Value Creation in Mining: An Analysis of the Business Value Chain

This research aims to elucidate how economic value is generated in the mining business and what the sources of such economic value are. A predicament arises when asking what determines the value of a mining company. The relevancy of this question rests on the influence of mining in economics and society at large. This subject has become even more critical during the first decade of the 21st century, when an escalating demand for resources boosted the influence of mining on the global economy. In mining, there is an ingrained consensus that value creation occurs predominantly in the productive stages of the business. Yet, the mining industry is largely different from other industries in that its prime asset is its mineral resource, which is finite. This research question addresses a series of deficiencies in the way mining’s value is conceived and measured, arguing that mineral resource management is the main lever of growth and value creation. In addressing the research question, this investigation makes use of the value chain concept to model the mining business. Under this frame, two studies of value creation are performed - first, an exploratory analysis of value creation in mining; and secondly, a simulated case study for value creation of a hypothetical geological resource. Additionally, the discussion is strengthened with a comparison between the mining and the oil and gas industries. This research highlights several management practices from the oil and gas industry to support the proposition that value creation in the finite, non-renewable resource business is driven by mineral resource management rather than by productivity and costs. Outcomes of this study challenge the archetype that value creation in mining is driven by productivity and cost efficiency. Conversely, it is proposed that value creation in the mining industry is mostly driven by mineral reserves growth, which in turn is the result of an effective management of the mineral resources. A concluding analysis shows that what mining may need in order to improve its competitive advantage is a new organisational framework. It also concluded that a mineral resource management focus is vital, not only for strategy formulation in the resource business, but also for policy formulation in economies that are based on the exporting of finite, non-renewable resources.