Mining giant plans procurements worth $1 billion to aid expansion

XIANGTAN, Hunan - Rio Tinto Group, the world's third-largest miner by market capitalization, said it will double its procurement of goods in China to reach $1 billion this year, further highlighting long-term collaboration with the world's largest iron ore consumer.

"In 2011, we expect to spend over $1 billion in raw material, marine freight, operational and capital goods in China," said Scott Singer, Rio Tinto's global head of procurement, at a signing ceremony with the State-owned Xiangtan Electric Manufacturing Corporation (XEMC).

Under the agreement, the first such deal for a Chinese manufacturer to export haul trucks, XEMC will deliver four trucks to Rio Tinto's Pilbara project in Western Australia.

Related readings:  Rio Tinto sees no material impact from Japan quake  Baosteel inks coal import deal with Rio Tinto  Iron ore monopoly may end by 2015  China to form 100m-ton-level iron ore miners

The company started procurement in China in 2003 and spent $500 million on manufacturing goods in 2010.

Singer said the growth in procurement is due to Rio Tinto's business expansion, and he expects the group to make more purchases in China next year.

The XEMC trucks are scheduled to be operational at the Tom Price mine in Pilbara in early 2012.

"For Rio, it's our first contract with a Chinese manufacturer for the supply of mining equipment, and it's also the first time that we will receive customized fit-for-purpose trucks that we can put straight to work in our mines," said Tom Palmer, chief operating officer of the Pilbara Mines.

A Xiangtan Electric Manufacturing Corporation booth at an energy exhibition in Shanghai. The Hunan-based company will sell four haul trucks to Rio Tinto Group, as the mining giant aims to double its procurement in China. [Photo/China Daily]

Mark Rivers, general manager of emerging market procurement for Rio Tinto China, said the tremendous growth rate in the Chinese procurement market has introduced competitive costs, the acceleration of delivery schedules, and Chinese partners' willingness to work with Rio Tinto to customize designs.

XEMC is also in talks with other potential business partners from Brazil, Turkey, and South Africa to further tap overseas markets.

"We expect our overseas business to account for one-third of XEMC's total revenue by 2015," said Li Jiping, XEMC group deputy director general.

Ian Bauert, Rio Tinto's managing director for China, said the country is Rio Tinto's largest market and accounts for 28 percent of worldwide revenue.

He said the company has plans to increase the capacity of the Pilbara iron ore mines' infrastructure to 330 million tons by 2015.

"Most of the increased production will be bound for China to feed the country's ongoing industrialization and urbanization," he said.

The company's relations with China hit a rough patch after it walked away from a $19.5 billion investment deal with Aluminum Corp of China (Chinalco) in June 2009. Ties further soured when four of Rio Tinto's former employees in China were convicted of taking bribes and stealing Chinese commercial secrets.

The company started mending fences in March 2010 when Chief Executive Officer Tom Albanese visited Beijing to strengthen its partnership with China.

In March last year, Rio Tinto and Chinalco agreed to jointly develop the Simandou iron ore project in the African state of Guinea. Meanwhile, in December, the companies signed an agreement to establish a joint venture to explore for new sources of copper and coking coal in China.