Prospecting for Gold Mines in the Supply Sector- by Dr. David Robinson

Dr. David Robinson - Laurentian University Economics ProfessorDr. David Robinson is an economist at Laurentian University in Sudbury, Canada. His column was originally published in Sudbury Mining Solutions Journal a magazine that showcases the mining expertise of North Bay, Timmins and Sudbury.

Dr. David Robinson

Mining supply and service companies don’t normally own gold mines, but there are gold mines out there for companies that are looking. With mining booming and commentators expecting the good times to last, some innovations are getting long-overdue attention. Others are still waiting for the right company, or the right innovator to stumble across them.  It is a good time to go prospecting.

To position your company for the long run, you might want to look at some of the wilder prospects right now.  The trick is to figure out where to look. If it were easy, everyone would be rich. Strong prices and sustained demand are making a lot of our companies rich, in fact, but there are still some pretty interesting properties to stake. Here are a few hints.

 Think about boots, for example. Everyone wears boots. Anyone who has spent a day on his feet at a mine site knows that boots aren’t perfect. The way to make money on boots is to find a way to make boots increase productivity, reduce injuries, and minimize time lost. But how?

The gold mine is probably in custom orthotics. Bad boots hurt workers and cost companies money. Custom insoles reduce fatigue, backache and stress on the knees. Fatigue causes accidents and backache calls for prescription drugs and time off.  Knee pain slows men down and lays them up. It can lead to knee surgery and drug costs. Providing free orthotics would more than pay for itself in productivity gains, reduced time off, and lower health care costs. This is one of those items that both companies and unions can support. It’s a win-win idea for labour and management.

And a win for the entrepreneur who gets it right. There is now sophisticated equipment to analyze gaits and posture. There is machinery to produce corrective insoles quickly and cheaply.  Somebody has to get into the mines with a system for fitting and fabricating custom insoles in volume.

Now think about air. Hot air is an essential element in getting financing for any mine project, but there is also gold waiting for suppliers in cold air. Teck Cominco announced in July it is considering wind power to get control of skyrocketing energy costs. Mining is an energy intensive process, and most companies are feeling the squeeze of rising energy prices. If it works for Teck Cominco, it is likely to work for other mines.

So how can a mining supply company make money on wind?  The trick might be to create an integrated power supply system for remote mines. Any mine that has to ship diesel fuel to a remote site is getting a double whammy from rising fuel prices – once to buy and once to ship. Wind, small-scale hydro and pumped storage are a very attractive combination that can both reduce and stabilize energy costs, starting in Northern Ontario.
Wind generation might even be combined with pneumatic storage and integrated with the pneumatic services system.  Air tools are a major energy cost. They are leaky, and there’s tremendous opportunity to improve efficiency. Mining companies need this kind of specialist service, especially with carbon pricing coming in.

Both of these prospects are becoming more attractive because of systematic shifts in the cost structure of mining. It is worth thinking about boots because the value of a worker’s time is rising. The more you invest in equipment, the more valuable good boots are. The higher the price of a bucket of ore, the more important good boots are.

Rising energy prices are another big story. They will continue to create opportunities. In fact, the mining sector may be one of the best places to get a foothold in the new energy economy – it is a specialized market where a lot of money can flow quickly. Off-the-shelf solutions will have to be modified to suit the industry.

These are not new ideas, but they are promising. Specialized firms that already understand mining have a significant advantage in trying to apply them.  And mining supply companies might take a lesson from other high-tech sectors.

There are big players out there prospecting for acquisitions. Stake your claim, do the preliminary development, and maybe mining’s Microsoft will come looking with a big bag of gold.

drobinson@laurentian.ca

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