Rio Tinto (RIO) yesterday delivered what amounts to a two-fingered salute to critics of its iron ore expansion policies by telling Australian shareholders it will continue growing its iron ore exports.
Speaking in Perth at the miner’s annual meeting, Rio chief executive Sam Walsh said iron ore expansion was still one of the most profitable ways for Rio to invest its money, despite iron ore prices remaining below $US61 per tonne.
His defiance was noted by the market and Rio shares eased 0.9% to $58.45, despite another solid rise in global iron roe prices Wednesday night, to take the gains this week to 9% and the price back over $US60 a tonne for the first time in two months.
Shares in BHP Billiton (BHP) fell 1.4% to $31.89.
RIO vs BHP vs FMG 2Y – Rio unapologetic in iron ore war
“Only the projects with the most attractive returns will proceed; the projects that will deliver the most additional value to shareholders,” Mr Walsh told the meeting.
"By way of example, this year in the Pilbara we will continue our low capital cost brownfield expansions as we grow our capacity."
Mr Walsh said the 30 million tonnes of extra iron ore supply built into the Pilbara system would come at a cost of $US9 per tonne, implying a cost of around $US270 million.
It was an effective reply to criticisms of Rio and BHP from Fortescue Metals (FMG) chairman Andrew Forrest and West Australian Premier Colin Barnett as anything the companies have said this year.
Mr Walsh made it clear to the meeting that in fact Rio’s growth strategy and market share had hardly changed over the past decade.
"Rio Tinto’s well-flagged investments over many years, and the fact our market share today of 20 per cent, is the same as it was a decade ago…this invalidates suggestions that we are responsible for a perceived market dislocation," he said.
"With iron ore now trading around $US60 per tonne into China, we have more to do to ensure that we maintain the margin between ourselves and other producers."
Rio and BHP have pointed out that Fortescue has added more surplus tonnes to the global iron ore market (upwards of 155 million tonnes of capacity) since 2008 than any other producer. Fortescue earlier this year revealed plans for a further, smaller boost to 160 million tonnes, weeks after claiming it would stop at 155 million tonnes.
Earlier, the company’s chairman Jan du Plessis made similar comments to the AGM, telling shareholders that Rio would not be shifting from its plan to continue growing iron ore exports, despite the weak prices on offer.
Over the past weeks, the two other iron ore heavyweights, BHP and Vale, had signalled they were considering production cuts, or slowing output expansions (in the case of BHP).
And the meeting was also told that Rio had no intention of following BHP down the spin off route – it has already tried that and failed with its unwanted aluminium, alumina and bauxite businesses that were on the market for 18 months without success.
Analysts say that these unwanted assets were assembled into a corporate structure for sale either to the trade, or a float, if market conditions would allow. But aluminium assets were unwanted then (they are a bit more popular now (and profitable).
Rio Tinto’s chairman and chief executive said they were happy with the size of the company, and that they were looking at several options to expand the business.
The comments come a day after BHP’s shareholders voted to create a new company called South32 which will hold assets in nickel, aluminium and manganese.
"I can say categorically that at Rio Tinto, we are not considering spinning off any of our assets," Rio chairman Jan du Plessis said Thursday. "I think we are happy with our portfolio, and we’re certainly not considering spinning off coal or spinning off aluminium or anything like that."
CEO Sam Walsh said he viewed Rio’s asset sales – US$17.5 billion worth in the past five years – as achieving something similar to BHP’s corporate breakup.
A restructuring of its business earlier this year sparked fresh speculation other commodity groups could be in the firing line.
But nothing eventuated or is planned, judging from yesterday’s comments at the AGM and afterwards to the media.
