Rio Tinto (NYSE:RIO), facing a tough iron ore market, is replacing train drivers with computers. Transportation historian Christian Wolmar told Reuters that displaced train crews "probably are the highest-paid train drivers in the world." This is one of the ways miners are dealing with a global downturn and getting ready for an eventual market upturn, but it definitely isn't the only way.
Rio Tinto adding computerized trains is part of a nearly $6 billion expansion of an iron ore terminal. However, automating this task furthers the company's efforts to trim staff. Over the past year or so, the company has eliminated over 2,000 positions. That's a big savings, particularly since the mining industry's upswing led to salary inflation.
Through the first six months of 2013, Rio claims to have achieved $1.5 billion in cost saving, $977 million from operating cost improvements, like replacing train drivers, and $483 million from trimming its capital spending budget.
Getting more done
BHP Billiton (NYSE:BHP) made a similar salary shift in Australia when it got rid of contract workers at a coal mine, saving over $450 million in the fiscal year ended June. However, it also estimates that mining related efficiencies saved it $619 million.
Those efficiency improvements include such simple things as upgrading the company's Escondida copper facility so that its crushing and conveying throughput rose by more than 13%. On the coal side, the company was able to improve truck utilization at its Goonyella operation by 25%. Getting more on a truck or processed through a plant is a huge efficiency benefit to the company's bottom line, allowing it to boost production without increasing costs.
Vale (NYSE:VALE), meanwhile, was able to shave its expenses by $1.6 billion in the first half. The company reduced employee costs by nearly 8% in its mining operations year over year in the second quarter but was able to cut its selling, general, and administrative expenses by an impressive 47%.
Even research and development spending came under the knife, dropping over 50%. These are largely "home office" expenses that have less of an impact on the day-to-day operations at Vale's mines. That said, curtailing R&D costs could have longer-term implications if spending there doesn't recover at some point in the future.
The cut, though, is a part of the company's effort to focus on its best opportunities. For example, it has sold around $1.5 billion worth of assets so it can hone in on projects like its Carajás S11D iron ore mine. Vale believes this mine will have among the lowest costs in the world, making it well worth the expense.
Shifting into a lower gear
Teck Resources (NYSE:TECK) provides another example of cost savings. The company has decided to slow down some of its growth projects, including its Quintette mine reopening and phase two of its Quebrada Blanca expansion project. These projects, one of which is in the coal arena and the other in the copper space, aren't canceled, they are just on hold until their respective markets improve.
These moves, plus other cost savings measures, have allowed Teck to put in place measures that it believes will save it around $220 million a year. And it's eyeing another $30 million before reaching its original goal of $250 million.
Ready for the upturn
As these companies reduce their spending and streamline their operations, they are becoming leaner and meaner competitors. While that's a necessity to keep profits flowing today, when demand and pricing pick up it will be a recipe for fatter profits. And, as demand increases, Rio, BHP, Teck, and Vale all have the capacity to expand operations to sell more of their mined products.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of Companhia Vale Ads. 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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