Rio Tinto backs iron ore in dicey global environment
Brisbane: Rio Tinto has turned cautious, shoring up capital and focusing on a narrow range of expansion projects in the face of global uncertainty, though the world’s No.3 miner said it was slightly more upbeat about the outlook than six months ago.
At its annual meeting in Australia on Thursday, its chairman fended off pleas from shareholders for share buybacks and higher dividends saying Rio Tinto did not want to repeat what happened during the global financial crisis, when it had to row back on expansions while trying to slash $40 billion in debt it took on with the top-of-the-market takeover of Alcan.
“So we live in a dangerous, volatile, unpredictable world and we do not want to be caught in a situation where we have to cut back capital expenditure programmes at the expense of our shareholders,” chairman Jan du Plessis said.
“So that is why we’ve adopted a cautious approach. We’ve been burned before and we’ve learned the lesson and we want to be cautious going forward.”
Du Plessis said he remains very nervous about Greece and warned that a Greek exit from the euro zone would destabilise Europe and hurt global confidence, which would impact the Anglo-Australian miner.
“There’s not much we can do about it, but that’s one of the many reasons why our posture has to be cautious,” he told reporters after the annual meeting.
Chinese companies were also turning more wary on investing in Australia’s resources sector in the short-term due to the uncertain global outlook and China’s lower growth target, China’s ambassador to Australia told Reuters.
“So particularly given the current world economic and financial situation, there are still some uncertainties, so I think that companies will emphasise more caution and be more careful in making such investments,” Chen Yuming said in an interview in Canberra on Wednesday.
Iron ore thriving
The two projects Rio is focused on are its multi-billion dollar iron ore expansion in Australia’s Pilbara and the $13.2 billion Oyu Tolgoi copper and gold project in Mongolia, due to start commercial production in the next 13 months.
Rio Tinto chief executive Tom Albanese, who said iron ore mining was thriving while conditions for other mining sectors were getting tougher in Australia, said management still planned to seek board approval for the Pilbara expansion to 353 million tonnes a year capacity around the middle of this year.
“Everything is now in place for the expansion to 283 million tonnes and potentially to 353 million tonnes,” Albanese said.
Albanese was diplomatic about moves by Mongolia, where Rio Tinto is developing the massive Oyu Tolgoi copper and gold mine, to draft a law to limit foreign ownership of key assets, including copper and coal mines, to 49%.
“As long as something like that is successful in basically laying out the ground rules and continuing to encourage that foreign direct investment which has been so important for the phenomenal GDP growth that we’ve seen in Mongolia, that would be good from a Rio Tinto perspective,” he told reporters.
“And, again, this is the type of thing that requires engagement, ongoing disucssion,” he said.
Soaring costs
The annual meeting followed an unusually vocal campaign by Albanese over the past week highlighting soaring costs in Australia that have made coal projects hard to justify, while stressing the superior profitability of its iron ore operations.
“Increasing costs are an industry-wide problem, particularly in hotspots like here in Queensland, and I am determined to be on the front foot in tackling this challenge,” Albanese told shareholders.
He said wage costs in Australia were rising much faster than anywhere else in its global operations, while energy costs and the high Aussie dollar were exacerbating the challenge.
Capital costs for projects were also rising faster in Australia than elsewhere.
“Something that you would have planned to have built four years ago might be 50 or even 100 percent more expensive to build now,” Albanese told reporters.
The company reaffirmed it was a little more confident about the outlook for commodities’ demand than it was six months ago, despite the downturn in Europe and questions about the US economic recovery.
“For most of our products, markets are still reasonably robust,” Albanese said.
Investors have fretted China’s recent move to lower its target rate of GDP growth would lead to weaker metals demand.
Rio Tinto’s shares rose 0.4% to A$61.50 in early trade in a flat broader market.
Sanguine on Guinea
Albanese and du Plessis played down a weekend report that a Hong Kong-based company, China International Fund, was looking to take over development of Simandou, Rio Tinto’s iron ore project in Guinea which it considers the best undeveloped iron ore lodes in the world.
Rio Tinto recently sealed a deal to split its stake in Simandou with China’s Chalco, with the World Bank’s International Finance Corp continuing to back the project, and has nurtured relations with the government elected in 2010.
“We’ve really established a good relationship with the government, where for a while that wasn’t the case,” du Plessis told reporters after the annual meeting.
