man in charge of the Rio Tinto project, John McGagh, describes the work of his team as providing a competitive advantage.
He said in an interview for a CSIRO magazine that mining was sucking in new technologies and engineering change to the point where it had become: “almost like the secret child of mining”.
“The MET (mining engineering and technology) sector is actually growing faster than the mining sector.”
What’s good news for Rio Tinto shareholders, in that their company should be able to cement its place as one of the world’s low-cost producers of iron ore, coal and copper, is not good news for smaller rivals with higher-cost operations.
As the commodity-price pendulum swings lower, it will be the low-cost producers that survive and prosper.
The graphene condom example, while seeming far-fetched, is being researched at the University of Manchester, the same place where single-atom thick graphite was discovered about 10 years ago.
The aim is to mix graphene with latex or polyurethane to produce a burst-proof condom.
Not strictly a mining development, it does involve the use of a mineral (graphite) to potentially change a very human technology (contraception).