Going underground

Life at the coalface today is a high tech affair where machines are increasingly taking over where humans once toiled. But companies are under renewed pressure as energy sources dwindle and the global recession bites. Diana Milne meets mining giant Rio Tinto’s CEO for energy Preston Chiaro to find out why the company is feeling the heat.

“Nothing is recession proof but uranium is less affected by the recession than coal and other commodities”
-Preston Chiaro, CEO for Energy, Rio Tinto

EVERY visitor that enters Rio Tinto's London headquarters has to first watch a safety video. A state of the art, minimalist office environment is hardly the sort of place where you'd expect accidents to happen. But it's a reminder of what this company is all about - not shiny offices and men in suits but heavy industrial activity conducted, at the coalface deep underground. The fruits of this labour have created a multibillion-dollar global mining giant where business is conducted a world away from the mines in Australia and Africa where the real action takes place. And it's there that Preston Chiaro, Rio Tinto's CEO for Energy, says he most likes to be: "Visiting the mines is one of my favourite parts of the job," he says. "I'm an engineer by training so I'm very hands-on. I liked to see the equipment working and I like to see, literally, the shovel contacting the coalface. That's the fun part of the job."

Today though, having risen up through the ranks, leaving the coalface far behind him, Chiaro is more likely to be found behind at desk at the company's UK or Australian headquarters. As CEO for Energy, Preston is in charge of six Rio Tinto companies producing coal uranium and minerals and is also Director of the World Coal Institute. Rio Tinto is one of the world's leading producers of coal with interests in 14 coal mines in the US and Australia, including 800 million tonnes of coal reserves at operating mines in Queensland and New South Wales. It is also one of the world's three largest uranium producing companies, enabling countries around the globe to develop nuclear energy capacity.

Tough times

Being on the front line of the global energy market Rio Tinto has been heavily exposed to the effects of the economic downturn which seen around 70% of the industry operating at a financial loss, according to a statement made by the company in April following the announcement of 700 jobs cuts in its Australian mines. Across the board, Rio Tinto has announced 14,000 job losses as part of a plan to reduce its debts by US$10 billion by the end of the year, citing the "unprecedented rapidity and severity of the global economic downturn." "In the short term the biggest challenge we face is the economic situation and just trying to figure out what's going to happen next and when the recovery might occur," says Chiaro. "I would say based on the markets we see that 2009 is going to be pretty rough for the whole year."

Within the energy division however, although prices have dropped, demand has remained relatively buoyant - particularly on the uranium side as Chiaro explains: "Nothing is recession proof so I would hate to describe it in those terms but uranium is less affected by the recession than coal and other commodities simply nuclear power is the cheapest source of energy that anybody's got. Once nuclear power stations have been set up they are very low cost energy sources so utilities companies will want to run them flat out even in bad times." He goes on to say that coal demand, despite the job cuts in Australia, has also been relatively unaffected on the thermal side, however coking coal has suffered a decline as it depends on iron and steel demand. The most seriously affected of the companies within his division have been those producing minerals for industrial use in for automobiles, homes and electrical devices, which he says have experienced a decline in sales of over 30 percent. "We've seen significant slowdowns there. Talc is probably the most affected because it's most closely associated with the automotive industry. A lot of our talc goes into car bumpers and into the plastic and even the rubber that's used for tyres. Similarly a lot of end products used in home building have a lot of talc in them - coatings and paints and that sort of thing. I would say borate is second because it's used in insulation, fibreglass, textiles, detergents and lots of other products as well. Titanium dioxide is the most heavily affected because it mainly goes into paints and coatings."

The upshot of the slump in demand for minerals and the fall of the prices of coal and uranium is that the majority of the ongoing projects to develop new mines or production sites have been delayed - with the exception of the QIT Madagascar Minerals project which has been completed on schedule and from which the first shipment of titanium dioxide will go out on schedule.

"As far as the other projects are concerned in my product group, whether its uranium, borate or coal, what we've done in most of those cases is defer projects," says Chiaro. "We're trying to keep them alive through this slow period but they've either been reduced to a minimum spend to keep them alive or, when we've been able to do so, we've completely put them on the shelf, with the notion that we can bring them on board very quickly once we see some strength in the economy again."

