How to disrupt mining's 40.000 years old industry - New playbooks when bad customers make great competitors

40.000 years (and counting) of mining

Mining has been integral to human progress since the dawn of civilization, providing the raw materials necessary for tools, structures, and technological advancements. Archaeological evidence suggests that mining activities date back as far as 40,000 years, with early humans extracting red ochre for pigment and, later, flint for tools and weapons. Around 3000 BCE, early civilizations like the Egyptians and Sumerians developed sophisticated mining operations for gold and copper, while the Greeks and Romans later advanced these techniques with innovations like fire-setting and hydraulic mining.

The medieval period saw mining evolve further, particularly in Central Europe, where silver and lead production flourished. The introduction of the blast furnace in the 14th century revolutionized iron production, while the Renaissance brought scientific approaches to mining. The Industrial Revolution then drove unprecedented demand for coal and iron, transforming mining into a large-scale industry.

Alfred Nobel's invention of dynamite in 1867 completely revolutionized mining. Before this, mining relied on crude tools and unstable explosives, making it both inefficient and dangerous. Dynamite changed everything: suddenly, miners could blast through hard rock safely and efficiently, accessing previously impossible deposits. This marked the beginning of a pattern that continues today: whenever the industry faces limitations, innovation breaks through them.

The 20th century brought waves of transformation through mechanization. Steam and diesel-powered machinery, mechanical drills, and power shovels made open-pit mining economically viable for the first time. After World War II, the development of massive haul trucks, sophisticated drilling equipment, and advanced processing methods pushed mining to unprecedented scales. The industry evolved from a labor-intensive business to a technology-driven one.

Today, mining is more important than ever. But the industry stands at a critical juncture.

Let's dive in!

Mining's second age

While mining has always been fundamental to human progress, its importance is set to reach new heights: the next three decades will likely be defined by an unprecedented demand for minerals and metals.

Let's put this in perspective: mining is already a $2.2Tn global industry, with critical metals accounting for $320Bn. However, these numbers are set to grow dramatically. The energy transition alone presents a staggering challenge and an immense need for metals. Each electric vehicle battery requires around 200kg of critical minerals, including lithium, cobalt, nickel, and rare earth elements. Wind turbines need specialized metals for their magnets, solar panels require silver and silicon, and the power grids that connect it all demand massive amounts of copper (and many more metals). Even the production of green hydrogen, touted as a key future fuel, relies on some of the world's rarest metals like platinum and iridium.

The scale of demand is almost difficult to comprehend. Take copper as an example: demand is expected to nearly double from 25 million tons today to about 50 million tons by 2035, just to deploy the technologies needed for net-zero targets. Yet, based on current production trends, we're looking at a supply shortfall of 10 million tons by 2035. By 2050, we might only be producing 20% of the copper needed to meet climate goals.

But the energy transition is just one piece of the puzzle. The next few decades will see explosive growth in advanced manufacturing, artificial intelligence infrastructure, space exploration, and countless other technological advances - all of which require specific minerals and metals for the products and infrastructure powering them. The rollout of 5G and eventually 6G networks, the expansion of data centers, and the growing Internet of Things will create additional demand for everything, from gallium to germanium.

The implications extend far beyond the mining sector itself. The availability and cost of these critical minerals will influence the pace of technological advancement, the feasibility of climate goals, and even geopolitical relationships. Countries and companies are already positioning themselves to secure supply chains for these essential materials, leading to new patterns of international cooperation and competition.

The industry that helped launch the first industrial revolution will be equally crucial in enabling the sustainable and technological revolutions of the 21st century. But mining is facing significant challenges, the first of which is the depletion of easily accessible deposits.

Spending more, finding less

Mining has become harder, and (financially) riskier.

Mining companies are being forced to dig further, higher, and deeper, driving up costs dramatically. For instance, copper production costs have increased by over 300% in the past 15 years, while ore quality has declined by 30% on average. This trend is likely to continue as we exhaust the most easily accessible resources.

