{"id":5101,"date":"2015-12-09T17:22:03","date_gmt":"2015-12-09T22:22:03","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/rio-tinto-supplying-raw-materials-for-the-world\/"},"modified":"2015-12-09T17:22:03","modified_gmt":"2015-12-09T22:22:03","slug":"rio-tinto-supplying-raw-materials-for-the-world","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/rio-tinto-supplying-raw-materials-for-the-world\/","title":{"rendered":"Rio Tinto: supplying raw materials for the world"},"content":{"rendered":"<p>Rio Tinto is a major international metals &amp; mining firm which owns &amp; operates over sixty mines and refineries on six continents. It is dual-listed on London and Australian exchanges with a total market capitalization of $79bn<sup>1<\/sup>, making it the second largest mining organization in the world. In 2014, it achieved revenues of US$47.7bn with net earnings of $6.5bn and a 39% EBITDA margin<sup>2<\/sup>.<\/p>\n<div style=\"width: 640px;\" class=\"wp-video\"><video class=\"wp-video-shortcode\" id=\"video-5101-1\" width=\"640\" height=\"360\" preload=\"metadata\" controls=\"controls\"><source type=\"video\/mp4\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/RT_AGM_2014_v2.mp4?_=1\" \/><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/RT_AGM_2014_v2.mp4\">https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/RT_AGM_2014_v2.mp4<\/a><\/video><\/div>\n<p>&nbsp;<\/p>\n<p>When I worked for Rio Tinto, I remember a staff session where our GM finished his presentation and asked the employees, \u201cWhat are we here for? What\u2019s the site\u2019s objective?\u201d A few hands creeped up and someone answered confidently, \u201cTo mine coal.\u201d The GM smiled and said \u201cNo,\u201d and paused for a moment. \u201cWe\u2019re here to make money, which we do by selling coal. Specifically, we make money by selling coal for more than it costs us to mine, process, and ship it.\u201d This simple business model applies to all commodities in Rio Tinto\u2019s portfolio.<\/p>\n<p>At a strategic level, the organization targets large, long-life mineral deposits with the potential to, after development, operate at the bottom of the supply curve and achieve profits through all phases of the commodity cycle. These assets are often extremely capital intensive and bear substantial development challenges. Establishing large mines in remote locations and operating them at a very low cost is extremely difficult; many of Rio Tinto\u2019s competitors focus on easy-entry projects which are often either short-lived or have high production costs and do not survive dramatic price cycles.<\/p>\n<p><a href=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5118 aligncenter\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-2-300x160.jpg\" alt=\"RT 2\" width=\"404\" height=\"215\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-2-300x160.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-2-600x320.jpg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-2.jpg 845w\" sizes=\"auto, (max-width: 404px) 100vw, 404px\" \/><\/a><\/p>\n<p>At a high level, Rio Tinto\u2019s operating model creates value by locating economically attractive mineral deposits (exploration), developing the deposits into working mines (development), extracting materials from the ground (mining), processing them into saleable products (refining), and transporting them to customers (shipment).<\/p>\n<p>I believe that Rio Tinto is an example of an effective alignment of business and operating models. The firm has several core competencies and applies these skills broadly across its existing assets and in developing and acquiring new ones. Some of these competencies form distinct competitive advantages for the organization.<\/p>\n<p>Rio Tinto is able to execute projects that many other firms are not because of their project development expertise, access to capital, and operating reputation. For example, they opened the Oyu Tolgoi project \u2013 a world-class copper-gold deposit \u2013 in central Mongolia. The firm had to overcome significant challenges of building infrastructure to a remote location and working with a government with little experience in mining or major foreign investment. The project is the single largest foreign investment the nation has ever seen and is expected to contribute to 30% of the nation\u2019s GDP and employ a 90% Mongolian workforce<sup>3<\/sup>.<\/p>\n<p>Rio Tinto also invests heavily in R&amp;D and applies leading technology. One Western Australian Iron Ore mine has a fully autonomous haul truck fleet \u2013 the only one in the world currently rivaling human performance<sup>4<\/sup>. The entire Iron Ore business\u2019 rail, port, and infrastructure systems \u2013 in addition to many mine functions \u2013 are controlled from a centralized operations center over 1.000 miles away<sup>5<\/sup>. These investments improve operational efficiencies and provide substantial labor cost reduction opportunities, particularly as the technologies mature.