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.
Lynas revenue jumps 21% as rare earth prices jump
Australian miner Lynas Rare Earths posted a 20.6% rise in revenue in the March quarter as selling prices for the key metals it mines hit record highs amid strong demand, particularly for neodymium and praseodymium (NdPr).
NdPr is used in magnets for electric vehicles and windfarms, in consumer goods like smartphones, and in military equipment such as jet engines and missile guidance systems.
The company said it plans to maintain production at 75% however, as it seeks to continue to meet covid-19 safety protocols and grapples with shipping difficulties. Shares in Lynas fell 6.1% after the results.
“They have faced a few logistics issues, and it would be good to know when they are going to start lifting their utilisation rates a bit,” said portfolio manager Andy Forster of Argo Investments in Sydney.
“Pricing has been pretty strong although it may have peeled back a bit recently. I still think the medium, long-term outlook is pretty good for their suite of products.”
Lynas post ed revenue of A$110mn ($85.37mn) for the three months to the end of March, up from A$91.2mn a year earlier as prices soared.
It said its full product range garnered average selling prices of A$35.5/kg during the March quarter, up from $23.7 in the first half of the financial year. “While the persistence of the covid crisis, especially in Europe, calls for careful forecasts for our business ahead, we see the rare earth market recovering very quickly,” said Lynas, the world’s largest rare earths producer outside China.
Freight demand has spiked during the pandemic, while the blockage of the Suez Canal in March delayed a shipment to April.
Lynas’ output of 4,463 tonnes of rare earth oxide (REO) during the quarter was marginally lower than 4,465 tonnes from a year earlier.