Data as a Competitive Differentiator for Growing Mining and Metals Companies
The life cycle of a mining company is well known. A small company with a potentially lucrative claim fights to attract the attention of investors. If they are successful, they must bring their mine to operational status and prove that is profitable. If the mine continues to perform well, the company will often position itself for a buyout by one of the majors. This path is both well-trodden and dangerous, with perhaps only one in fifty companies reaching the buyout phase. In such a competitive environment, every edge matters. Data is one of the greatest edges a company can have. Better data on weather and fuel prices allows for smarter hedging and operational savings, accurate financial market and forward curve data can lock in a profit on outputs, and macroeconomic data can help determine optimal production levels.
Data is crucial for all sizes of mining company
The data needs of a mining company depend on its size. A small company, focused on securing the funding to construct a working mine, must convince investors that it is viable. To do this it needs data, specifically data on the future prices of its outputs, costs of its inputs, and macroeconomic indicators as a proxy for future demand. With a reliable source of data in hand, the company is then able to present a compelling case to investors.
The historical price of copper scattered against yields on 5-year bonds, with a correlation of -0.661. Bond yields may be a good indicator of future copper value.
Once a mining company clears the hurdle of finding investors, the mine must be shown to be capable of producing profitably. Every dollar counts here, and again data provides a competitive edge. Up-to-the-minute data on key inputs such as the price of fuel and electricity means they can be hedged on financial markets, reducing volatility risks. The weather is also major factor in successful production. Having a reliable source for both current and historical weather data allows managers to make accurate production forecasts, which keeps labour costs down and boosts productivity.
Forward curves for: electricity contracts, in orange, and oil prices, in blue. Accurate forward curves making hedging simpler and more accurate.
Once the mine has shown itself to be a profitable producer with reliable deposits, it will often be targeted for a buyout by one of the mining majors. At this point, the company’s goal is to maximize its value, ensuring the largest buyout offer possible. Here, all the previously mentioned methods are useful to ensure the value is as high as possible. The price of outputs for both the primary product and any secondary products the mine produces can be hedged, boosting revenue. The same can be done with costs. Finally, longer-term profitability can be demonstrated using economic data to predict demand. Taken together, all this information ensures that the buyout offer for the company will be as large as possible.
Price of Uranium against price of natural gas, correlation of 0.617. A Uranium producer could use this to demonstrate the value of its production.
No matter the size of the company, data has proven to be a crucial advantage in the mining industry. It can cut costs, reduce risk, and boost profits at all stages of a company’s growth. In short, it is a true competitive differentiator.
Learn more: Listen S&P Platts & ZE Webinar Unravelling the Metals and Mining Strategic Data Conundrum in 2018.