1. { The Development of Mining Equipment, Technology and Service Suppliers [METS] in Australia Don Scott-Kemmis, October, 2014 1

2. Entrepreneurship New Venture Formation Risk Capital Knowledge Base Research, Transfer Exemplars, Mentors Networks, Angel investors Market Entry to MTSE Sector Firm Growth Upgrading New products & services Internationalisation Prior experience Role of the customer Demand, customers [primary & intermediate] Talent –knowledge & skill resources Knowledge Base Research, Transfer 2

3. Education & Training Organisations Coordination & Collaboration Customers Challenge, Competition & Technological Opportunity Research & Technology Organisations Complementary suppliers Investment in R&D & Knowledge acquisition Specialisation, Capability Upgrading & Innovation Collaboration & Acquisition Collaboration & Problem Solving with customers Competitors Rivalry, competition & collaboration Internal Knowledge Development Labour Market Hiring Sectoral, regional & cluster organisations Coordination & promotion of research & education initiatives Networks Cluster Dynamics: Drivers & Shapers of Specialisation & Capability Development Hiring & coordination 3

4. Major role in economic and industrial development in many countries: United States, Canada, Sweden, Finland, Norway, South Africa, Australia. These histories suggest:  A strong foundation of capability is important in capturing the opportunities  New challenges/ discontinuities often present major opportunities  Relationships with the mining firms, Tier 1 suppliers, and ‘owners of the problem’ are important  Opportunities for entry are often better in the production than in the investment phase  Entry is only the starting point for evolution and capability upgrading  Wider knowledge resources and infrastructure vital for upgrading  In most cases an active industrial development strategy was necessary to address barriers to entry and to promote upgrading. Resource-Based Industry Development 4

5.  Largest exporter: coal, iron ore, bauxite, lead, zirconium, titanium  Second largest exporter: gold zinc & uranium  Third largest exporter: silver, nickel, aluminium  More recently major gas exports  Mining accounts for 8% of GDP, but indirectly for probably 20%.  Exports about $140b in 2011 – approx 50% of exports  Investment approx $86b in 2012  Exploration approx $6b in 2011  R&D by mining companies approx. $4.2 b in 2011.  Currently cooling quickly  Economic resources increasing over time not depleting. Australia – a major minerals producer 5

6.  Low visibility of the Mining Supplier (METS) sector;  Mining seen as extractive, old, low tech  Not metropolitan – most very remote  Diverse minerals and locations– no geographical focus  Supplier (METS) sector diverse and not a statistical sector and hence low visibility.  Recent rise very fast after a long quiet phase But…. 6

7.  Size – at least 250 significant firms (40% <10 employees)  Turnover – A$71b in 2012  Employment – Over 250,000  Rapid growth – increased 500% over 15 years to 2012  Diverse  Exports – about 20% of sales in 2012  Offshore expansion – 27% of firms had offshore offices METS Sector in Australia 7

8. 8

9. Major Categories of METS 9

10. METS Sub-groups 10

11.   Changing role of the major mining companies – greater outsourcing released staff and grew a constellation of suppliers;   Local ‘unique’ challenges eg regolith   Long history of development of the knowledge infrastructure / strong knowledge base: education, organisational development (associations, AMIRA & tech organisations), research (univ, CSIRO, specialist, CRCS)   Increasing knowledge intensity – cost pressure, safety, environment   Technological discontinuity   Assets (knowledge, networks, relationships) development & reuse Australian METS Development -Critical Factors 11

12.   Services (eg maintenance)  specialist equipment or components   Problem solving  new software, equipment or service   Tier 3 project management  Tier 2  Tier 1   Entrepreneurial spin-off  professional service provider   Research organisations  specialist supplier (few cases) Overall   Systems integration  innovation on a wide frontier   Local  national  international  other user markets? Paths of Evolution for METS 12

13.  Vital for METS firms:  Most collaboration is with the mining companies or higher tier suppliers : For innovation/research activity:  Major mining companies prefer to collaborate with platform mechanisms eg AMIRA or CRCs  METS most likely to collaborate with universities  Some METS can see universities and CSIRO as competitors Collaboration 13

14. Australian ‘Minerals Innovation Complex’ Mining Companies Mining Equipment & Services Suppliers CSIRO Divisions & Mineral Down Under Flagship Mining Technology Innovation Centre Universities GeoScience Australia CRCs University Centres ACARP AMIRA International 14

15. Level of Challenge for Local Content and Supplier Development 1 (Low) 2345 (high) Capability gaps Product or service specialisation & complexity Criticality Single supply opportunity (lack of repetition) Supplier development potential declines from 1 to 5 Time and cost for supplier development rises from 1 to 5 Supplier Development Opportunities – Scope & Effort 15

16. Supplier Attractiveness Reputation Proven Product/ Service Solves a Significant Problem Commitment to support Proximity Fit with existing Technology/systems Familiarity with key people 16

17.  Finance and human resources for firm growth  Spatial dispersion- mining areas distant from major centres and from each other  Core technology and major project management largely imported  Research METS links not strong  Development of new learning processes- limitations of problem solving and experience-based learning Cluster Development Constraints in Australia 17

