International mining giant Rio Tinto plc (ADR) (NYSE:RIO) is working hard to change the way mines are operated. Its Mine of the Future initiative is making heavy use of technology to do that. And while that means all sorts of different technology is being tried out, drones are one advance that are saving Rio big money right now -- and you may not even realize it.
Drones are boring
Greg Lilleyman, group executive of technology and innovation at Rio Tinto, recently told Business Insider that drones themselves aren't exciting. That's pretty reasonable since in many cases, a drone is just a small flying contraption with a camera. But Lilleyman added, "It's what you get it to do, that's the interesting stuff." And that's vitally important to the drone story at Rio.
The company is using drones to inspect power lines, assess stock piles, and examine geological formations around its mines, tasks that people had to do before. Not only does that put humans in harm's way, especially when inspecting difficult-to-reach mine elements, but it also costs a lot of money. Renting a helicopter to inspect power lines can cost as much as $2,000 an hour. Hiring a guy with a drone is more like $200 an hour.
Power lines in the far-flung regions where Rio's mines operate can stretch for hundreds of kilometers. Since a helicopter can only go so fast while someone on board examines the power line, you're looking at hours and hours of work in the inspection process. In other words, the savings from using drones to do that job can start to add up pretty quickly.
Humans are an order of magnitude more expensive than drones. That's a big savings, and while one drone flight may not make or break Rio, the mining giant has operations in 40 countries, from Australia to Zimbabwe, across six continents. It has some 60,000 employees. It's a huge organization with plenty of opportunity to integrate an emerging technology like drones.
And right now, keeping costs to a minimum is key, because natural resource prices are weak across the board, taking revenues along with them. For example, revenues peaked at roughly $60.5 billion in 2011, falling roughly 20% to around $47.7 billion last year. And mining has high fixed costs, so a drop on the top line can mean even more damage on the bottom line.
That's one of the reasons Rio Tinto has been cutting spending drastically. Between 2013 and 2014 alone, capital spending declined nearly 40%. But you can't just stop spending in the mining industry, because equipment needs to be maintained (like power lines), and if you don't replace the material you mine, your growth will stall in the future -- when prices are likely to be higher.
So, far from just stopping, Rio is refocusing on its best projects and trying to save money wherever it can along the way. Let's revisit the cost of hiring a drone over hiring a helicopter. Spending one-tenth as much on a drone versus a human frees up cash that can be put to better use elsewhere. And using a drone doesn't diminish the business in any way, since Rio is still getting the same information as before, just in a different manner.
Under the radar
If you are looking for a miner that's doing more with less and making the best use of modern technologies, Rio should be on your short list. To be sure, Rio's efforts with autonomous haul trucks and trains make the big headlines. And perhaps rightly so, since the idea of trucks and trains running around without a driver is still incredible.
But don't let big-ticket changes like buying a fleet of autonomous trucks obscure the smaller, but still material, impact of less-visible technologies like drones. As drones become more advanced, the jobs they can do and the savings they can impart are likely to make them a headline-worthy technology at Rio someday soon. And now you're ahead of the curve on that news.
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.