Is This GPS Specialist Ready to Take on a New Industry?

Trimble Navigation gives more than just driving directions, and with a mining equipment acquisition it looks like it's ready to take its business to an even higher level.

Jun 26, 2014 at 10:22AM

Mining is increasingly getting automated, a specialty of Trimble Navigation (NASDAQ:TRMB). However, a recently announced acquisition will allow this GPS specialist to give miners a complete view of their mining operations. That's the direction that more and more miners are going in, and Trimble Navigation is clearly getting ready to go along for that ride.

More productivity and saving lives
Giving human operators a helping hand is what Trimble Navigation is all about. Although not a Trimble Navigation deal, Canada's Teck Resources (NYSE:TCK) is a great example of how adding technology to heavy machinery can help. Teck Resources, working with privately held SAFEmine, tested adding collision avoidance systems at its mines.

The results were nothing short of impressive: speeding incidents, "close interactions" between small vehicles and trucks, and "close interactions" between large trucks all fell about 50%. It's no wonder that Teck Resources made the decision to roll this technology, which is heavily dependent on GPS systems, out across more of its mine sites. This despite an effort to reduce its mining costs.

But Teck Resources is willing to spend on results like the ones seen from SAFEmine's equipment. It will help keep miners safe, protect valuable equipment, and reduce downtime incidents. Cost containment is an issue throughout the mining industry today, but Teck's results show why technology investment hasn't stopped. For example, Rio Tinto (NYSE:RIO) continues to push toward its "mine of the future" goal. For example, since commodity prices have headed lower, Teck Resources has managed to trim its ongoing costs by roughly $345 million. It's planning on doing even more, targeting another $350 million of cost reductions. All this in an effort to keep margins up in a difficult market. For example, the company's operating margin has fallen in each of the last two years, dropping from nearly 39% in 2011 to around 22% last year.

Mining is changing with technology
What's the mine of the future? It's a high tech mine that uses such technology as autonomous trucks and trains, and centralized monitoring. For example Rio Tinto just unveiled its "Processing Excellence Centre" in Australia. This one control room oversees seven Rio Tinto mines located in Mongolia, the United States, and Australia. That's the type of high-tech product that Trimble Navigation just added with the announced acquisition of Mining Information Systems.

And Rio Tino's efforts show why such technology spending will stay solid. In 2013, Rio Tinto reduced its operating costs by $2.3 billion while at the same time increasing production across its operations by 9%. Although there's a lot of moving parts in this, spending to get a better handle on its mining operations is a big piece of the picture.

Trimble is more than farming
Trimble Navigation is usually lumped in with the GPS industry, which makes complete sense since it's technology makes extensive use of GPS. However, Trimble Navigation does more than just provide drivers with directions. For example, the company offers systems that actually drive farm equipment. Wait, that's exactly what Rio Tinto is doing to its trucks and trains!

TRMB Chart

TRMB data by YCharts

And now, Trimble Navigation is buying a company that specializes in, "enterprisewide monitoring and management of mining and ore processing operations." That's roughly similar to Rio Tinto's "Processing Excellence Centre." It's also like what Teck Resources is doing, on a smaller scale, with its anti-collision efforts.

Trimble Navigation clearly sees an opportunity to integrate its technology into something bigger. And while the mining industry shows that this trend is real, Trimble's diverse business will allow this GPS specialist to offer valuable monitoring and control equipment well beyond the miners.

Trimble Navigation's operating margin has increased in each of the last three years. If it keeps building its technology offerings, look for margins to get back to the mid-teen levels seen during the middle of the last decade. And with revenues hitting new highs, that should translate into continued earnings growth for a company that's embedding GPS into high-tech gear for increasingly tech-savvy industrial players.

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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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