<\/p>\n<p>Rio Tinto also carries a wealth of technical and operational knowledge for running mine and processing assets. Technical services groups focus on mine design &amp; planning, environmental management, and geotechnical assessments. Operational teams apply best-practice techniques to lead and manage their teams. Though all sites are run independently, their performance is benchmarked across the organization and several centralized teams support and coach the sites in implementing best-practice knowledge.<\/p>\n<p>Finally, central teams leverage Rio Tinto\u2019s scale to develop preferred partnerships with equipment OEMs and other suppliers. These relationships often yield lower pricing for the group, but can also lead to technology and services tailored to Rio Tinto\u2019s needs.<\/p>\n<p><a href=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-3.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5120 aligncenter\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-3-300x197.jpg\" alt=\"RT 3\" width=\"399\" height=\"262\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-3-300x197.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-3-600x395.jpg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/RT-3.jpg 800w\" sizes=\"auto, (max-width: 399px) 100vw, 399px\" \/><\/a><\/p>\n<p>Rio Tinto\u2019s operating model has generated numerous competitive advantages which allow it to develop challenging, but high-value, projects and operate them effectively. While the recent drop in commodity prices has not left the organization unscathed, it has performed notably stronger than its competitors and avoided job reductions facing many other firms<sup>1, 6<\/sup>. I believe that this is a direct result of the firm aligning its operating model with its business model of producing commodities at low prices from large-scale assets on the bottom of the supply curve.<\/p>\n<p><strong>Sources<\/strong><\/p>\n<p><sup>1<\/sup>\u00a0 Lanton, Mark. \u201cRio Tinto closes gap on BHP Billiton in biggest miner race.\u201d The Australian, Dec 7 2015. Accessed Dec 7 2015. \u00a0<a href=\"http:\/\/www.theaustralian.com.au\/business\/mining-energy\/rio-tinto-closes-gap-on-bhp-billiton-in-biggest-miner-race\/news-story\/ac291ef249c31c5b189af26baccbbfd1\">http:\/\/www.theaustralian.com.au\/business\/mining-energy\/rio-tinto-closes-gap-on-bhp-billiton-in-biggest-miner-race\/news-story\/ac291ef249c31c5b189af26baccbbfd1<\/a><\/p>\n<p><sup>2<\/sup>\u00a0 Rio Tinto. \u201cRio Tinto 2014 Annual report.\u201d Accessed Dec 7 2015. <a href=\"http:\/\/www.riotinto.com\/documents\/RT_Annual_report_2014.pdf\">http:\/\/www.riotinto.com\/documents\/RT_Annual_report_2014.pdf<\/a><\/p>\n<p><sup>3<\/sup>\u00a0 Kohn, Michael. \u201cRio, Mongolia agree to restart Oyu Tolgoi Development.\u201d May 18, 2015. Accessed Dec 9 2015. <a href=\"http:\/\/www.bloomberg.com\/news\/articles\/2015-05-18\/rio-mongolia-agree-to-restart-oyu-tolgoi-development\">http:\/\/www.bloomberg.com\/news\/articles\/2015-05-18\/rio-mongolia-agree-to-restart-oyu-tolgoi-development<\/a><\/p>\n<p><sup>4<\/sup>\u00a0 Diss, Kathryn. \u201cDriverless trucks move all iron ore at Rio Tinto\u2019s Pilbara mines, in world first.\u201d Oct 18 2015. Accessed 10 Dec 2015. <a href=\"http:\/\/www.abc.net.au\/news\/2015-10-18\/rio-tinto-opens-worlds-first-automated-mine\/6863814\">http:\/\/www.abc.net.au\/news\/2015-10-18\/rio-tinto-opens-worlds-first-automated-mine\/6863814<\/a><\/p>\n<p><sup>5<\/sup>\u00a0 Mills, Michael. \u201cRio Tinto opens automated Pilbara Operations Centre.\u201d 28 June 2010. Accessed Dec 11 2015. <a href=\"http:\/\/www.australianmining.com.au\/news\/rio-tinto-opens-automated-pilbara-operations-centr\">http:\/\/www.australianmining.com.au\/news\/rio-tinto-opens-automated-pilbara-operations-centr<\/a><\/p>\n<p><sup>6<\/sup>\u00a0 Reuters. \u201cAnglo American to cut 53,000 jobs amid commodity rout.\u201d July 24 2015. Accessed 11 Dec 2015. <a href=\"http:\/\/fortune.com\/2015\/07\/24\/anglo-american-to-cut-53000-jobs-amid-commodity-rout\/\">http:\/\/fortune.com\/2015\/07\/24\/anglo-american-to-cut-53000-jobs-amid-commodity-rout\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Rio Tinto survives commodity crash by aligning business and operating model to focus on low-cost mineral production<\/p>\n","protected":false},"author":1078,"featured_media":5102,"comment_status":"open","ping_status":"closed","template":"","categories":[837,840,543,838,5,839],"class_list":["post-5101","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-commodity","category-cost","category-global","category-industry","category-mining","category-resources"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Rio Tinto: supplying raw materials for the world - 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