Does regulation impede innovation in mining? Part 2: business model innovation

In the previous article, I offered some indirect causal linkages between investor protection regulations and the well-known systemic problem of incorporating new technologies into mines and their process plants. Now I turn my attention to a much bigger issue: business model innovation.

Updated terminology: in Part 1 I used NI43-101 as a proxy not only for other truth-in-advertising regulations (JORC, SAMREC etc) but also for the canon of standards and guidelines that it effectively (but not explicitly) mandates. People who disagree with me often reach for technicalities and semantics in the Instrument, so I am now going to use “The Canon” to represent investor-protection regulations and the standards and guidelines they invoke.

I am not opposed to truth-in-advertising rules: NI43-101 had, and perhaps still has, a valid purpose. It certainly improved the transparency, of the sector. But today’s challenges are a superset of the ones that The Canon addresses: they are complex, not just complicated; and they represent a viability question, not just a feasibility question.

Crossing the chasm

There might have been a time when we could think of the journey from discovery to production as linear: a risk-reduction exercise that takes a proponent across an access-to-capital gap. In this chasm-crossing mental model, an ore body lies hidden, data are gathered, a mine is [eventually] designed, and technical insight increases to the point where capital can be allocated. Environmental acceptability is a permitting task to be addressed through appropriate engineering standards, and social acceptability is a social-contract task that will be completed along the way at some tolerable cost to investors.

Crossing the chasm to access capital

This linear model is essentially today’s junior mining business model. Like all models, it is of course a simplification. Like all business models, its obsolescence is inevitable at some point. Like all regulated business models, regulations obscure the impending obsolescence from incumbents (as any New York taxi driver will confirm). If we want to think about adapting to change, we need business model innovation. I talk to a lot of people who privately agree that junior mining has gone off the rails, so the question “what next” is becoming urgent.

The Canon fits well with the linear model, because it gives power to experts – NI43-101 literally creates a technocracy. It tries to reduce fraud risk by focusing on the quantifiable and the procedural, which inadvertently suppresses the qualitative and emergent. This is a problem because the risks that are growing are the qualitative and emergent ones: they relate to human behaviours, ecological complexity, unstable geopolitics and volatile markets.

I find it helpful to think of the linear model not as a crossing-the-chasm analogy, but as a tunnel-through-the-aquarium analogy. The Canon provides the glass wall that leaves the technocrats in the tunnel untroubled by the external aquatic ecosystem and its chaotic behaviour on their journey to the capital-access destination. But in reality, the journey is no longer separate from these chaotic factors, and it is no longer true (if it ever was) that the “modifying factor” risks are retired once the mine is built.

Aquarium tunnel

I think of the tunnel as no longer reaching the other side of the tank. Yet the effort to elevate modifying factors in the conversation between proponents and investors is clearly not succeeding.

I have come to believe that the technocratic vision of junior mining, in which technical experts help retail investors decide to allocate capital to bring metals to a global free market, is expiring. It’s doomed because of a new world order of autocracy and fiat: regimes that still value consensus and human rights can no longer rely on free market laissez-faire policies (indeed, this is why critical mineral policies have emerged) and are facing existential raw material risk. Those regimes will need to decide whether to go all-in on consensus and human rights, which means subordinating the technocrats to something more holistic, or to take a chainsaw to their bureaucracies and judiciaries, and allow their vassal rentier corporations to do whatever it takes to supply metals.

There is a super important point here for technocrats: your enemy is not social scientists or environmentalists (or me!). It’s regimes that don’t care about the transparency you get paid to create.

Flipping the script

If we choose to defend values of consensus and human rights in mineral extraction, then we need to flip the script so that the conversation with investors is about viability, in all its human and ecological complexity, throughout the project lifecycle. In this mindset, geologic and economic feasibility must take second place (I know, heresy right?) because there is rarely going to be a single, complete, settled technical solution in the face of the more complex and emergent factors. Feasibility is still an enabler, but to win trust that addresses social complexity, we must be willing to change designs and make compromises. The idea of an ivory-tower once-and-done design must be seen as a bug, not a feature. The 21st century proponent must be able to demonstrate to smart investors that the design process is being used strategically and continuously to tame social complexity.

So what does this mean for The Canon?

You might argue that The Canon majors in technical aspects by intent, and everything else is for investors to judge according to the competence of the management team. I might counter that investors have a long history of overestimating management competence, and conspiring with proponents to ignore modifying factors. That’s one of the reasons the Lassonde Curve is observable, and it contributes to excessive development times for mines.

But I would actually agree. I think technical insight and transparency are necessary. But they are not sufficient, and they are no longer top of the heap. A linear-model technocracy cannot adequately address the more complex factors that are now submerging mine development projects. Because of this mismatch, I believe it is futile to ask the technocracy to do a better job of modifying factors. It would be better to draw a tighter technical boundary around feasibility studies by explicitly excluding all non-technical factors. Deleting “Item 20” from Form 43-101F1 (technical report format) would eliminate spurious reassurance and prompt investors to ask better questions.

Into the gap would appear a new standard for transparency in viability, of which technical feasibility is merely an enabling component. The new standard would provide assurance that the design process is fit for an era of social, political and environmental complexity – it would be akin to the shift in manufacturing from quality control to quality assurance. In other words, it would not merely address the compliance of the product of design.

This new design framework is what Inspire Resources is working on with a small group of aligned parties representing proponents, investors, fintech platforms and assurance organizations. Our goal is not to replace NI43-101, but to subordinate the technical design process to a human, collaborative and consensus-based approach to solving increasingly complex problems.

Conclusion

The Canon has created a technocratic framework for junior mining that cannot address increasingly complex non-technical factors, and that tends to discourage new investors from entering the sector. In the face of increasing global autocracy and instability, technocrats need to refocus on, and make much more open and accountable, a design process that addresses the needs of all stakeholders, not just shareholders.

This is where the future lies for the “43-101 cottage industry”.

Because autocrats do not care about transparency.