Rio Tinto aims to cut costs by $1 billion but how?
Frugality is the name of the game in the mining industry right now and Rio Tinto is pulling out all the stops. The miner recently announced it was increasing its target savings from $750 million to $1 billion in 2015, having already carved out $600 million in the June half.
“A continued focus on financial and operating discipline delivered first half cost savings of $641 million, representing 85 percent of our original full year target, which we have now increased to $1.0 billion,” said Rio Tinto’s chief executive Sam Walsh.
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Rio’s cost cutting drive includes a wide range of micro initiatives, some of which are currently being implemented at some iron ore sites.
According to Rio Tinto’s iron ore boss Andrew Harding, the company has started implementing a vending machine that provides safety glasses and gloves, which requires a staff access card to withdraw them.
"It's tracking and about feeling accountable for the use of the product,” Harding told the Australian Financial Review.
“There is no restriction on them – it's safety equipment. But instead of someone going 'this is unlimited, what the hell' kind of thinking, it reminds people that it's an important item, contributing to cost reductions.”
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Not surprisingly, the tiny initiative has already cut use of safety equipment by roughly 15 percent to 20 percent. In addition, Rio Tinto has replaced halogen bulbs with LED illumination in street lights and haul trucks. Not only are the LED bulbs more energy efficient, requiring no maintenance, but the simple initiative will reduced energy consumption by 125,000 kwh a year.
"That saves Rio millions of dollars each year," the executive said.
Lower production costs
The unfortunate catch 22 of the mining industry is when mines get older the costs of operating them go up. The company’s iron ore division has 300 “improvement projects” on the go to assist in delivering cost reductions, according to Harding.
"We are facing pressures against cost reduction. When you set up a mine, you start by mining material [in an open cut mine] that is shallowest and closest to your processing facility, so you have the least cost of production. As the mine gets older, you get further and further away from the processing facility, so your inherent physical cost of movement goes up. All these [are] clever things we are doing, but we are competing against the life of the mine."
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While Rio plans to continue pushing staff to stay lean, running on the cost-cutting “treadmill” to retain the company’s title as the world’s lowest-cost exporter, the company says automation and new technology will continue to create savings.
"We remain committed to investing in technology, which has delivered some spectacular results and provides a competitive advantage in lowering costs and delivering productivity improvements. Our highly sophisticated autonomous trucks demonstrate the value of our technology," said Walsh.
Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”