It's a frustrating situation for Chiaro and his team, who are keen to open up new sources of coal and uranium to feed the growing demand for energy, particularly from the emerging economies of Japan, China, Korea and India. The latter, says Chiaro has become a major importer of thermal coal and, he predicts demand there will soon be greater than from Japan: "We see a lot of growth potential in India," he says. They have a huge population and they want a higher standard of living. Electricity is a key component of a higher standard of living. Although India has a large government-run coal industry of its own it hasn't been able to keep up with demand. They are also building a lot of power stations on the cost, which can accept imported coal from places like Australia and Indonesia. In fact we've signed a number of agreements recently to supply thermal coal into India. I see it becoming a major importer of coal going forward. It wouldn't surprise me at all to see it grow larger than Japan in just a few years."

On the uranium side, demand is particularly high from China where the country aims to produce around 70 gig watts by 2020, and where "in 10 years they want to build a significant tranche of power stations," says Chiaro.

He goes on to say that the company is experiencing significant demand from Korea and Japan, both of which have ambitious nuclear power development programmes. To meet this demand, he says, Rio Tinto hopes to develop new sources of uranium in Africa and in Kazakhstan - projects which for now may remain on hold until economic conditions recover: "Timing might have to be delayed because of economic difficulties. But we would definitely like to open up another source of uranium. Kazakhstan is quite attractive because it tends to be low cost production. There appears to be a lot of uranium resources in the ground and we're working activity in that area.

Next generation mining

The short term restrictions imposed on Rio Tinto's expansion plans the economic downturn come at a time when technology is being developed that will revolutionise the mining industry - and bring cost savings that would, Chiaro hopes, prevent a repeat of today's project delays. Rio Tinton is currently developing technology aimed at automating the whole mining process, from drilling to the trucks and shovels that haul the material away from the mine. It is currently running a pilot operation of an automated mine in Australia where it has a fleet of automated trucks and automated drills which are controlled remotely by workers based in a nearby city. Describing the cost savings that can come from such a scheme, Chiaro, says: "We should get long lives out of this technology which saves costs, reduces fuel usage and we don't have the attendant support infrastructure that usually goes with this sort of operation. It saves money, energy, reduces greenhouse emissions. The aim is to eliminate the need for people. We think it's a great technology." He describes the technology behind the trucks: "These aren't remote control trucks these are autonomous trucks. You programme them so that they know where the shovels are and they link themselves up automatically and go along a pre-programmed path."

As well as cutting manpower costs, taking humans out of the equation will also help Rio Tinto to meet its health and safety targets by reducing workers' exposure to hazards. Being one of the world's biggest mining companies means Rio Tinto is under heavy scrutiny when it comes to its health and safety record. It has a zero tolerance policy to accidents of any kind in the workplace - hence the safety video requirement at its London office on which Chiaro remarks: "If the workers in our mines have to watch a video why shouldn't we?"

Naturally learning how to evacuate an office building is a far cry from the daily life or death threats faced by workers mining deep underground in highly hazardous conditions but the company's attitude is that the health and safety message should permeate every area of the company and that it should underpin every part of its operations: "Safety, for us, is a value not a priority that you rank alongside how many widgets to purchase," says Chiaro. "We have a very specific target and obviously our target for fatalities is zero. We have seen a steady decline in all injury frequency rates for the past ten years. We think we are the safest large mining company in the world as measured by those rates." Last year Rio Tinto fell far short of its target however, after a well-publicised plane crash in Peru, which killed ten workers: "Last year was a terrible year - we had 18 fatalities, ten of which were associated with a helicopter accident in Peru and that's a horrible performance," says Chiaro.