On top of that, we are also discovering fewer and fewer deposits. In 2023, there were 2.235 exploration companies actively searching for nonferrous metals, collectively spending $12.8Bn across more than 15.500 projects. The result? Only about 45 new discoveries - a far cry from the 10-year high of 175 new deposits in 2012. Even more concerning is the cost of making these discoveries. In Australian mines, for example, it now takes approximately $200Mn to make a single discovery, a dramatic increase from $65Mn prior to 2005. This stark reality highlights a troubling trend: the industry is spending more money to find fewer deposits than ever before.

That's because the odds of success in mining exploration are staggeringly low. For example, Rio Tinto's experience shows that less than 0.1% of exploration targets advance to development, meaning 999 out of 1,000 potential sites don't make the cut. Similarly, the Spanish mining sector provides another sobering perspective on exploration success rates. Among smaller mining companies, the numbers tell a brutal story: out of every thousand projects initially studied, only a hundred make it past detailed evaluation. Of these hundred, only ten ultimately succeed - translating to a mere 0.1% success rate, which matches Rio Tinto's experience, suggesting that regardless of company size, finding economically viable deposits is like looking for a needle in a haystack. As a matter of fact, research by MinEx consulting shows that the average rate of return on investment in mining for 2012 was globally less than 1. Risky business, indeed.

That said, the odds of finding a major deposit vary dramatically depending on where you're looking. Overall, in completely unexplored areas (greenfield), the success rate is a mere 0.3% - that's just three successes per thousand attempts. The odds improve to 5% when doing brownfield exploration (exploring near existing mines). Mining exploration is a game of extremely long odds.

Ultimately, the high costs and low success rates discourage companies from conducting greenfield exploration, leading them to focus on extending resources at known deposits. While this approach might be less risky, it's also less rewarding and does little to address the looming supply deficit for many crucial minerals.

What makes this situation particularly concerning is its timing. As previously highlighted, as the world accelerates its transition to clean energy and electric vehicles, the demand for minerals is set to increase dramatically. Yet the industry's ability to discover new deposits is diminishing just when we need it most.

Traditional approaches to mineral exploration, largely unchanged since the 1990s, are becoming increasingly ineffective. The industry screams for innovation. But before we dive into how startups are/can disrupt this industry, it's important to understand its key stakeholders and workflows.

The lifecycle of a mine

Mining is a complex, multi-stage process that extends far beyond the simple act of extracting minerals from the earth. Each mining project follows a structured lifecycle consisting of five distinct stages: exploration and prospecting, planning and evaluation, construction, production, and finally, rehabilitation and reclamation. Understanding this lifecycle is crucial to grasping the industry's complexity and challenges.

Everything begins with exploration. This initial stage is where geologists search for mineral deposits using various sophisticated techniques. They employ geological surface mapping, geophysical measurements, and geochemical analysis to identify promising areas. Advanced technologies like airborne surveys and satellite imaging help narrow down potential sites, while drilling programs confirm the presence and quality of deposits. This stage is particularly crucial as it determines the economic viability of any future mining operation.

Once a potentially viable deposit is identified, the project moves into the planning and evaluation phase. This stage involves extensive technical, financial, and environmental assessments. Mining companies create multiple development scenarios, each considering different variables like timespan and extraction volumes. They must address safety concerns, environmental impact, and economic viability through various studies, from preliminary economic assessments to detailed bankable feasibility studies. These studies can take years to complete and cost tens of millions of dollars.

The construction (aka development) phase transforms plans into reality. This stage typically spans several years and involves building everything from access roads and processing facilities to employee housing and environmental management systems. The complexity of construction varies significantly based on the mine type - whether it's an open-pit or underground operation - and its location. Remote sites often require building entire communities and infrastructure networks from scratch.

Production represents the operational heart of the mining lifecycle. Modern mining employs two primary methods: surface mining, which removes overlying rock to access minerals, and underground mining, which tunnels beneath the earth. The choice between these methods depends on factors like deposit depth, mineral type, and economic considerations. During this stage, the focus is on efficient extraction and processing while maintaining safety and environmental standards.

The final stage, rehabilitation and reclamation, begins long before the mine closes. Mining companies must plan for closure from the project's outset, with governments requiring proof of both plans and funding for rehabilitation before issuing permits. This stage involves removing hazardous materials, stabilizing land against erosion, restoring ecosystems, and ensuring water quality. Some companies go beyond basic reclamation to fully rehabilitate sites to self-sustaining ecosystems or repurpose them for alternative uses like agriculture or renewable energy facilities.

