Supplier Partnering - Barrick trades a pile of gold for 10 years of tires
A good example of partnering with your supplier to obtain a strategic advantage!
Canada's Barrick Gold Corp. is so concerned about the worldwide shortage of the giant tires it needs for its massive mining trucks and loaders that it is lending a Japanese tire maker $35-million (U.S.) to help it finance a plant expansion.
Barrick, the world's largest gold miner, said Wednesday that it is lending the money to Yokohama Rubber Co. Ltd. as part of a 10-year agreement to secure the supply of “potentially more than $200-million” worth of off-the-road tires, at the rate of some 1,300 tires a year starting in 2009.
The tires retail for as much as $60,000 apiece, but the global shortage has seen them sell for as much as $300,000 each in Internet auctions, according to Barrick.
(That's the equivalent of more than 325 ounces of gold at today's price of $920 an ounce.)
Canada's Barrick Gold Corp. is so concerned about the worldwide shortage of the giant tires it needs for the massive trucks and loaders it uses at its mines that it is lending a Japanese tire-maker $35-million (U.S.) to help it finance a plant expansion. (Reuters)
Yokohama will use the loan to help finance a $50-million expansion of its Onomichi plant, near Hiroshima, including a new building, production line and related equipment, the mining company said in a news release. The tire maker also will deliver the tires directly to Barrick's mines and provide technical assistance to each site to make sure the tires being used there will have the proper rubber compound, tread pattern and so on.
“This is an innovative response to a worldwide tire shortage now facing the mining industry,” Barrick chief executive officer Greg Wilkins said in a news release.
The tires in question are indeed huge, designed for wheel rims with diameters of 45 inches and more. A tire for a 51-inch to 57-inch rim, for instance, is nearly 10 feet tall and weighs “just shy of 5 tons,” said Barrick spokesman Vince Borg.
With the mining and construction boom, demand for the tires has boomed, doubling since 2004 alone, Barrick said. But production has not kept pace, leading to shortages and price increases, and major manufacturers are projecting that the shortages will persist until at least 2011, the company added.
The shortages can be costly, Mr. Borg said in a telephone interview.
“You've got these humongous trucks worth not $38,000 but $2.4-million or $3-million and if you don't have a tire, you park it, and that's capital just sitting there,” he said. “You can put a used one on for a while, but you have to get a new one.”
Barrick also said that it spent a total of about $80-million on tires of all types in 2006, and that it currently buys about 3,000 of the giant variety each year. It said it expects that number to grow to about 4,500 a year by 2012.
Barrick expects to save money on its tire purchases from Yokohama, because it will be getting them at “direct-from-manufacturer pricing.”
However, Mr. Borg said that ensuring security of supply is also a key reason for doing the deal.
Vertical integration in which companies may take a stake in a supplier is not uncommon in a number of other industries, but Mr. Borg said Barrick has not seen anything in gold mining similar to its deal with Yokohama.
The business has tended to be a little “backward and dated” when it comes to things like supply chain management, he said.
“In the gold mining industry, at least a number of years ago, it was rocket science to bring more modern management processes into dealing with cost pressures and the like.”
Mr. Borg added that, several years ago, Barrick brought in a supply chain chief from an entirely different industry and since then has been bringing its procedures up to date.
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