In a recent article, Barnard's innovative approach to IP valuation was discussed. The recent discovery of the world's second-largest diamond, weighing 2,492 carats at the Karowe mine in Botswana (and less than a month another 1,094 carats diamond), raises a crucial question: How valuable is proprietary technology for end-users in the mining sector? This question underpins our evaluation framework, which considers commercial viability, technology feasibility, and venture sustainability when assessing technologies used by mining companies, such as those employed at Karowe.
Exponential Value Proposition for Diamond Mines (Commercial Viability)
For diamond mines, size and quality significantly impact valuation. For example, the 1,094 and 2,492 carat diamonds are valued at R13m and R160m respectively, but this does not mean the total value is R173m; instead, their combined value increases significantly, potentially to the same as the Cullinan diamond at R400m if one assumes, based on industry data, that these two diamonds could have been the same one that broke. This reality highlights why investors value mines that yield larger diamonds, albeit in smaller quantities, differently.
The Hidden Cost of Diamond Breakage
Diamonds, though among the hardest substances, are surprisingly brittle. Conventional mining methods—blasting, loading, and crushing—often cause breakage, leading to significant losses. Mining companies keep their predictive models for diamond breakage proprietary, making it challenging for technology providers to develop accurate models. Consequently, new technologies face scepticism and scrutiny from potential investors, as they often lack crucial data, leading to uncertainty.
Technology Offerings and Feasibility
Karowe's use of X-ray technology (XRT) led to the discovery of the massive diamond, which would likely have been destroyed with conventional methods. This case illustrates the value of innovative thinking and the importance of protecting such technologies through patents. However, as conventional mining techniques improve, technologies like XRT may eventually become obsolete. This cycle of innovation and obsolescence underscores the crucial role of patents in safeguarding investments.
The question remains: When will new technologies outpace current methods like XRT? The answer lies in the value of disruptive IP, which can render even substantial investments in traditional and current technologies irrelevant. One such emerging technology, positron-emitting tomography (MinPET), promises to revolutionize mineral detection, demonstrating the rapid pace of technological evolution in mining.
Balancing Sustainability in Mining and Technology (Commercial Viability and Feasibility)
A sustainable relationship between mining companies and technology providers hinges on shared sustainability goals. Without this alignment, mining companies may delay adopting new technologies until they are proven to outperform conventional methods. Risk mitigation plays a critical role here, as both end-users and technology providers face inherent risks that need careful management.
Legal risks, for instance, are significant unknowns. Even when IP is licensed, if end-users sense the patent might be disputed or revoked, they may revert to conventional methods. A recent South African court case, which took nearly a decade to resolve, highlights the impact of prolonged legal disputes on technology adoption. Moreover, when public institutions hold patents, the perceived risk in the industry increases, potentially hindering the adoption of disruptive technologies.
The Risk of Greed
Another critical risk is greed. Consider a technology developer who invests R50 million to reach the minimum viable product stage, with an additional R100 million needed to bring the technology to market. If the developer attempts to pass on these sunk costs to end-users before a proper IP valuation and due diligence, it can deter investment—another pitfall in the path of technology adoption.
Valuing IP Beyond the Surface
IP owners often overestimate the value of their technologies, much like overvaluing a diamond before it's unearthed. Accurate valuation is essential, as it determines the true worth of innovative technologies and their potential impact on the industry. As new technologies emerge, careful consideration of their value, feasibility, and sustainability will shape the future of mining.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
