Emerging Tech

4IR Technology: You’re Probably Too Old to Understand

To a lot of people, mining is old.

The industry itself is ancient, sure. But I’m referring to people who see that the median age of coal miners is 44.7 and 46.7 for nonmetallic mineral miners. It looks like a “graying” industry to these people.

On average, mining workers are much older than retail workers, Silicon Valley programmers or even the broader working population of the U.S.

As with agriculture, mining is an industry dominated by baby boomers.

To some people, this is the reason these industries tend to adopt technology slowly. Some might say old people don’t understand technology and that’s why these industries struggle.

But I don’t believe age is to blame.

Instead, the culprit is the boom-and-bust cycle of commodities.

In boom times, miners and other resource extractors can’t burn through money fast enough to grow.

During busts, the easiest fix is to lay off as many people as possible, shutter mines and clamp valves, and wait for the price environment to get bullish so the process can start all over again.

A New Era of Mining

Right now, the extraction industries are ripe for disruption.

And like agriculture, the mining industry is undergoing a shift. This one could unlock $320 billion over the next decade… and it will impact everything from coal to gold and all the spots between.

Coal’s Warning for Gold?

In 2017, gold and coal miners have largely trailed the S&P 500 Index…

As you can see, the price of gold has struggled – and that’s despite all the political uncertainty spreading across the globe.

Shares of Barrick Gold (NYSE: ABX) are down 9%. Meanwhile, shares of Goldcorp (NYSE: GG) have slipped a more modest 3%.

Of course, that’s nowhere near as bad as Cloud Peak Energy’s (NYSE: CLD) 24% decline.

Meanwhile, the coal industry has gone through myriad bankruptcies over the last several years. Nearly half of all U.S. coal comes from companies that have declared bankruptcy in the last four years.

The coal industry is on life support… and it’s because demand for its product is waning.

In 1920, U.S. coal employment peaked at 785,000. By 1980, it had dwindled to 242,000.

Last year, there were 53,000 workers in the U.S. coal mining industry.

And yet, from 1980 to 2015, coal mine productivity jumped 225.4%, from 1.93 short tons per miner hour to 6.28.

The coal industry began embracing new technologies such as automation in open-pit mines in Montana and Wyoming.

You know what happened? It worked.

Today, coal companies in the Powder River Basin in Montana and Wyoming can produce 11 times as much per miner hour as traditional underground mines in the Appalachian Basin.

There’s no need for coal industry employment to rebound to 1980 levels, let alone the 1920 peak. We produce more coal than ever before, with a lot less people…

The Golden Dawn of Disrupters

Anglo American (OTC: NGLOY) is a gold miner that has invested heavily in Fourth Industrial Revolution (4IR) technology to improve productivity and safety.

At the company’s Kolomela mine in South Africa, automated drills are hard at work. It’s one of the first autonomous drilling projects in South Africa.

Operators of these drills sit in a command center that’s miles from the pit.

Shares of Anglo American are up more than 33.5% in 2017.

But this is only the beginning.

Goldcorp believes the mining industry is “overdue for radical, disruptive innovation…” Earlier this year, it held a disruptive mining technology competition with Integra Gold.

Over the next three years, four out of five mining companies will increase spending on 4IR technologies, including automation, robotics, mobile technology and the “Internet of Things,” not to mention cloud infrastructure, machine learning and artificial intelligence (AI).

It’s all about efficiencies, cost savings and increased productivity, all of which will combine to make miners more nimble and profitable.

In a recent survey by Accenture (NYSE: ACN), 46% of 200 mining companies said 4IR was the biggest contributor to innovation.

The mining industry is expected to benefit from a $190 billion windfall because of the shift to more technology and automation.

The metals industry is expected to see a $130 billion benefit over the next decade. A lot of that will be in the form of increased productivity – just as we’ve seen with coal.

But the trend has its drawbacks. By 2025, it’s estimated more than 330,000 miners will lose their jobs, replaced by AI, robots and machines.

The coal industry serves as a potential poster child for this trend. Both the positive and negative aspects…

Keep an eye on this going forward.

Good investing,

Matthew