“So I think the government of Guinea now understand and trust that we are committed to see this project through. So I’ve got no reason at all to think that they will want to think of changing horses at this time.”
At its annual meeting in Australia on Thursday, its chairman fended off pleas from shareholders for share buybacks and higher dividends saying Rio Tinto did not want to repeat what happened during the global financial crisis, when it had to row back on expansions while trying to slash $40 billion in debt it took on with the top-of-the-market takeover of Alcan.
“So we live in a dangerous, volatile, unpredictable world and we do not want to be caught in a situation where we have to cut back capital expenditure programmes at the expense of our shareholders,” chairman Jan du Plessis said.
“So that is why we’ve adopted a cautious approach. We’ve been burned before and we’ve learned the lesson and we want to be cautious going forward.”
Du Plessis said he remains very nervous about Greece and warned that a Greek exit from the euro zone would destabilise Europe and hurt global confidence, which would impact the Anglo-Australian miner.
“There’s not much we can do about it, but that’s one of the many reasons why our posture has to be cautious,” he told reporters after the annual meeting.
Chinese companies were also turning more wary on investing in Australia’s resources sector in the short-term due to the uncertain global outlook and China’s lower growth target, China’s ambassador to Australia told Reuters.
“So particularly given the current world economic and financial situation, there are still some uncertainties, so I think that companies will emphasise more caution and be more careful in making such investments,” Chen Yuming said in an interview in Canberra on Wednesday.
Iron ore thriving
The two projects Rio is focused on are its multi-billion dollar iron ore expansion in Australia’s Pilbara and the $13.2 billion Oyu Tolgoi copper and gold project in Mongolia, due to start commercial production in the next 13 months.
Rio Tinto chief executive Tom Albanese, who said iron ore mining was thriving while conditions for other mining sectors were getting tougher in Australia, said management still planned to seek board approval for the Pilbara expansion to 353 million tonnes a year capacity around the middle of this year.
“Everything is now in place for the expansion to 283 million tonnes and potentially to 353 million tonnes,” Albanese said.
Albanese was diplomatic about moves by Mongolia, where Rio Tinto is developing the massive Oyu Tolgoi copper and gold mine, to draft a law to limit foreign ownership of key assets, including copper and coal mines, to 49%.
“As long as something like that is successful in basically laying out the ground rules and continuing to encourage that foreign direct investment which has been so important for the phenomenal GDP growth that we’ve seen in Mongolia, that would be good from a Rio Tinto perspective,” he told reporters.
“And, again, this is the type of thing that requires engagement, ongoing disucssion,” he said.
Soaring costs
The annual meeting followed an unusually vocal campaign by Albanese over the past week highlighting soaring costs in Australia that have made coal projects hard to justify, while stressing the superior profitability of its iron ore operations.
“Increasing costs are an industry-wide problem, particularly in hotspots like here in Queensland, and I am determined to be on the front foot in tackling this challenge,” Albanese told shareholders.
He said wage costs in Australia were rising much faster than anywhere else in its global operations, while energy costs and the high Aussie dollar were exacerbating the challenge.
Capital costs for projects were also rising faster in Australia than elsewhere.
“Something that you would have planned to have built four years ago might be 50 or even 100 percent more expensive to build now,” Albanese told reporters.
The company reaffirmed it was a little more confident about the outlook for commodities’ demand than it was six months ago, despite the downturn in Europe and questions about the US economic recovery.
“For most of our products, markets are still reasonably robust,” Albanese said.
Investors have fretted China’s recent move to lower its target rate of GDP growth would lead to weaker metals demand.
Rio Tinto’s shares rose 0.4% to A$61.50 in early trade in a flat broader market.
Sanguine on Guinea
Albanese and du Plessis played down a weekend report that a Hong Kong-based company, China International Fund, was looking to take over development of Simandou, Rio Tinto’s iron ore project in Guinea which it considers the best undeveloped iron ore lodes in the world.
Rio Tinto recently sealed a deal to split its stake in Simandou with China’s Chalco, with the World Bank’s International Finance Corp continuing to back the project, and has nurtured relations with the government elected in 2010.
“We’ve really established a good relationship with the government, where for a while that wasn’t the case,” du Plessis told reporters after the annual meeting.
“So I think the government of Guinea now understand and trust that we are committed to see this project through. So I’ve got no reason at all to think that they will want to think of changing horses at this time.”
Comments
Post a Comment