18. Drivers of Supplier Development 18

19.  Risk – that the use of local suppliers, in response to political pressure, will lead to higher costs and project delays, reducing returns to investors;  Compliance – meeting regulatory requirements may avoid sanctions and delays with approvals etc.;  Reputation – with the host government as a firm able to develop strategies to effectively build local capability and potentially be a preferred investor;  Cost reduction – greater development and use of local suppliers may lead to cost savings on imported equipment, parts and services;  Social licence to operate – use of suppliers based in local communities can provide benefits from resource projects to those communities, hence providing some compensation for the costs of such projects.  Maintenance and problem solving – capable local suppliers can reduce downtime and deal with production and development problems quickly. Procurement strategies resource - project developers 19

20.  Demand – particularly whether that demand is specialised, unusual or ‘leading’, in that it anticipates patterns of demand that will be more widespread in the future;  Input factors – The availability of high quality inputs of eg capital, labour, natural resources, infrastructure, knowledge;  Complementary and supporting industries and organisations – which provide goods and services (including research and education) to different stages of the value chain;  Competition and rivalry in the core sector – which drives competition and the ongoing search for sources of improved performance Eg Porter Frameworks for Cluster Development 20

21. Four key processes which reinforce each other:  New Entrants - the entry or formation of more, and a more diverse range of, organisations (suppliers, customers, intermediaries, sectoral organisations, research and education organisations etc.)  Interaction - increasing interaction (user-producer, competition, collaboration) among these organisations  Specialisation- increasing specialisation and capability upgrading within organisations (and through complementarity and cooperation at the level of groups), and  Institutional innovation - the development of institutions, policies and shared priorities. The role of “cluster” development 21

22. 22

23. Win license to operate Mine & refine efficiently Find high quality resources Mineral Resources *deeper *lower grade *more remote *more complex Human Resources *ageing workforce*skill shortages *hazardous workplaces Environmental Resources *water scarcity *energy costs *fragile ecosystems *more waste Social & Corporate Resources *accountability *community devel’t *sovereign risk *scrutiny High Level Objectives High Level Challenges Increasing: * Costs * Technical complexity * Social & polit. complexity * Risk * Capital requirement 23

24. Mineral Resources *deeper *lower grade *more remote *more complex Human Resources *ageing workforce *skill shortages *hazardous workplaces Environmental Resources *water scarcity *energy costs *fragile ecosystems *more waste Social & Corp. Resources *accountability *community develop’t *sovereign risk *scrutiny Find Discover Tier 1 deposits Explore deeper deposits Improve resource assessment Secure rights Mine Lower mining costs- labour, capital & energy efficiency Mine in more remote locations Lower mining impacts – water, emissions, safety, local community benefits Refine More efficient extraction Process complex ores Lower impact separation – energy, water, waste Sustain Attract talent & capital Maintain reputation Sustain ‘licence to operate’ Respond to greater regulation Challenges Performance Objectives

25. Find Discover Tier 1 deposits Explore deeper deposits Improve resource assessment Secure rights Mine Lower mining costs- labour, capital & energy efficiency Mine in more remote locations Lower mining impacts – water, emissions, safety, community benefits Refine More efficient extraction Process complex ores Lower impact– energy, water, waste Sustain Attract talent & capital Maintain reputation Sustain ‘licence to operate’ Respond to greater regulation Sensing & Interpreting Satellite remote sensing Rapid & mobile field geochemical analysis On-line analysis Continuous slope and wall stability detection Decision Support Tools Data integration & 3D modelling Whole of mine planning & scheduling software Smart Machines Automation & remote control Robust low maintenance equipment Fragmentation Block caving & low energy mining Smart blasting design & formulation Extraction Smaller in-mine primary recovery Dry processing & on-line automatic sorting In-situ leaching Sustainability Whole of life social & env’l assessment & planning Lower energy & water using techniques Innovation Trajectories Performance Objectives 25

26. Mining Innovation Roadmap Deepening and Distributed Knowledge Base Geology, Geo-Chemistry, Mining Engineering, Fluid Dynamics, Mechatronics, Signal Processing, Civil Engineering, Mechanical Engineering Software engineering, Microelectronics, Communications Technology, Simulation, Artificial Intelligence, Plant and Animal Ecology 26

27. Step Change Innovation in Mining: the case for institutional innovation Corporate Innovation Miners / Suppliers Strategic differentiation Appropriation of IP Collaboration Complexity Cost & risk Avoid dependence on one supplier Shared knowledge platform Equity in cost & benefit Coordination Global/National Standards Organisations Funding 27

28. Core Mining & Processing Equipment Core Engineering Design & Project Management (EPCM) Contract Operations Consulting Services General Equipment & Components Specialised Technology Information Technology Equipment and Related Services Other Services General Support Services Drivers of Opportunity, Innovation and Capability Development Mining co’s outsourcing exploration Mining co’S outsourcing EDPM Mining co’s outsourcing mining operations Mining co’s outsourcing specialist analysis Demands for improved control & safety Rising knowledge intensity of mining Local innovations & adaptations to imported equipment Local innovations to meet new needs Local innovations and adaptations to replace, improve, extend imported equipment Innovation in management systems to underpin productivity Increasing scope and capability 28