That said, as discussed, the mining lifecycle's greatest challenge lies in its front-loaded risk structure. The first two stages (exploration and evaluation) demand massive upfront investments while offering the least certainty. Companies must spend millions on exploration programs and feasibility studies before they can even determine if they have a viable mine.. and most exploration projects fail to identify viable deposits, and even promising discoveries can prove uneconomical during detailed evaluation. Clearly, more technological innovation could ease these pains. But before we get into that, it's important to understand the stakeholders in the mining value chain better.

Understanding the mining ecosystem

The mining industry operates through a complex value chain, with different types of companies specializing in distinct stages of the mining lifecycle. Understanding these players and their roles is crucial to grasping how the industry functions and where opportunities (may) lie.

At the beginning of the chain are the explorers, the industry's prospectors. These companies focus solely on discovering new mineral deposits, operating in perhaps the riskiest segment of the mining sector. The statistics are sobering: explorers have less than a 1% chance of finding an economically viable deposit, even after investing substantial capital. The cost of exploration has skyrocketed due to inflation, yet these companies persist because the potential payoff is enormous: a successful discovery can be sold to larger mining companies for hundreds of millions or even billions of dollars.

Once a deposit is discovered, developers take the stage. These companies work to transform promising discoveries into operational mines. The development process is lengthy and complex, typically taking around ten years from discovery to production. It involves multiple stages of evaluation, starting with initial scoping studies and progressing through preliminary and detailed feasibility studies. The costs are substantial: typically, 5% of the total project cost is spent just on feasibility studies and evaluation. Developers must secure permits, arrange financing, and build infrastructure, all while navigating increasing compliance demands and potential skills shortages.

At the top of the chain sit the producers: these are the companies actively operating mines and generating revenue. These range from mid-tier producers focusing on specific regions or metals to major global companies operating numerous mines worldwide. Industry giants like BHP, Rio Tinto, and Vale can reach market capitalizations exceeding $100Bn and operate diverse portfolios of assets across multiple continents. For investors, producers offer more stable returns compared to explorers or developers, though with less potential for explosive growth.

The industry is then supported by a rich ecosystem of specialized service providers, such as drilling contractors, mining consultants, equipment manufacturers, financing providers, etc.

This structure creates interesting dynamics within the industry. Explorers either fail and go bankrupt or succeed and cash out, making it difficult for them to build lasting advantages or invest in innovation. Developers face enormous capital requirements and regulatory hurdles, often leading to consolidation or partnerships with larger companies. Producers must constantly balance maintaining current operations with securing future resources, either through their own exploration efforts or by acquiring successful explorers and developers. Is the industry's structure stifling innovation? Are founders building in the space? Let's dig more.

Why mining tech struggles to strike gold with VCs

$2.75Bn.

That's how much VCs have invested in mining tech companies over the past 10 years (data from Tracxn). One-third of it was raised by a single company, KoBold Metals. In 10 years, mining raised the equivalent of last year's Amazon round in Anthropic.

It's not like there's no room for innovation, quite the opposite, especially in the age of AI. We've seen what the lifecycle of a mine looks like: I argue that mining could benefit from tech at each stage, whether it's using remote sensing and advanced satellite imagery to revolutionize mineral exploration, autonomous vehicles, fleet management, real-time analysis tools in the field, GIS, ERPs, etc., technology could transform how mining operates. But clearly, investors are not that excited to pile money into MiningTech. Founders are also unlikely to build something in the space. It's a vicious cycle. Why is that? Well, there are two primary reasons why the space is not really attractive from a VC perspective.

The first major barrier is market concentration. Mining is an industry dominated by giants, with a handful of companies controlling the majority of global production. Today, the top 5 mining companies account for over half the global market share, with industry leaders BHP and Rio Tinto commanding 16% and 12% respectively. These guys are (really) slow dinosaurs. Building relationships with these major players can take years of persistent effort, and even then, those relationships are often fragile: a key contact championing you internally leaving the company (or moving to a different department) can set you back to square one (believe it or not, I've spoken to a founder who experienced exactly this problem!). While smaller mining operations exist, they typically lack both the resources and inclination to adopt new technologies, with some operating in regulatory gray areas that make them hesitant to engage with external vendors. The result is a very limited addressable market for startups, with extremely high barriers to entry.

