Who's Making Money pt2 – Startups and Business Models in the Mining Value Chain

David here. In the next few min you’ll get:

💡What’s New: Exploration mining tech and the value startups offer

🤔 Opinion: Why am I doing this? – The reason I chose AI and resources

🛠️ Tools and Data: Brand new tools and tutorials to accelerate your work

Want to feature your service or product in DRIFFT? Grab an ad spot here.

💡What’s new

We continue a series on startups in commodity resource tech, focusing on mineral mining. Last week I covered phase 1 of the resource value chain, Exploration.

This week I discuss phase 2, Extraction. This is the phase most people think of when they hear about “mining”.

Think dynamite, dump trucks, and conveyer belts.

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Extraction

Pull ore out of the ground. Activities include digging, blasting, tunneling, transporting, refining, and assaying, etc. Additional exploration will typically be done by miners.

Value: 000s of $Ms. Next to exploration, mining is the greatest value-additive link in the value chain. It is also one of the costliest and challenging.

Example Startups and Business Models

Tagiuk Gold in Nome, Alaska (one of numerous “junior miners”) is mining the ocean floor for gold. Their main prospect is in nearshore shallow seas. They’ve adapted methods used for environmental remediation, such as a “level-cut clamshell” to target only the layer with gold while minimizing impact to the fine “hardpan” that can generate a lot of turbidity. Undersea mining has received quite a bit of news coverage lately due to The Metals Company, which is also mining the seafloor using drone and AI tech in the deep deep middle of the Pacific Ocean.

Most junior miners have a straightforward business model: Own mineral rights, extract and process ore, and sell it for a profit when the price is high. They usually secure “off-take” agreements (i.e., sales contracts) with larger companies for the resource. Other business models can include equipment and crew for hire and related contractor services. Note: Contractors can often demand a premium with the benefit of being able to spread their risk over multiple projects.

Why they matter:

Junior minors make up the majority of the mining industry (count of companies) and IMO could be the most important piece of the puzzle to an electric energy future.

As with tech, so mining startups take the majority of the risk and are subject to a high failure rate. The value of junior miners lies both in containing the risk as well as their ability to control expenses while innovating new processes and technologies. Hence, junior miners can also be a source of valuable intellectual property.

Another interesting aspect to this group is their ability to produce mineral even as prices sharply rise. Let me explain that last bit.

If prices for minerals rise sharply, there is little incentive for large companies (e.g., Glencore, BHP, Freeport McMoRan) to mine more resources to meet demand. Why? Because they can make as much or more money selling fewer resources! And their job is to maximize their profits, which also entails maximizing the life of their assets, the mines. That’s why when demand rises sharply, often supply does not follow and we inevitably see supply shortages.

As the latest technological advantages (AI, robotics, etc) become more widely available at lower cost–as happens in technology markets–junior miners will be more likely to generate a steady supply of resources to meet demand. The ability of these juniors to adopt tech may determine winners and losers for years to come.

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Related News Highlights

• Three must-see videos on drone mining, MIT robotic revolution, and invisible mines by the American Geosciences Institute.

• Norway is going to mine its undersea resources.

• DeepMind built an AI tool that could impact what materials get mined by predicting novel material synthesis. Berkley is implementing an automated testing lab to speed up verification.

• A new mineral mapping project in southern Africa has begun.

• An interesting discussion of electric vehicle mineral waste.

• Learn why multiple survey and extraction technologies are required for pinpointing minerals.

• An interesting example of how automation reduces the need for human labor in mining.

• A fresh look at how geopolitical issues will likely extend the timeline and cost of energy transition plans.

🤔 Opinion

Why are we doing what we’re doing? That’s a great question as we close out 2023. Without a specific direction, we can end up just doing random things and expecting the results we want. I don’t like this approach.

Any approach to life focused just on money isn’t a winning strategy either. I am not writing just because I like tech and mining, or because I think they’ll make me money (though hopefully they will).

As a young kid, I watched my childhood heroes grow old. All the excitement of their achievements quickly eroded and became irrelevant. I remember thinking to myself, “That’s gonna be me in 50 years.” I saw that money and fame didn’t last. Only relationships mattered.

People are the primary ingredient for an interesting and happy life.

The people we know and want to be around will outlast our achievements. That’s why I’m writing–to surround myself with interesting people and make a contribution to all of them over the next 30 years. I aim to help bridge commodity resource and AI tech. These industries have some of the coolest and most interesting people on the planet. And the possibility for new discovery and moving our world forward is profound.

If you’ve read my work to date, you know I believe bringing AI to the material world will redefine our lives. When everyone can afford a top-notch software designer, lawyer, or business coach, opportunities are unlocked for new enterprises, especially in physical resources. Based on all the data I can see, and what the market is telling me, the economy and transportation systems of tomorrow depend mostly on minerals.

We’re at a pivotal time in world history. I am glad you’re with me for this journey. I’m here to help us all win.

🛠️ Tools and Data

Thanks for reading! Want me to look into a particular topic? Email your suggestions and and I will dig.

David