BHP Billiton (NYSE: BHP ) recently celebrated the opening of a new iron ore mine in the Pilbara region of Australia. But that's not the exciting news. What's really interesting is that it used that announcement to inform the world that it's expanding its use of autonomous Caterpillar (NYSE: CAT ) trucks.
A single line says to much
"We are also pleased to announce we are extending our Jimblebar autonomous truck trial to the neighbouring Wheelarra operations using six Caterpillar 793-F trucks in the second trial," according to Jimmy Wilson, BHP Billiton Iron Ore President. It's just one line out of the press release, but it speaks volumes.
For starters it's a real world example of how "things" are being connected using technology to make the business world run better. Fellow miner Rio Tinto (NYSE: RIO ) has been using autonomous trucks, too, and expects the technology to increase truck utilization by as much as 15%. Clearly, BHP would be happy to see that kind of improvement, too.
Rio, however, isn't stopping at trucks. It's also building an autonomous train line that should be up and running in 2015. According to Rio Tinto, it will be the "first heavy haul network in the world to be fully automated." Obviously, the truck thing is working out well.
An opportunity for all
According to BHP Billiton's Wilson, "Our pursuit of productivity gains and operational excellence is delivering significant value at Western Australia Iron Ore." It's a trend across the entire company, actually. According to CEO Andrew Mackenzie, in the company's fiscal first half (years end June), "The commitment we made 18 months ago to deliver more tonnes and more barrels from our existing infrastructure at a lower unit cost is delivering tangible results."
How big a deal is that? The "sustainable increase in productivity supported a 9 per cent increase in the Group's Underlying EBIT margin to 38 per cent and a strong improvement in the Group's Underlying return on capital to 22 per cent." Those are real benefits that flow down to investors.
It also shows why, despite relatively weak performance in the mining sector of late, Caterpillar still sees opportunity in the industry segment. BHP and Rio aren't just replacing old, worn out machines. They are making a technology shift that's improving their results in a big way -- like BHP's near 10% margin improvement and Rio's 15% utilization uptick.
So, it's not just Rio and BHP that will benefit. Caterpillar will increasingly be able to roll this technology out to more and more miners. That's a good thing, too, since the mining group isn't performing well right now. In fact, at the end of the first quarter, Caterpillar announced that, "Resource Industries' sales are now expected to be down about 20 percent from 2013." And that's just continuing the preexisting trend.
Why isn't everyone on board now?
If there's so much benefit to doing away with human operators in vehicles, why isn't every miner jumping on this bandwagon right now? Connecting the world with computers may seem like second nature to anyone with a smartphone, but it's a whole lot more difficult to connect things like trucks that are bigger than most houses.
No one's likely to die because a phone malfunctions or if it can't connect to a network. However, if a truck can't connect or starts acting wonky, there are big problems. That's why, despite the obvious early success, BHP is still just testing Caterpillar's autonomous trucks. The technology has the potential to revolutionize the mining industry, but only once it's fully vetted.
Moreover, it isn't cheap to buy new trucks, or trains in the case of Rio, with new technology imbedded inside. So right now this is both experimental and the province of the largest and strongest miners. That said, keep an eye on the Caterpillar truck experiment at BHP and the 2015 train launch at Rio. They are important steps toward industrywide adoption.
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