01 February 2016

The Remaking of the Mining Industry

David Humphreys
2015, Palgrave Macmillan, 250 pages,
ISBN 9781137442000

Reviewer: Dr Diane Coyle OBE, Director, Enlightenment Economics

This is a fascinating account of how significantly the changing world economic order has affected one of the most basic of industries, mining. The second chapter, titled ‘China Changes Everything’, starts with an account of a session in the year 2000, in which executives at one mining company tried to forecast China’s future steel production. The latest year’s total was 125 million tonnes. The maximum estimate was that it would peak at 200 million tonnes. By 2010, China’s production had reached 639 million tonnes. “China’s 2010 output was off the scale of historical experience,” writes David Humphreys, a former chief economist at Rio Tinto and Norilsk Nickel.

Forecasting is tough enough when the future does not break with the past in such dramatic fashion, so it is no surprise that the executives were wrong. Nor has the task become any easier since 2010. “The commodity boom has passed, and the forces of globalisation are in retreat,” the author writes. Yet although China’s growth might be slowing, the centre of gravity of the global economy will not stop shifting away from the developed nations. The book emphasises the importance of geopolitics for the industry, but also, alongside the secular swings in demand, the challenges on the supply side. In the case of some minerals and metals, the costs of extraction are rising. Some, such as the rare earths, are becoming newly strategic because of their importance for specific, high tech, products. The book recounts, for example, a diplomatic incident in 2010, when Japanese coastguards arrested a Chinese fishing boat captain for straying into waters near some disputed islands. China extracted revenge by holding up the export of rare earths to Japanese companies for two months.

The book draws colourfully on the author’s extensive experience in industry. For instance, he describes conditions Norilsk Nickel’s mine in Siberia, where there is a Polar night lasting for 45 days, and 100 days a year when the temperature stands at minus 20 degrees C. The mine, which originated as one of Stalin’s gulags, is one of a number of prominent mining companies from emerging market countries. It becomes clear that mining has always been a political industry. The importance of the emerging economies means that the politics is even more complicated than it used to be, while other aspects of mining such as raising finance for investment and addressing environmental concerns, are also becoming more challenging.

Not surprisingly, given the experience of the past decade and a half, and the uncertain context, the book shies away from making firm predictions about the future of mining. Automated trucks are – of course – already in operation in Australia’s vast open cast mines. New technologies are making it possible to extract minerals from deep beneath the sea – or beneath Britain’s national parks, without an above-ground presence inside the boundaries. There is even a mining company planning to aim for space and mine asteroids. The technological possibilities are uncertain, and much will depend on prices of course. What David Humphreys does conclude is that it is a mistake to ignore the importance of the relationship between politics and economics. He concludes that if governments and the private sector recognise they need to work together on economically essential but politically controversial mining projects, there will be more investment in cleaner technologies providing the minerals we will need in future.