The second fundamental challenge lies in what we might call the industry's unique "cadence." Unlike other sectors that operate on predictable cycles like manufacturing or agriculture, mining moves to the beat of the orebody itself. This creates a distinctive dynamic where most critical decisions about technology and operations are made once, at the beginning of a mine's life. These choices, from mining methods to equipment selection and facility layout, are literally set in concrete and extremely difficult to change later. So for example, if you are a startup developing innovative equipment used in operations, you better not miss that small window of opportunity.. which means lobbying way before that! Tough!

This rigid structure is further reinforced by the economics of mining, where high-margin material is typically extracted early in a mine's life. As operations progress to lower-margin deposits, it becomes increasingly difficult to justify major capital investments in new technology. The cyclical nature of commodity markets adds another layer of complexity. During boom times, when companies might have capital to invest, the pressure to rapidly add capacity pushes them toward proven technologies rather than innovative solutions. For startups, this means the window of opportunity to sell new technology into a mine is incredibly narrow: miss the initial development phase, and that opportunity might not come again for god knows how long.

So obviously, this industry is a hard sell, for both founders to build startups, and for VCs to finance them. However, where one sees problems, another sees opportunities. What the industry needs is a completely new approach, new models if you wish, in order for it to digitize. Brilliant founders can actually take advantage of all the drawbacks of serving tech to mining companies as customers, using tech internally and acting as competitors by vertically integrating.

Product innovation meets business model innovation

Just like successful selling requires qualifying more leads, building more mines requires widening the top of the funnel. It's as simple as that. What if you build technology that allows you to more efficiently and accurately identify viable deposits? In the age of AI, it should be a no-brainer. And that's what many companies have done.

So, you go out in the market to the "big guys", and they say: "Very cool!". And then, tech does not get adopted. So you either close shop, your stock tanks (see: SensOre), or you reinvent yourself. You don't want to give up, so you start thinking: if your target industry resists adopting disruptive technology (for whatever reason), why not use that technological advantage (supposed it's actually there) to compete directly in their market? Slow, tech-adverse players make bad customers, but excellent competitors: this is the rationale of multiple emerging startups in mining tech (and of some OaaS companies in AEC, too!). It's a fundamental shift in the business model paired with a great tech product, and that's what pioneers likeEARTH AI, KoBold Metals, and Durin are doing.

Earth AI represents perhaps the most vertically integrated approach: founded in 2017, the company combines artificial intelligence with hands-on drilling operations. At the heart of Earth AI's operation is its Mineral Targeting Platform (MTP), which processes vast amounts of geological data to identify promising deposits in unexplored areas. However, rather than simply providing technology solutions, Earth AI owns the entire exploration process, from initial discovery to validation. The company deploys its own mobile low-disturbance (MLD) drilling technology to collect mineral samples, effectively validating its AI's predictions in the field. This integrated approach has, to date, yielded remarkable results: Earth AI has achieved a 75% discovery success rate (that's orders of magnitude better than any traditional operation). Even more impressive, they've managed to reduce exploration costs by up to 80% compared to traditional methods. Hence, instead of simply selling software (which, as we have seen, does not work), the company acquires mineral rights to promising areas, validates the deposits through drilling, and then sells these rights to major mining companies (these rights can go for anywhere from $500 million to $2.5 billion). Parallely, the company also has exploration alliances where partners cover Earth AI's costs in exchange for the company receiving a 2-3% royalty, effectively getting paid to learn and refine their process. In just six months, Earth AI managed to make approximately 7% of all the discoveries the entire industry made in 2023 (with a total of three discoveries!). Their most significant achievement includes a porphyry molybdenum deposit discovery with an impressive 1 in 8 success rate, and the entire exploration process cost approximately $2m and was completed within 3-6 months from initial detection to drill-testing. The company has uncovered one of Australia's largest palladium systems and, just recently, they announced the discovery of a new gold system at their molybdenum-gold project in Willow Glen, together with a new $20m oversubscribed funding round.

