The global mining industry is in the midst of a remarkable shift toward complete automation through technology. It has similarities with the automobile industry and the changes they went through over the last 30 years.

For example, Unmanned Aerial Vehicles (UAV's) are now performing geological surveys and investigating safety issues at mine sites and rigs. The US Geological Survey's head of UAV Projects Mike Hutt compared the cost effectiveness of using UAV's rather than manned aircraft. Hutt says that, 'It may cost $2,000 an hour to rent a helicopter...our costs for sending a couple of operators out with a system [UAV's] is under $200 an hour.'

If we look deep into central Brazil, VALE SA are constructing giant conveyor belts that start at their iron ore pit and go straight to the processing plant, eliminating the need for trucks all together. The whole operation monitored by a 'Star Trek' control room, satellites and sensors.

It's not so farfetched to see the whole mining 'pit-to-port' process being run by a few operators (with degrees in Computer Gaming) and automated systems. It really is mining of the future.

My point? There's a major shift happening right now to be smarter and better in the operation of mines across the globe. This shift is being driven by the need to lower costs. It's also being driven by the growing demand for resources and the difficulty of extracting them from increasingly challenging places.

But at its core, this isn't a mining story. It's a technology story. Once you understand how technology drives progress - and has for all of human history - unlocking new investment opportunities becomes a lot easier, and a lot more exciting!

The Natural Resource in Your Phone

Why is it that when you ask most people what their definition of technology is, they invariably talk about their smartphone, LCD 'Smart' TV with maybe a reference to an iPad or tablet of some description?

It's more than likely because the technology closest to them is their smartphone, TV or tablet. But look deeper and you'll find it's because of mining technology and innovation that a smartphone even exists.

What do I mean by that? Metals such as nickel, copper, gold, yttrium, lanthanum, and several others make up the bits and pieces of your phone. And the only way to get those metals is to mine for them. But they're not all so easy to; a) find, and b) extract.

It's the job of researchers, scientists, engineers, computer scientists, and an army of smart people to come up with new technologies and processes to find the resources we need, even for something like the humble smartphone.

But it's an evolutionary process. Fire wasn't discovered by 'Googling' it.

Ox Scapula and Innovation

At the core, technology and innovation are simply new or different ways of doing things with new or different tools and devices. There are endless examples of mining innovation through the course of history.

Our Neolithic cousins likely grumbled and grunted their way along until one of them had a 'bonfire (light bulb) moment' and figured out the scapula (shoulder blade) of the ox they were having for dinner was a better tool to dig with than their hands. And the shovel was born; innovation in its rawest form.

Likewise at some stage an innovative Egyptian in 2584BC probably said, 'Hey, let's take the strain off these poor donkeys and get some kind of pulley system going here.' Before you know it (alien conspiracies aside) we had the Pyramids of Giza.

History demonstrates to us time and again that through innovation and new technologies, we build a better world.

It's an age-old process that humankind has been accustomed to for thousands of years. See rock, smash rock, use rock, and figure out how to do it better.

We get a little better at the whole process each time by innovating. Sometimes we get a lot better at it. Innovation drives industry and industry creates wealth. Because we've been digging, mining and innovating for so long, we've become really good at it.

The daily wealth you see around you, embodied in complex technologies and innovations we now take for granted, is like a perpetual dividend paid by previously accumulated technological capital.

The problem is that increased demand from a larger and wealthier world has made it harder to find and extract the resources the world consumes. With exponentially rising populations, there's an ever increasing demand for food, water, housing, resources and energy.

It's real and we're starting to see the effects. The flow on from higher demand and limited supply of resources means higher prices, higher cost of production, lower productivity. It's a vicious cycle.

The loser in this shortage of resources is the end consumer. You see it in your electricity bills as energy prices rise. And it's literally killing people.

More than 2,700 people die each year in England and Wales because people can't afford to pay their bills. They can't afford to heat their homes and later freeze to death over the winter months.

The lives of people are at stake and that's why technology and innovation are so important today. Through new technology, resources previously thought to be uneconomical to get might just become available sooner rather than later.

Mining companies have realised that to stay competitive and profitable, they need to adapt, innovate and introduce new technologies at a faster rate than ever before.

Mining Costs Out Of Control

Why is it so important to introduce new technology and innovation now more than ever? Because mining costs are spiralling out of control.

Our very own Dr. Alex Cowie explained the distressing situation last week in his presentation at the Mines & Money conference in Hong Kong. Miners today are facing huge productivity issues as costs have exploded since the early 2000's.

You can see on the chart below cost increases of 256% in just 10 years. And one of the biggest increases is labour costs. When the Australian Bureau of Statistics reported in November 2012 that the average weekly ordinary time earnings for the mining industry was $2,360.90 ($10,230.56/mth) you can see where the problem lies.

Cost increases like this are company killers. It's no surprise that the world's biggest miners are pumping cash into R&D for new technologies to improve their productivity.

BHP Billiton and Rio Tinto have rolled out fully automated truck fleets to their mines across the Pilbara. No drivers, just a fleet of 14 metre long 164 ton trucks run by GPS and a computer!

You know they're serious about this leap forward in technology when there's a RIO website with an online game where you can control a truck...I think they're appealing to the PlayStation generation.

And if you think that it's just driverless trucks that are droning around mine sites, think again.

Companies like Robotic Drilling Systems (Norway) are pioneering automated drilling systems. They literally have a guy in a room, wall to wall with computer screens, using a PlayStation-esque controller to work the rig. Just one guy. With a video game controller.

Here's a suggestion too, if you have kids that want a mining job in the future, hand them a video game right now.

Automated drilling is one more example of the next step forward in innovation at the pit. BHP has recently stated they are looking to implement automated drilling as part of their 'Next Generation Mining' projects. And speaking of drilling...

The Shale Revolution is a Technology Revolution

A more recent innovation which sparked an 'energy frenzy' has been in extracting natural gas from dense rock formations in the earth. This is obviously an energy story. But investors would be wise to realise that at heart, this is a technology story that happens to take place in the energy market.

Natural gas is a plentiful resource used to heat, cook and generate electricity. It's also a truck-load cheaper than oil. But by its nature, gas is expensive to transport if you have to import it a long distance, especially across an ocean or two. You have to liquefy it and transport it in special ships. This limitation is one reason why natural gas has always played second fiddle to oil in the energy market.

The technology breakthrough is the unlocking of subterranean reservoirs of natural gas called shale gas. If you've been reading Dan Denning's work on the subject, you'll know all about the story already.

The innovation is a process called hydraulic fracturing (fracking). This new method, pioneered in the late 90's, using a mix of chemicals and water in the process, made the extraction of shale gas financially viable for companies.

And this simple innovation led to a shale gas bonanza in the US. Natural gas supply has exploded, while prices have fallen. A number of gas explorer share prices tripled, quadrupled and more, over the space of a year or two. And now, the same technology has led to an increase in the production of oil, enhancing recovery from older fields and making previously uneconomic oil fields viable.

Dan Denning believes the same events may soon take place in Australia. He's calls it, 'The Biggest 'Blowout' in Aussie Energy History.'

We'll see whether he's right. But from the perspective of technology and innovation, the shale gas story wouldn't be the first time a new technology unlocked a new resource. It happens all the time in human history, and not just in resources.

In fact, I'd venture to say now is one of the most exciting times in the history of human technological progress. We're on the verge of some incredible advances in medicine, energy, space, mining and biology - all driven by technology. But that's a story for next time!

Regards,

Sam Volkering
for The Daily Reckoning Australia