Rio Tinto gave its British shareholders a very upbeat assessment of its outlook, especially in iron ore, copper and uranium, at last Friday’s Annual General Meeting for the plc company in London.
Both chairman, Paul Skinner and retiring CEO, Leigh Clifford, outlined ambitions to grow the iron ore business on top of the existing expansion plans for Western Australia; hinted at more uranium ore reserves at Ranger in the Northern Territory; and confirmed the thinking behind the drive deeper into copper around the world.
Like its larger rival, BHP Billion, Rio expressed confidence that China would continue to be the major driver in 2007, assisted by rising demand from elsewhere in Asia.
And, like BHP, Rio believes that expansion and addition of new capacity in its commodity areas will continue to be slow because of shortages of materials and people.
And Mr Skinner also said the company intended completing its multi-billion buyback this year while being able to make a significant deal if need be.
It’s why Rio’s first quarter production report this week will be closely watched by the market, although the chairman’s comments will answer questions about whether the status of the buyback.
“We intend, subject to market conditions, to return a further three billion dollars by the end of this year, 2007, while still retaining the financial flexibility to pursue growth opportunities as they arise.
“We have now returned nearly six billion dollars of our overall eight billion dollar capital management program.
“It is our intention to complete this by the end of 2007,” the chairman told the meeting..
“One of the most satisfying features of 2006 was that almost all of our large development projects continued to reach their milestones on time and on budget in challenging construction markets, where the skills and resources we need are in short supply.
“As I said in the Annual report, the global economy faces a range of political and economic risks, but the outlook remains broadly positive.
“We expect a continuation of positive economic growth in 2007 in most of the major economies.
“China’s strong growing demand for metals and minerals is expected to continue, and there is strong momentum in most Asian economies which represent big markets for us. Europe and the US are performing reasonably well.
“On the supply side, a number of constraints, ranging from shortages of key consumables to the tight supply of skilled professionals and tradesmen will continue to limit the growth of new production capacity.
“Stocks of most products have therefore remained low, resulting in tight markets. Reflecting this we expect prices in 2007 to continue at levels significantly above the long term trend.
“Our existing portfolio, especially the early stage copper projects we acquired in 2006, has the potential to generate continuing growth in future. Meanwhile we remain alert to further opportunities for mergers, acquisitions and alliances.
For Australian CEO, Leigh Clifford, it was the last AGM in London in his current role. He steps down at the end of this month, after the Australian AGM on April 27.
He was confident about the outlook for all the business, especially copper, where Rio has skillfully positioned itself for the future and its iron ore business in WA.
They make up the largest capital investment for Rio and Mr Clifford said the project was “progressing well.”
“We are heading for a production capacity in Western Australia of 220 million tonnes a year (of iron ore) by early 2009. This is nearly double our capacity in 2003 and four times our production seven years ago.
“Due to continued strength in the world’s steel markets, particularly in China, we are now planning for a significant lift beyond 220 million tonnes. We have the resources to enable this and have teams evaluating the infrastructure requirements to achieve it.
“The challenge of operating and expanding ten mines, three ports and a 1,600km rail network in the Pilbara at a time of maximum production should not be underestimated. Our teams in the Pilbara are doing an excellent job, notwithstanding the challenging cost environment and the occasional cyclone.
“Meanwhile construction is well under way on the Hope Downs joint venture project. It will start production next year at a rate of 22 million tonnes, rising to 30 million tonnes in stage 2.
On copper he revealed the thinking behind the company’s strategy in buying positions in large undeveloped projects in Asia, Alaska and in South America.
“Consistent with our strategy was our acquisition in 2006 of interests in three large, long term copper projects: La Granja in Peru, Oyu Tolgoi in Mongolia, and Pebble in Alaska.
“With the Resolution project in Arizona, this means Rio Tinto has a stake in four of the ten largest undeveloped copper deposits in the world.
“We are very pleased with the recent progress in negotiations in Mongolia and the announcement that agreement in principle has been reached on an Investment Agreement for the development of the Oyu Tolgoi project. The agreement remains subject to approvals by the Mongolian Cabinet and Parliament, Ivanhoe and Rio Tinto, and the finalisation of formal documentation.
“The investment in Mongolia represents a phased, risk-managed entry into an outstanding resource that suits our strategy for world class deposits and is located close to the border with China, the world’s largest consumer of copper.
“La Granja has started a pre-feasibility study. First production is at least seven years away.
“We have a 19.8 per cent interest in the Pebble project in Alaska, a part of the US in which we have long operating experience and a record of responsible management. It is early days for the project, as it is expected to take about ten years to reach fruition.
“We are particularly encourag
