Global giants mine Singapore offices to add value

Singapore

TRAVELLING to a mine typically entails long distances on the road, wearing protective gear, sitting through safety briefings - a time-consuming endeavour that is also expensive.

But if plans by Rio Tinto in Singapore come to pass, it will soon be able to bring the real-life conditions of a mine into an office, even one that is miles away.

Meanwhile, over in the next tower at the Marina Bay Financial Centre, work is under way at BHP Billiton to move trade documents online, not only to improve efficiency but also to boost governance.

Even as the stocks of both mining giants plumb 10-year lows amid the harsh commodity environment, their Singapore offices - which have in the past decade grown to become important commercial bases for the two groups - are working to innovate and add value to the groups.

"The big successes we have is more on value creation than cost cutting," said BHP Billiton president of marketing Arnoud Balhuizen, who also heads its Singapore office. "In a marketing organisation, ultimately you want to focus on value and throughput and selling the best products to the right customer at the best price."

Singapore has become an increasingly important location for the mining giants in the past decade as China's appetite for iron ore, copper and coal grew, and mining companies sought to consolidate sales and distribution offices scattered across the world in a location near demand centres. Some 70 per cent of revenues for Rio Tinto and BHP Billiton come from the Asia-Pacific region.

Rio Tinto's office here has grown from a staff of 20 in 2007 to 330 employees. "We've got an ambition to grow that, although in the current environment we've had to slow down some of the near-term hiring," said its Singapore managing director Scott Singer, also the group's head of global business services.

While the group has frozen salaries and is cutting travel expenses, it is nonetheless still hiring to fill current positions, he told BT.

Besides having some of its marketing heads based in Singapore, the group has headquartered in the city-state procurement activities for items such as fuel oil and mining equipment, and its global IT function.

The latter has become especially important as Rio Tinto seeks to unearth value from the digitalisation trend. The group became the foundation client for Accenture when the consultancy opened an Internet of Things Centre of Excellence for Resources here last September, focused on helping agriculture, forestry, mining, oil and gas, chemicals and utilities companies capitalise on new digital services and business models.

Rio Tinto, which has started using drones and driverless vehicles in its mining sites, is now working with Accenture to develop real-life simulation of its mines.

"Our mines are big industrial places and we now can take that experience and virtualise that so that you can experience what it feels like to be one km underground in a mine for training and development purposes," said Mr Singer.

Another possibility: mine supervisors keeping track of trucks through their phones in real time.

"It's about rendering big data information on somebody's handheld device," said Mr Singer. "There's quite a bit of experimentation with that and some real traction is happening as a result."

For BHP Billiton, the focus on digitalisation comes through in a different form - by moving trade-related documents, whether in shipping or trade finance, onto electronic platforms. Paper bills are currently the main form of documentation in shipping, and these are physically couriered to ports and banks when a trade occurs.

"We're working with our customers and banks to create platforms where we can do this electronically," said Mr Balhuizen. "It improves governance so that we can have fewer mistakes."

The group is also leading efforts to nudge the coal market along the path of using more derivative pricing products, in the same way that iron ore has evolved in recent years and other commodities before that.

More pricing transparency and liquid markets, after all, mean that products can be priced at the best price, said Mr Balhuizen. "That's basically the best for the trade and it would be good for our customers."

Singapore is the global centre for the marketing of all BHP Billiton's commodities other than petroleum: copper, coal and iron ore. The group hires about 400 people here, and like Rio Tinto, is hiring to replace current positions only. "We don't expect a lot of growth in 12-18 months, so we need to be prudent in the current climate."

The vast marketing operations of both Rio Tinto and BHP Billiton in Singapore came under intense scrutiny in Australia last year amid a wider inquiry by its tax authorities into tax avoidance by multinationals.

Both companies enjoy tax incentives in Singapore, but have said that the Singapore operations were set up to be closer to their customers. Australia has a corporate tax rate of 30 per cent, while Rio Tinto has said it pays 5 per cent tax on its Singapore operations.

For Mr Balhuizen, the issue is more nuanced than what news headlines might have represented it to be last year. "It's not a dispute about whether we have paid our tax. It's more around the principles of transfer pricing," he said. "I'm sure it will be solved in a constructive way."