Will These 2 Companies Bring Mining's Future Into the Present?

Technology is increasingly changing even the most mundane industries—and that's increasing true in the mining space.

Jun 21, 2014 at 10:13AM

Rio Tinto (NYSE:RIO) isn't modest. It's working on a technology initiative that it's dubbed the "Mine of the Future." In fact, it's trademarked that name. ABB Limited (NYSE:ABB), meanwhile, has introduced 3D mine monitoring technology. Mining has gone high-tech and it means big (and positive) changes ahead for an industry that's currently facing headwinds.

Grunt work
If you aren't in the mining industry, you probably envision a bunch of guys with pickaxes hacking around underground like some black-and-white image taken decades ago. That's far from the truth of the mining industry, though. For example, Rio Tinto recently announced that it has created what amounts to a centralized control room for some of its key operations.

(Source: Public Domain, via Wikimedia Commons)

The "Processing Excellence Centre" is located in Australia and oversees seven Rio Tinto mines across Mongolia, the United States, and Australia. It allows Rio Tinto to keep tight control over what's going on at its mines, but also eases the transfer of best practices between mines. The impressive part is that Rio Tinto has integrated technology in its operations to such a degree that it can now harness that power in new ways—such as a central monitoring center located thousands of miles away.

The results are meaningful. In 2013, Rio Tinto reduced its operating costs by $2.3 billion while at the same time increasing production across its operations by 9%. Capital spending was 26% lower year over year and production was up. Clearly Rio Tinto is doing something right.

What else is Rio Tinto doing?
The centralized control room is just one example of Rio Tinto's efforts. It is also introducing high-tech products like driverless trucks and trains. These efforts increase throughput because taking the humans out of the picture increases efficiency. Right now, efforts like this are helping to support margins under pressure from low commodity prices. When prices head higher again in this historically cyclical industry, however, the benefits from Rio Tinto's technology efforts will remain.

It isn't just Rio Tinto looking to do this, either. This high-tech trend is taking place throughout the mining industry. That's an opportunity for tech-savvy providers like ABB Limited. ABB Limited's new "Mine Location Intelligence" technology is a perfect example of what computers can do for miners.

(Source: BennedettaG, via Wikimedia Commons)

This application will allow miners to monitor their equipment and personnel on a real-time basis in 3D. That should help with safety and improve efficiency, as a mine turns into something of a video game where pieces can be moved around as events occur. That removes an information void and time delays that might hamper mine owners today.

While that's nice for the miner, ABB Limited not only gets to sell a product, but software like this is usually accompanied by support contracts. Increasing such service-based revenue is a key focus at ABB Limited because it is recurring in nature in an industry that's marked by lumpy big ticket deals.

In fact, between 2010 and 2013, ABB Limited was able to improve its services penetration by roughly three percentage points. While that leaves the company's "service order share" just below 20%, it speaks to the growth potential still ahead as ABB Limited introduces new and increasingly complex technologies to its industrial customers.

The future is now
With the mining industry suffering through a period of low prices, cost containment has become paramount. However, companies like Rio Tinto show that spending money on new technology isn't out of the picture if it can help improve performance. That's why ABB Limited should find a very receptive market for its new 3D mine imaging technology.

The industry's high-tech push is another reason to keep a close eye on the mining sector. When commodity prices start to move higher, the gains from these tech-led process improvements will mean fatter margins.

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Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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