The big picture

Corporate image - particularly at a time when energy companies are coming under scrutiny for the effects of their activities on the environment - is a big concern for Rio Tinto. It is particularly keen to clean up its environmental record, with Chiaro, as the company's Sustainable Development Champion, at the helm. Like its approach to health and safety, Rio Tinto's policy is to integrate sustainable thinking into every aspect of its operations, making it integral to the planning and development of any new mines: "When we look at our review and approval processes for investment in new mines and other projects, we make sure that we have sustainable development questions built into the decision making process. We look at how it will affect water, air, and waste disposal, recycling and how to save energy. Some companies put together a group of sustainable development specialists but we've tried to distribute this knowledge across the whole organisation and built it into our processes."
He acknowledges however that the very nature of Rio Tinto's activities, which see it emit around 50 million tonnes of greenhouse gases every year, mean it cannot claim to be a sustainable organisation: "I try to avoid the word sustainable because the mine that we operate is not sustainable it's a deposit that we are removing and when the deposit ends that mine ends so by definition it's not sustainable."  He goes on to say that restricting emissions on some operations for example would make them unprofitable: "If we impose restrictions on aluminium smelting operations then we could actually disadvantage those operations and would have to shut them down because they are not profitable then that production facility would move to China where there are no restrictions." What the company does do however, is work with government bodies on climate change programmes that take into accounts the needs of the industry and monitor and report on its own emissions. When it comes to the building of new mines it is working on technology to minimise the impact on the environment - during the mine's lifetime - which can last for hundreds of years.  Giving the example of finding environmental ways of cooling a new mine in Arizona, Chiaro says: "Initially when we designed the mine we took a more traditional approach and were going to build huge air conditioning systems on the surface to keep the mine cool for the people that were working on it. We completely re-thought how we would build the mine and whether we needed so many people, whether we could automate some processes instead and if we needed to cool the entire mine." The company is also working on a new ways to dig deep mines called block caving, which involves digging a hole under the deposit then using conveyer systems to remove the coal, hence making no impact on the site at ground level.

As well as minimising its impact on the natural environment Rio Tinto also has a responsibility to ensure the welfare of the communities living around its facilities. Chiaro says the company's aim is to engage with communities at the early stages of a mine being developed and it is particularly keen to develop education and skills among the local populations and its projects have included the setting up of the Namibian Institute of Mining Technology, close to the site of its operations, providing employment opportunities for generations of local people.

It has also set up the Rossing Foundation (two dots above first O in Rossing) close to the Rossing mine in Namibia which includes a schools development programme, youth development project and funding for agriculture, small to medium enterprises and infrastructure assistance for water and sewage systems and town planning. "It's our aspiration to be the developer of choice," says Chiaro. "When a community has a mineral deposit nearby we want them to think that Rio Tinto will do a better job than any other company."

Hostile territories

Because many of Rio Tinto's mines and mineral deposits are based in remote locations it has the task of building infrastructure and transport links around the site, often in circumstances of political instability. At the Madagascar Minerals Project (check name) for example Rio Tinto built roads, a port and power network from scratch, during a time of upheaval in the country's leadership.

Working under such difficult circumstances is becoming an increasingly common challenge for Rio Tinto, says Chiaro, which means Rio Tinto's role becomes as much about politics as mining, he goes on to say: "These governments are struggling to come up with the right framework for mining. We try to assist them with that and try to point out what we think are good examples in other parts of the world. But frankly the capacity, the backing and the training of people in government in those countries, tends to be lacking. Sometimes they send people off to western schools for training but often you'll find those government ministers don't have the background in this stuff. Frankly we'd rather work with a government where people have that background." The challenge is increasing, says Chiaro as mining companies are forced to dig deeper and search further for tomorrow's energy sources. "In the long term the challenge is about continuing to find economic deposits and they tend to be in countries that are less developed and have less stable government structures."

And while new sources of energy are shrinking global demand from emerging economies is growing, meaning the company faces increased pressure to push the potential of their operations to the limit. "The scale of everything has gotten larger and larger but we're now approaching limits on size," says Chiaro. We're approaching some theoretical constraints that we won't be able to break through." Breaking through these barriers while attempting to meet environmental guidelines, all under increase economic pressure means Rio Tinto is facing a battle on all fronts.

But the world is hungry for energy and Rio Tinto is doing everything it can to develop the technology that will satisfy that appetite for hundreds of years to come.

Rio Tinto is a leading international mining group, combining Rio Tinto plc, a London listed public company headquartered in the UK, and Rio Tinto Limited, which is listed on the Australian Stock Exchange, with executive offices in Melbourne. The two companies are joined in a dual listed companies (DLC) structure as a single economic entity, called the Rio Tinto Group. The Group's major products include aluminium, copper, diamonds, energy products, gold, industrial minerals (borates, titanium dioxide, salt and talc), and iron ore. Its activities span the world but are strongly represented in Australia and North America. There are also significant businesses in South America, Asia, Europe and southern Africa.