TORONTO (CP) -- In ''a unique innovative twist,'' Barrick Gold Corp. [TSX:ABX; NYSE:ABX], struggling to deal with a worldwide shortage of the three-metre high tires used by its massive trucks, is lending a Japanese tire company $35 million to help it finance an expansion.
Barrick said Wednesday it has signed a 10-year deal with Yokohama Rubber Co. Ltd. of Japan to supply more than $200 million worth of tires, including hundreds of the behemoths it needs each year for the giant ore-moving trucks that are vital to its mining activities.
''We have contracts with other suppliers,'' said Barrick spokesman Vincent Borg. ''In terms of this one, it's taken a unique innovative twist.''
Yokohama was looking to expand its plant and ''we worked out an agreement with them about the long-term supply of ... tires,'' said Borg.
''We're buying about 3,000 giant tires these days a year. We're looking at roughly 4,500 in 2012. This contract would be looking at 1,300 a year.''
The rest will come from long-term contracts with Goodyear and Michelin and other companies, he said.
Under the agreement announced Wednesday, the world's biggest gold producer will begin purchasing the off-the-road tires beginning in 2009.
To meet this demand, Yokohama said it will spend about $50 million to expand its Onomichi plant in Hiroshima Prefecture, Japan.
The expansion will be primarily funded by the $35 million loan from Barrick. Start-up is scheduled for late in the fourth quarter of 2008.
''This is an innovative response to the worldwide tire shortage now facing the mining industry,'' Barrick CEO Greg Wilkins said in a release early Wednesday.
''We are providing partial financing for our supplier's plant expansion to secure a supply of high-quality tires for our operations and our new projects.''
Borg said this is the first of this type of deal ''that we've come across in the mining industry, to actually turn around and invest in a plant to secure supply.''
Barrick, he said, stands ''to gain the benefit of the savings from doing this, in having a secure supply.''
The savings, he said, will come because Barrick will ''be getting the tires at direct from manufacturing pricing.''
Borg said he didn't know what other miners in the business would do. ''We'll have to wait and see.''
A boom in the mining, oilsands and construction industries has created high demand and tire shortages, as well as upward pressure on prices as tire manufacturers push to meet orders. Supply is expected to be tight until at least 2011.
''There's been a tire crisis within the broader industry for the big tires'' for quite awhile now, said Borg.
''They're costly. They are huge tires that are not easily made.''
Barrick made this deal with Yokohama because ''you invest so much capital in the trucks that these tires are needed for that you can't afford to not have that spare tire or replace a worn tire when it needs replacement,'' he said.
Barrick can't afford to ''have that $3 million truck sit there parked because you don't have a tire on hand.''
Big U.S. heavy equipment maker Caterpillar Inc. [NYSE:CAT] has complained about the shortages as has Vancouver-based Finning Ltd. [TSX:FTT], one of the world's biggest dealers and servicers of heavy Caterpillar equipment and a major supplier of giant trucks, graders and loaders used in oilsands projects. Finning is also a big supplier of heavy equipment for mines in South America.
At Toronto-based Barrick, which is developing several new mines, the gold producer has tried tire-saving strategies such as enhanced maintenance and repair and sharing of equipment between minesites.
Prices range from about $200 each for a pickup truck tire to $60,000 for the largest loader tire. On the open market or in internet auctions, giant tires have sold for as much as $300,000.
The deal with Yokohama is part of a modern supply chain management approach that Barrick has adopted, said Borg.
''Tires have been short, the costs have been going up ... that's going to be the case for the foreseeable future,'' so this looked like a good way to go, said Borg.
Barrick, he said, spent a total of about $80 million on tires of all types in 2006, and expects that appetite to grow.
Headquartered in Tokyo, Yokohama is a global producer and distributor of premium tires. Barrick Gold has 27 operating mines and 20,000 employees around the world.
In Wednesday trading on the Toronto Stock Exchange, Barrick shares fell 35 cents to C$52.85, on a volume of nearly four million shares.
© The Canadian Press 2008