KoBold Metals, founded in 2018, takes a different approach to modernizing mineral exploration. KoBold's technology stack is built around two main platforms: TerraShedSM and Machine Prospector. TerraShedSM functions like a "Google Maps for the earth's crust," aggregating and structuring geological data from diverse sources including government repositories, satellite data, and even century-old handwritten reports. Machine Prospector then uses this structured data to identify potential mineral deposits, employing both physics-driven models and statistical algorithms to detect promising anomalies in the earth's crust. The difference with EarthAI stands in the business model: unlike Earth AI, KoBold operates more as a hybrid between a software provider and a junior mining company. They partner with major mining companies like BHP, Vale, and Anglo American, but rather than selling their software as a service, they participate in equity-based collaborations and joint ventures. This approach allows them to share in the upside of successful discoveries while leveraging the operational expertise and resources of established mining giants. To date, the company's most notable achievement is the Mingomba Copper Deposit in Zambia: this discovery is potentially the largest copper find in the country in a century, with planned investments reaching $2.3Bn over the next decade. The project is expected to produce at least 300,000 tons of copper annually. Beyond copper, KoBold has expanded its exploration footprint to include lithium prospects across diverse geographies such as South Korea, Australia, Namibia, Canada, and the United States. They recently raised a $537m Series C funding round that valued the company at $3Bn.

While Earth AI and KoBold focus primarily on the discovery aspect of mining, Durin is focused more on tackling the operational efficiency of drilling itself. Their approach centers on modernizing the actual drilling equipment used in exploration, with a goal of doubling current drilling efficiency. Durin is developing automated drilling rigs equipped with built-in geophysical sensors and real-time data streams. This technology aims to streamline the entire exploration process by enabling direct data transmission from the rig to geologists, reducing guesswork and accelerating decision-making. Their ambitious goal is to boost drilling efficiency by 90% through this technological integration. What makes Durin's approach unique is their vertical integration strategy, as they're planning to manufacture and operate their own fleet of rigs across North America. This includes handling everything from assays to geophysics and data analytics, effectively eliminating middlemen and reducing turnaround times.

Obviously, there's no such thing as a free lunch. These models require significant capital investment and a high tolerance for risk, factors that can deter many investors. As we've seen, Earth AI’s approach, for instance, involves acquiring mineral rights and funding its own drilling operations, which demands substantial upfront costs before any potential returns. Similarly, KoBold Metals participates in equity-based collaborations and joint ventures, requiring long-term financial commitments. It's clearly not a space for your typical generalist VC who prefers safer bets in SaaS.

Therefore, while there are promising early signs, none of these companies is out of the woods yet, and much needs to be proven. However, if anything, they teach an important lesson: sometimes, technological innovation alone is not enough. Sometimes, to truly disrupt an industry, you must combine technological innovation with business model innovation: a great insight for AEC-tech entrepreneurs, too!

Conclusion

With traditional exploration yielding fewer discoveries despite soaring costs and demand for critical minerals set to explode, the mining industry faces an unprecedented challenge. Yet throughout mining's 40,000-year history, technological breakthroughs have consistently overcome seemingly insurmountable obstacles.

However, today's story of mining's modernization offers a crucial lesson for anyone trying to transform traditional industries: sometimes, breakthrough technology isn't enough. Today a new wave of technology-driven companies is reimagining how we discover and extract these crucial resources.

Companies like Earth AI and KoBold are succeeding (or at least, showing promising signs of such success!) not just because they simply built better technology, but because they had the courage to reimagine the entire business model of mineral exploration. Their approach (using technological advantages to compete directly rather than just selling software) might become a blueprint for disrupting other resistant industries (spoiler: we are already seeing it in AEC - see robotics with OaaS models for example!).

Well, that's it! Feel free to reach out if you want to share thoughts, or leave a comment - I'll be happy to get your perspective.

By the way, I'll have a second on mining, which will take a different perspective on how to solve the huge minerals and metals needs. Stay tuned!

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