Later this year, Rio Tinto will seek board approval to spend $2.2B to build the world’s first “intelligent” mine, a network of robots and autonomous vehicles all working together on the site of the earth’s largest iron ore complex in Western Australia. Whether or not the project is approved, the firm already is 10 years ahead of rivals in autonomous technology, the firm’s CEO told the Economist in a recent article.
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In our research on Knowledge Leaders, a $2.2B commitment to the future is the type of measurable investment that stands out. That’s because the first step in our investment process is to capitalize intangible investments. We adjust a company’s financial history so that investments in the future – $2.2B in R&D, for example – doesn’t just get expensed and disappear from the financial record, rather it counts as an asset. This way, when we get to the next step – a quantitative screen for Knowledge Leaders – companies with intangible assets such as, say, the world’s first intelligent mine, will rise to the top.
A hallmark of a Knowledge Leader firm is industry leadership through advances that other companies (Knowledge Followers) then mimic in effort to compete. Indeed, a consistent theme in Rio Tinto’s reported strategic priorities is “breaking new ground in the industry … to deliver faster and better processes, cleaner and greener outcomes.” At Rio Tinto, this is executed by the firm’s 47,000 employees via the use of automated trucks and trains, remote operated drills and drones, and exploration via 3D modeling, to name a few of the tools evaluated and deployed by the firm’s Growth & Innovation group.
The site of the first intelligent mine and Rio Tinto’s most visible (and expensive) innovations is Pilbara, Western Australia, a complex of 16 iron ore mines, plants and distribution centers. Already at work on the ground is “AutoHaul,” a fully autonomous, high-speed, long-distance rail system, in addition to a new fleet of autonomous Komatsu trucks. Komatsu, by the way is another Knowledge Leader company investing in its future growth. In this case, Komatsu also has partnered with Rio Tinto to retrofit existing trucks in the direction of full autonomy.
Iron Ore, which accounts for about two-thirds of Rio Tinto’s earnings, is the home of the firm’s greatest investments in innovation, with the expectation that these advancements eventually will trickle down to other groups much like breakthroughs from NASA’s Space Program – memory foam, cordless power tools, lithium ion batteries in our phones — trickled down to life on earth.
Speaking of lithium, at the moment, it makes up only a fraction of Rio Tinto’s assets, and management seems to exhibit restraint while discussing it. The firm’s one lithium project is located in Serbia, where geologists discovered a deposit of the mineral “jadarite” in 2004. Interestingly, jadarite has almost the same chemical composition as the fictional kryptonite of Superman fame. The site is now in the prefeasibility stage to assess viability for mining both lithium (rechargeable batteries) and borates (wind turbines). Jadar is a frontier project in the firm’s Energy and Materials group, which had revenues of $7.7B in 2017. The Iron Ore group brought in $18B, Aluminum $11B, and Copper and Diamonds $4.8B.
Last year, Rio Tinto completed the sale of all coal assets for $2.69B, completing the dismantling of its energy business it began in 2015 and removing it from the coal business for good. The firm now values its total asset base – in Rio Tinto-speak that means production, ore reserves and mineral resources — at $50B.
In its aluminum business, Rio Tinto calls out its exceptional position among competitors thanks to another of its innovations: low-cost hydro-powered aluminum smelters in Canada that deliver the world’s first certified low carbon dioxide aluminum and boast a carbon footprint one-third the industry average. The company is now studying expansion of this program.
The top future development priority for Rio Tinto remains its Oyu Tolgoi project in Mongolia, which the firm calls one of the largest known copper and gold deposits in the world. Reserves here are expected to last for more than 50 years and won’t hit full production until 2027. This year, Rio Tinto announced it has invested $7B in the project since 2010 and christened a new office and native country director in Ulaanbaatar to support its efforts.
If Rio Tinto receives approval to continue investing in mining innovations and maintains a set of intangible assets that preserve its Knowledge Leader status, we could expect to see copycat “intelligent mine” deployments worldwide as a result. Looking forward, and with the divesting of mines rich in the fuels that power fading technologies, the mining industry may be offering us a unique view into the new technologies it expects to power a greener future.
As of 3/31/2018, Rio Tinto and Komatsu were held in the Knowledge Leaders Strategy.
Article by Knowledge Leaders Capital