Long haul with China

Rio Tinto is testing four Chinese haul trucks at a mine in Western Australia. If the trial is successful, it could signal China’s arrival in the mining equipment sector. By Stephen Bell
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A Chinese haul truck.

Stephen Bell

To paraphrase the late Neil Armstrong, it is one small step for a mine but a giant leap for mine supply. It is one way of looking at Rio Tinto’s latest equipment innovation in Western Australia’s Pilbara: teaming up with a Chinese manufacturer to test four purpose-built haul trucks at one of its oldest Australian minesites.

The 230-tonne trucks, manufactured by Xiangtan Electric Manufacturing Corporation, left China in late May and were expected to begin operating at Rio’s Tom Price iron ore mine in August for three years of field testing.

The trials will break new ground in a couple of respects. For starters, they are part of Rio’s rapidly growing procurement from China, a trend mirrored by other big Pilbara miners BHP Billiton and Fortescue Metals Group.

Given that China is their biggest customer by far, it only makes good business (and political) sense to plough some of those chunky iron ore profits back into the Chinese economy.

Rio Tinto, for instance, expects to outlay $1.5 billion on purchases in China this year, up from $1.2 billion last year.

The expanding two-way trade is also part of Rio’s continued fence-building activities after its relationship with China faltered after the global financial crisis.

The truck deal heralds the latest push by China into the world’s $US60 billion mining equipment market, of which haul trucks are a significant component, particularly in the big Australian iron ore and coal mines.

It is the first time that Rio, the Pilbara’s biggest iron ore exporter, has received custom-built, fit-for-purpose trucks from a Chinese manufacturer. It is also the first time XEMC has exported trucks overseas.

So the global mining truck business, currently dominated by the likes of Caterpillar in the US and Komatsu in Japan, will be watching the Tom Price trial like hawks.

China has, in the past decade, made huge inroads into many manufacturing sectors, including the general automotive market.

One in four cars produced in the world now comes from China, making it easily the world leader. Six years ago it was only the third biggest.

Now, courtesy of Rio’s Pilbara experiment, the far more specialised mine haulage sector – off-the-shelf iron ore haul trucks normally sell for $A4-5 million each – may be up for grabs by the Chinese innovators.

China’s incursion into the field comes at an important time for Rio, which is about to significantly spice up the Japanese component of its operations. Komatsu supplies the majority of the miner’s Pilbara haul fleet, including 10 “driverless” 930-E trucks.

Rio plans to take delivery of 150 more automated units in the next three years to coincide with its 353 million tonne per annum expansion. These will be spread across several minesites, believed to include Nammuldi and new projects Koodaideri and Hope Downs 4.

By mid-decade roughly half of Rio’s Pilbara haul trucks will be automated Komatsu units, which are designed to improve safety and efficiency.

In July the Komatsu driverless trucks, which have been tested for 3.5 years, began hauling iron ore at Rio’s Yandicoogina operation and will haul high grade ore at the Junction South East pit, marking a step towards full deployment. They will work in tandem with the group’s Perth-based operations centre, which integrates and manages the logistics of 14 mines, three ports and two railways.

“Autonomous haulage is an important component in our ‘Mine of the Future’ program,” Rio Tinto Iron Ore chief executive officer Sam Walsh said.

But a big part of the miner’s longer-term future in the Pilbara may consist of Chinese-built trucks, should the new trial succeed. And some of the trucks may find homes beyond WA.

West Africa could be one of those destinations, given that Rio is teamed with China’s Chinalco at the giant Simandou project in Guinea, due to begin production in 2015.

Several senior executives from both Rio and XEMC, together with Australia’s Chinese ambassador Frances Adamson, attended a ceremony in Xiangtan, Hunan province, to celebrate the recent shipment of the trucks.

“Rio Tinto’s vision is to become the preferred partner, customer and supplier to China,” Rio Tinto China managing director Ian Bauert said.

“This cooperation with XEMC is a significant opportunity to increase our role as a customer of Chinese industry.”

Rio Tinto Pilbara Mines chief operating officer Tom Palmer said the miner had worked closely with XEMC in ensuring the trucks met the tough specifications needed to operate in northwest WA’s harsh conditions.

“I believe these trucks will play a vital role and contribute to our growth programs in the Pilbara,” he said.

