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Rio Tinto plc (ADR) (NYSE:RIO) Replaces Robot Locomotives With Train Drivers

Written by on October 3, 2013

Rio Tinto plc (ADR) (NYSE:RIO) pays train drivers similar to surgeons in the U.S. It is surprising that the mining company will substitute them with robot locomotives. According to U.K. based transport historian Christian Wolmar, there are above 400 workers in the remote Pilbara region who make about $240,000 per year. These are most likely the highest paid train drivers in the world. The decade-long mining expansion of Australia has drained off by skilled workers, with increased wages for engineers to drivers at Rio, the second-largest exporter of the mineral, and its nearby rivals BHP Billiton Limited (ADR) (NYSE:BHP) and Vale SA (ADR) (NYSE:VALE). These three companies, that manage almost 59 percent of the $145 billion per year global iron ore trade, are on the route to enhance margins and exploit extra capacity as they have advanced the supply to a record providing for steel mills in China, the largest buyer.

According to Deutsche Bank AG, Rio, which is committed to shift almost 290 million metric tons on its rail network by next year, is projected to be the largest driver for cost trimming in its iron ore unit after currency sways. Paul Young, a Sydney-based analyst with Deutsche Bank said in a report citing Rio data that the company is committed to lower costs to $15.60 per ton by 2020, from $23.10 per ton in the first half of this year.

An analyst in Sydney with Royal Bank of Canada, Chris Drew, said that all manufacturers are struggling to generate better returns and enhance margins. Drew said in an interview, after exploring Rio’s ore operations in the mostly arid Pilbara, that regarding the automation of trucks and trains, Rio is winning the competition.

The rate of automation is raised up as the seaborne market has borne at least four years of gluts. According to a Goldman Sachs Group Inc. estimate, the price of ore, which in the past decade increased as much as eightfold as China advanced its gross domestic product by $6.8 trillion, will decline to $80 per ton in 2015, Yesterday, it finished at $131.40 per ton.

Rio Tinto plc (ADR) (NYSE:RIO) shares fell -0.47% to $48.85 in premarket whereas BHP Billiton Limited (ADR) (NYSE:BHP) shares were down -0.54% to $66.48 and Vale SA (ADR) (NYSE:VALE) shares were up 0.13% to $15.75 in premarket.

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