A year ago the 2008 annual report of Rio Tinto was full of qualified optimism, the Chinalco shareholding, commodity prices being low, and the uncertain outlook as the global recession and credit crunch battered confidence and the company.
This year it’s all about the recovery, the better outlook, China and talk of 15 good years from China, then Indian demand rising quickly.
The company has reshaped itself, exiting quite a few businesses, especially in the over-priced Alcan-dominated aluminium division. $15 billion in a capital raising enabled the Chinalco deal to be called off and for debt to slashed by 60% to just under $US14 billion.
The strains of last year’s arrests of Stern Hu and three other executives have passed, China and the company are friends and there’s talk of a possible joint venture with Chinalco in the company’s on/off Guinea iron ore project, which could be a $19 billion monster.
So it’s no wonder Rio’s board and management are now much more confident about the outlook, predicting yesterday that China’s demand for key commodities will grow exponentially during the next 15 years, with India then taking over to lead further demand.
And, the short-term outlook for mining and metals is also improving but will likely remain volatile, the company said its annual report released yesterday.
Rio Tinto shares finished up 12c at $75.50 as investors liked the more positive tone.
Rio Tinto chief executive Tom Albanese was optimistic about long-term growth prospects.
For this year he said "An objective for 2010, and one that I am particularly focused on, is to strengthen our relationship with China.
"China is our largest source of short term demand growth. In 2009, it became the most important destination for our products and influences global pricing of most metals.
"It is also the home of our largest shareholder, Chinalco. We were pleased to see Chinalco take up its full entitlement of shares in our rights issues and maintain its shareholding at 12 per cent of Rio Tinto plc and 9.3 per cent of the dual listed company overall.
"I would like to add a word on our four employees who were detained on 5 July 2009 in Shanghai. We wish to see the completion of an expeditious and transparent legal process. Our continued priority is our duty of care to our colleagues and support for their families.
"Our markets and our balance sheet are much improved from last year, but we recognise that major short term uncertainties remain. Long term however, given continued growth and urbanisation of the developing world, the outlook for our industry is attractive.
"The exponential growth of China’s demand for iron ore, copper, coal and aluminium is expected to continue over the next 15 years, as the average wealth of many millions of people increases.
"Their consumption of raw materials will rise accordingly. As China nears the top of the commodity intensity usage curve, India is expected to follow, supporting a further potential wave of strong commodity demand.
"For Rio Tinto, 2009 marked a positive turning point from which we have emerged with our options for growth enhanced. Nevertheless, major challenges remain.
"The Tier 1 deposits that are the focus of our strategy are becoming harder to find and more technologically difficult to develop.
"There are pressures in countries well endowed with minerals for governments to gain a greater proportion of resource rents."
He said Rio’s move towards a joint venture with BHP Billiton to tie-up the companies’ massive iron ore operations in Western Australia’s Pilbara region was a highlight of 2009.
Mr Albanese said the strong demand for iron ore clearly provided the most obvious option for production growth, with plans to greatly increase its capacity in the Pilbara.
Chairman Jan du Plessis said 2009 had been an "historic and tumultuous year" for the company.
Rio Tinto started 2009 with debt of around $US38.7 billion ($42.32 billion), mainly as a result of its ill-timed takeover of Alcan in 2007, but by December 31 had cut that to $US14.8 billion.
"It certainly felt at times as if we were experiencing an amplified version of the global financial crisis and its knock-on effect on business confidence, demand for commodities and availability of credit," Mr du Plessis said.
Global growth forecasts for 2010 are for nearly 4%, with China’s gross domestic product (GDP) tipped to grow by 9% to 10%, Rio Tinto said.
"Economy-wide inventory rebuilding in the OECD should provide a short term boost to activity"
"Such growth acceleration would have positive implications for metals and minerals markets," the miner said.
