LONDON/SINGAPORE 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 Olympic velodrome.
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 of anonymity.
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 every opportunity.
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 product.
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 incremental.
"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)