Meanwhile, XEMC Group chairman Zhou Jianxiong saw the shipment as an opportunity for the Chinese manufacturer to enhance its competence in the truck market, while increasing its cooperation with Rio.

The project marks a “new step that the Chinese heavy-duty equipment made for the global market”, he said.

Rio and XEMC forged a collaborative partnership in May 2011. Now XEMC is establishing a subsidiary in Australia to assist with the haul truck project, while assessing further opportunities for cooperation.

Rio Tinto Procurement emerging markets general manager Mark Rivers said part of the deal’s rationale was expected cost savings over time, together with “improved security of supply”. It also reflected the advances in technology and innovation across Chinese industry, he said.

China is already a major supplier of other heavy equipment to the Pilbara. Rio has purchased thousands of rail cars from Qiqihar Railway Rolling Stock Co in recent years.

It is estimated that roughly a third of Rio’s Pilbara rolling stock is now Chinese-made. It is an updated version of the decades-old joke about Australia exporting iron ore to Japan, only to see it come back in the form of Toyota and Nissan cars.

Now China has taken over the mantle, supplying us with cars, rolling rail stock, heavy equipment and now haul trucks.

Rio’s official comments on its rising Chinese purchases are sprinkled with the traditional marketing jargon, such as building “strong relationships with key suppliers”.

But the 25% jump in spending this year also reflects the work Rio and CEO Tom Albanese had to put into repairing a relationship with China that deteriorated sharply after the GFC.

First off was Rio’s last-minute snubbing of Chinese government-controlled Chinalco over a mooted share placement in 2009 that would have seen it double its stake in the miner. After queries about the potential for Chinese influence on the board, Rio instead pursued a discounted $US15 billion rights issue to pay down debt for its ill-advised Alcan acquisition.

Later that year Chinese authorities arrested Rio Tinto Iron Ore China operations head and Australian citizen Stern Hu, along with three of his Chinese colleagues on charges of bribery and stealing state secrets.

This explosive development, which generated a diplomatic chilling between Australia and China, was linked to a stoush between Chinese authorities and the world’s three big iron ore miners – Rio, BHP and Vale – over iron ore pricing.

The Hu affair forced Rio to overhaul its marketing operations in China, while it also ramped up officially sanctioned Chinese alliances as a bridge-building exercise.

The company entered two joint ventures with Chinalco: Simandou in Guinea and a rare exploration venture in mainland China – alliances Rio promotes as “mining knowledge transfer” to its partner.

At Simandou, for instance, the Chinese group will learn how to develop and run a big iron ore mine.

The lesson is sorely needed, judged by CITIC Pacific’s multibillion dollar cost overruns and delays at the Sino Iron magnetite venture in the Pilbara.

As fore Rio’s growing “buy China” policy, company insiders insist it is not just about cuddling up to its biggest customer. The reality is that China’s manufacturing ability has improved so much in the past five years that it leads the pack in many sectors.

“They deliver and they get good at it really quickly,” one source said.

Chinese procurement is a strategy that other Australian iron ore miners have emulated. In July 2011, for instance, FMG made its first Yuan-denominated transaction in China after the company bought supplies using one of its local accounts.

The miner went on to buy large amounts of heavy equipment for its Solomon expansion in the Pilbara, due to come onstream next year. It included heavy fabricated items, such as stackers, conveyors and crushers, alongside rail wagons, port gear, etcetera.

But like its bigger competitors, FMG was forced to look elsewhere, including the US, for mobile mining equipment, including haul trucks.

At Solomon, FMG plans to use Caterpillar automated trucks in a dedicated area of the project. The mine could be running 45 of the automated units by 2015, according to the US equipment maker.

At the time of its Chinese currency deal, FMG MD Nev Power uttered what proved to be a prophetic comment about trucking.

“China isn’t really into mobile mining equipment as yet – I’d expect to see that emerge over the next few years,” he said.

“Currently they don’t market a mining truck at all. They do make some for their domestic market and I understand that one of the companies is looking at a trial production model … sometime in the next 12 months.”

Funnily enough, those 12 months just expired and the first Chinese-built haul trucks have just landed in Australia via Port Hedland.

So, along with executives at the big equipment makers, Power will be a very interested observer of his mining neighbour’s latest Chinese alliance.

*This article originally appeared in the October edition of Australia's Mining Monthly

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