A rather bullish outlook from major miner Rio Tinto in its 2010 review released yesterday helped the shares rebound nearly 2% in yesterday’s steadying market.
The shares rose $1.53, or 1.98%, to $78.94 after being as high as $79.52 in the morning as investor sentiment about stocks, especially commodities and uranium miners (Rio has a mine or two in Australia and South Africa), recovered from Tuesday’s mauling.
But the comments in the review seemed out of date in the wake of the problems at the nuclear power station of Tokyo Electric at Fukushima Daiichi.
The review would have been written some weeks ago, but they had a slightly strange other world tone to them.
"Although long-term fundamentals for growth are strong, there are downside risks in the short term, and potential for medium-term volatility due to persistent economic imbalances," Rio Tinto chairman Jan du Plessis said in the company’s annual report released on Wednesday.
"Financial systems remain fragile, particularly in OECD (Organisation for Economic Co-operation and Development) countries.
"The increase in sovereign debts, and government measures to address fiscal imbalances, are likely to temper short-term growth."
Mr du Plessis said Rio will have to deal with skills shortages and new technical challenges as it expands into more risky areas to meet rising demand.
But Rio was well prepared for the key challenges.
"We will need to overcome skills shortages as we compete for new talent not only with other mining companies, but also with other expanding sectors, such as oil and gas," Mr du Plessis said.
"This trend will become more apparent as we move into new, riskier geographies.
"There will be new technical challenges as we develop more remote and complex orebodies and increased competition from new players in our sector.
"Although we anticipate continued volatility in our markets, we will need to look beyond the peaks and troughs of a cycle and be prepared to expand through volatile times."
Rio chief executive Tom Albanese said the momentum of recovery in major economies will remain uncertain and volatile as the effect of the fiscal and monetary stimuli fades.
"Therefore, we remain cautious about the short-term view of the economy," he said in the annual report.
"Globally, we expect GDP (gross domestic product) growth in 2011 to continue at broadly healthy levels of around 4.5 per cent.
"However, the pace of economic recovery will vary between the different markets we supply."
Mr Albanese said that longer-term fundamentals were strong and much of the anticipated growth in demand for minerals would be driven by China and other emerging economies.
Mr Albanese said Rio would focus on organic growth and consider strategic merger and acquisition opportunities of a moderate size.
(The company is bidding for Riversdale Mining, a local company whose biggest asset is a huge coking coal deposit in Mozambique.)
In reality, for all the chest beating about how good the management and board of the company are (remember some of them helped push it to the brink of collapse in 2008 after the ill-timed and costly Alcan takeover), 2010 was the year when Rio Tinto earned most from its iron ore business in WA, and reasonable earnings from elsewhere.
The iron ore business had revenues of $US24.02 billion (out of group revenues of $US60 billion), and yet underlying earnings were $US16.6 billion, out of group underlying earnings of around $US25.97 billion.
In other words 73% of group earnings came from selling iron rich dirt from WA at near record prices to steel mills in Asia in the main.
It’s not rocket science.
