* Every little helps as miners seek to boost profitabilty
* Groups try to extract maximum value from mine to consumer
* Some previously wary miners move into commodity trading
* Glencore model can offset volatile commodity markets
* GRAPHIC - Mining stocks recover reut.rs/2hu85v0
By Barbara Lewis and Gavin Maguire
LONDON/SINGAPORE, Dec 20 The world's big mining
groups are sharpening their marketing strategies in a
post-crisis scramble for even tiny increases in profit, seeking
marginal gains much like cycling teams in the Tour de France or
Anglo American, BHP Billiton and
Rio Tinto are using varying tactics to boost
profitability on commodities such as copper, iron ore and coal,
as the traditional model of simply producing more is under
strain and the recovery from a deep downturn remains tentative.
The one thing in common is a philosophy championed by
cycling coach Dave Brailsford: achieve marginal gains in as many
areas as possible and the overall performance of the rider - or
in this case the business - will improve significantly.
BHP and Rio Tinto, the biggest miners, have both appointed
executives this year to extract the maximum value from every
stage of their business process, from the mine to the consumer.
For BHP and Anglo American, the strategies include commodity
trading - although on a far smaller scale than their rival
Glencore, which began life as a pure trader and says
income from this business helped it through the commodity slump.
Overall, the object is to help cushion the mining groups
from the kind of extreme price swings that the market has
experienced in recent years.
"I am very confident that the culture changes we're building
on will allow us to move away from this boom and bust
mentality," Arnoud Balhuizen, BHP's new head of marketing and
supply, told Reuters.
The strategic shift, which began with the price crash that
knocked billions off the miners' earnings in 2015, has gained
momentum this year despite a revival on commodity markets.
"Prices have lifted, but the world will remain a very
competitive place and everybody will still be looking for that
extra dollar," one industry source said, speaking on condition
Even after investors piled back into mining stocks this
year, making them the biggest gainers on the London's FTSE
index, their prices are still barely back to where they were
around the start of 2015.
Chris LaFemina, a managing director of research at Jefferies
investment bank, said the new strategies were necessary but they
would not transform the miners' fortunes.
"In a bull market, companies would not have been worried
about incremental margins through marketing, but now everyone is
focused on getting the maximum price and they can get a little
bit of extra margin over a lot of tonnes," he said. "Small
changes are important at the bottom of the cycle and it still
matters, but it's not going to change the investment case."
CUTTING OUT MIDDLE MEN
Balhuizen, who was appointed to his newly-created position
in May after more than a decade with BHP, said a traditional
focus on selling large volumes through standard contracts may
have been good for consumers, but not for producers.
Following zealous cost-cutting over the last two years, the
next stage was to assess every stage of the value chain. That
led to the conclusion that the best price could be achieved if
brokers were cut out, long-term contracts torn up and specific
products delivered to specific consumers.
It's an approach that echoes Glencore's use of its network
of an estimated 7,000 customers to deliver a tailored service to
clients willing to pay a premium over market prices.
Balhuizen offered the example of coal, the price of which
has surged this year after steep falls in 2015. "You don't want
to sell too much coal to someone who doesn't value it, because
he won't pay you for it," he said.
Mining groups have traditionally steered clear of
speculative commodity trading as a source of income, reluctant
to take on the levels of risk involved. This contrasts to
Glencore, which remains an active trader despite becoming a
major producer when it merged with mining group Xstrata in 2013.
However, Balhuizen signalled a shift at BHP. The group gives
no figures for how many marketing staff it employs, but he said
traders - which he defined as "people who buy material on their
own account and take risk" - were among them.
Anglo American also does some pure trading. While the group
does not disclose volumes, it has said it met a goal set in 2014
that marketing activities should contribute $400 million in core
earnings by 2016.
This remains modest compared with Glencore, which expects
trading to account for $2.5-$2.7 billion of core earnings for
the full year.
Outside trading, Anglo American has also boosted platinum
margins by as much as 5 percent. This followed the ending of a
deal under which Johnson Matthey sold all its platinum
directly to customers. Instead of selling at a discount to the
spot market, it now it sells at a slight premium.
Rio Tinto says it does not trade but under its CEO
Jean-Sebastien Jacques, who took over in July, it has a new
division to analyse the group's business and extract value at
Steve McIntosh, who was appointed group executive of growth
and innovation in July, told analysts in December the aim was to
span "the entire value chain from ore body to market" in pursuit
of the extra dollar.
Rio's traditional big earner, accounting for roughly 60
percent of core profit, has been iron ore, a high margin, bulk
GRAPHIC - Big Four iron ore miners tmsnrt.rs/2gkaM50
However, Jacques has put an emphasis on copper. This needs
to be processed, and Rio is increasingly blending copper from a
variety of sources as the best grade material is used up.
Rio began buying copper from other sources to fill its
smelter in the U.S. state of Utah because the quality of its own
ores had declined. But the volumes are tiny - a few hundred
thousand tonnes - compared with Glencore's copper trade of
around 3.1 million tonnes per year.
While the strategies of Glencore and the rest overlap, the
big difference is the level of trading risk that the miners are
willing to take on.
Glencore has presented its trading business as the opposite
of risky in that it was a source of cash and stable earnings
even when commodity prices were crashing.
GRAPHIC - Glencore's business model tmsnrt.rs/2ftX4Ll
Trading does not involve the huge capital expenditure and
asset depreciation of mining, but needs credit and can go wrong.
Glencore relies on complex funding arrangements with around
60 banks and sometimes investors are wary, with its shares among
the biggest losers during the crash of 2015. But when all goes
well, its trading can generate cash even in the deepest slump.
Ultimately, the risk could be for Glencore, as more players
scramble for dwindling margins. However, Glencore investors say
it would take years for rivals to steal significant market
share, and any gains for the others are helpful but only
"It's extremely difficult to compete with someone who has
the key relationships, logistics and infrastructure in place
already," David Neuhauser, managing director at Livermore
Partners, a Glencore shareholder, said.
"As with any competitive situation, it could potentially
erode margins or volume, but I'd be hard pressed to see how they
could lose out to the others."
(Additional reporting by Dmitry Zhdannikov in London and John
Tilak in Toronto; editing by David Stamp)