Miners forge bonds to reduce costs

Australia's three biggest miners BHP, Rio Tinto and WMC, and 11 other global mining companies have joined a group to establish an online business entity to cut costs.

Fourteen companies have agreed to form a joint venture to buy raw materials, machinery, equipment and other goods on the Internet, which will transform procurement practices.

The companies, including De Beers Consolidated Mines, Anglo American Corp and aluminium giants Alcan Aluminium and Alcoa, represent more than 60 per cent of the market value of the metals and minerals industry, and will have equal shares in the venture.

No company would be allowed to own more than 15 per cent of the venture, which will have its own chief executive and an alliance with a technology provider.

Morgan Stanley Dean Witter has been the corporate adviser in establishing the entity, which is expected to be based in the Northern Hemisphere, with a regional office in Australia.

The industry spends about $US200 billion ($345 billion) annually on such purchases, and the decision to buy parts on the Web mirrors ventures in the car, oil and retail industries.

"The site will bring together mining and metal producers and suppliers in more than 100 countries," the partners said in a statement, adding the venture would be open to any newcomer and provide significant benefits to sellers and buyers through "standardisation, transparency, streamlined transaction processes and improved inventory management".

"It is anticipated that the expansive, open and neutral platform will transform the procurement practices of the mining and metal industries," the partners said.

The companies, which range from North America, South America, Africa and the South Pacific, are in talks with other prospective partners, said a spokeswoman for Rio Tinto.

According to Morgan Stanley, such a joint venture would have a real value of up to $3.5 billion, deriving its own income from commission fees on the transactions.

The companies aim to cut the time and cost it takes to process transactions by choosing products from just one location - the Web site -- rather than the many different catalogues they must use now.

The new marketplace will use a common catalogue of products in multiple languages letting companies, regardless of size and location, trade with each other, all the while keeping confidentiality, the group said.

The 14 founders declined to say how much the site would save annually, although at this month's annual meeting Rio Tinto chief executive Leigh Clifford said buying expensive items such as crude oil and tyres on a group basis, rather than division, has brought cost savings of $US80 million ($138 million).

Rio Tinto saved $130 million on procurement last year through such group purchasing.

Morgan Stanley estimates BHP alone would save more than $850 million annually by moving procurement online.

A WMC spokeman said there were "genuine benefits" for all parties, with savings derived from improving the supply process rather than keeping suppliers to a price.

The joint venture's total purchasing budget is $US4 billion ($6.9 billion) a year.

Some analysts say the deal is expected to save $15 billion a year in supply costs.

The companies have agreed to the formation of an interim management team with a chief executive to be appointed soon.

The Internet-based procurement entity is expected to be in place and operating before the end of the year.

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