4G LTE Will Increase Productivity At Mine Sites

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Rio Tinto (NYSE: RIO) has just announced that it will install 4G long term evolution (LTE) technology at its West Angelas iron ore mine in the Pilbara region of Western Australia. A 4G network will be introduced at the mines as a proof of concept to assess the practicality and reliability of conventional mobile networks at mine sites.

This is important for investors as Rio Tinto has become a pioneer in installing 4G networks in order to cut costs, increase reliability, move data efficiently and increase production while reducing the number of people required to be employed at the mines. The cost cutting and increased productivity will help Rio Tinto to increase its profitability in the long run. The 4G LTE networks will be installed at the mine in collaboration with French telecommunication giant Alcatel-Lucent (ALU) over a 40 square kilometer area.

How Is Rio Tinto Going to Use 4G LTE at Its Mine Sites?

The new communication network will replace conventional satellite and standard radio networks that are used to communicate basic voice data at the mine. The 4G LTE network will also help Rio Tinto to remotely monitor and control the mine sites at a lesser cost than hiring workers. Rio Tinto had previously pioneered the "Mine of the Future" program, in which robotic trucks operated at the mine sites, replacing human drivers and workers. This move was soon copied by BHP Billiton (NYSE: BHP) at its sites as well.

Rio Tinto will be one of the first miners to adopt 4G LTE networks at mine sites, and Australia is the first country to see a 4G network at a mining site. The U.S., China and Malaysia have all opted to use WiMAX networks, but they are not as quick and reliable as 4G.

What Does The 4G LTE Network at Pilbara Mean for Rio Tinto Investors?

For investors, this is great news, as Rio Tinto will have a competitive advantage over other miners who still use WiMAX or similar technologies. 4G technology will help reduce costs in a number of ways as well. Rio Tinto will not have to recruit an additional 900 workers at the facility to monitor and assess problems that may occur at the mining site. Such monitoring and assessing will now be done remotely.

Reduction of costs at Pilbara is extremely important for Rio Tinto, as it plans to increase its iron production at the site to 353 million tons by 2015. As much of the accessible mineral resources have already been discovered around the world, miners now need to explore under inhospitable conditions in remote areas. 4G LTE networks will help mining companies to avoid hiring labor when the same can be done remotely. Facilities for workers will no longer need to be built, reducing construction, transportation and logistics costs.

Operations can be automated at surprising levels thanks to robotic technology that often depends on 4G networks. Moreover, huge amounts of operational and exploratory data can be transferred in a very short time when 4G networks are used. These advantages clearly translate to stable and consistent production, which leads to increased profitability and revenue for Rio Tinto. Rio Tinto will also avoid delays, strikes and other unnecessary hassles which occur when there is no automation in place.

Automation among Competitors

Power technology group ABB recently won a $140 million deal to help automate Carajas Serra Sul project, which belongs to Vale (NYSE: VALE). The iron ore mine and processing plant is located in Brazil and is one of the largest mines that are being automated. ABB will supply electrical and automation instruments to Vale and will also help the miming giant to shift from manual mining to automated technology over a period of time. BHP Billiton deployed more than 15 automated trucks at its Jimblebar iron ore mine, following Rio Tinto's footsteps. BHP too plans to do away with trucks eventually and only use robotic trucks in order to save money and avoid employing where automation is possible.

Meanwhile, AngloGold Ashanti (NYSE: AU) has revealed that it will use automation technology to reinvent deep level mining in South Africa. AngloGold Ashanti is gradually moving away from a manual paradigm to an automated paradigm to reduce costs and increase productivity. Barrick Gold (NYSE: ABX) has installed four automated air quality monitoring systems at Pueblo Viejo Dominicana (PVDC), Dominican Republic. This is one of the few steps that the company has taken towards automation.

Summary

Rio Tinto currently trades around $58 and has a market cap of $107 billion. With an enterprise value of $118 billion and a price to sales and price to book ratios of around 1.85, the mining giant is one of the most stable and reliable metal companies to invest in. The company's gross margin nears 40%, which is very high for any mining company. When we take these numbers in context of 4G LTE installations, we can see that Rio Tinto is going in the right direction to future-proof its facilities, cut costs, increase production and have a competitive edge.

In my analysis of competitors, only BHP comes close to Rio Tinto in automation and robotics, and BHP copies Rio Tinto in this realm. It is thus safe to say that Rio Tinto has a significant advantage over its competitors when it comes to moving towards automation and reduction of manual labor. In the long term, these steps will help Rio Tinto's investors to reap profits and dividends.


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