Outsourcing and automation are the new commodities in the mining and resource sector. More company chiefs are beginning to focus on stripping costs by cutting jobs as a result of a more competitive industry.
Rio Tinto (ASX: RIO) is the latest to announce an offshoring program which will affect between 700 and 800 staff globally. According to The Australian Financial Review, technology behemoth IBM was awarded the contract, worth up to $100 million, ahead of a number of Indian-based outsourcing firms including Infosys, Genpact and Accenture.
Big Australian mining companies including BHP (ASX: BHP) and Fortescue (ASX: FMG) have begun to look at stripping costs whilst increasing production in a bid to improve profit margins for shareholders. Offshoring and automation of jobs such as train driving and machine operation are becoming more prevalent in the industry.
Last year former Rio CEO Tom Albanese announced the company would save more than $5 billion in costs, by focusing on core operations, to counter lower commodity prices and a higher Australian dollar. So far the current CEO, Sam Walsh, has sold off non-core assets and integrated businesses to reach the target. The latest outsourcing deal fits nicely into the strategy.
A Rio spokesperson said, “Like others in the mining industry, Rio Tinto is facing the challenge of increasing costs. We are actively seeking ways to reduce costs and improve productivity across the company.” It did not disclose the specific numbers of the staff affected nor exactly where they’d be coming from but said, “We are working with our partners to find opportunities to reduce our costs in support functions like HR, finance, IT and procurement across Rio Tinto’s global operations.”
Iron ore mining companies, both locally and overseas, will be focusing their efforts on countering potentially lower commodity prices by driving down costs. Markets as lucrative as iron ore become more competitive as new companies enter to grab a slice of profits. Rio’s iron ore earnings account for over 80% of the entire company and if spot prices fall away, cost will be its competitive advantage in the price taking industry.
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.