PERTH (miningweekly.com) – Mining major Rio Tinto CEO Sam Walsh on Thursday denied suggestions that the company was responsible for a “perceived market dislocation” by continuing to bolster iron-ore production in a weak market.
Speaking at the company’s annual general meeting, in Perth, Australia, Walsh stated that Rio had maintained its market share of 20% for the past decade, despite investments into its Pilbara infrastructure.
“Over the last eight years we have invested $28-billion in our Pilbara iron-ore operations. I can assure you our investments in high-quality assets delivering high-value tonnes are in your interests as shareholders, and they are in Western Australia's and Australia's interests too.”
Walsh was responding to comments by mining magnet Andrew Forrest, who claimed that Rio Tinto and BHP Billiton were oversupplying the iron-ore market, resulting in a significant fall in iron-ore prices, and costing the Australian economy between A$50-billion and A$60-billion a year in lost revenue.
Walsh said that the global iron-ore market was in a period of transition, with high-cost, and in some cases late entrant supply, being supplanted by low-cost producers. He pointed out that bumps were expected in a major industry shift before the market settled into a new equilibrium.
“We take no comfort in what is happening to some of the smaller, higher cost iron-ore producers that are finding it hard to compete. Operating in a global commodities market has always presented cyclical challenges and today’s weakened market is no different,” he said.
Walsh told shareholders on Thursday that the company would continue with its low-capital-cost brownfield expansions in the Pilbara with an aim of producing 360-million tonnes a year.
“This will be achieved at a capital intensity of approximately $9/t, continuing to confirm our competitive position as the world’s lowest cost supplier of seaborne iron-ore. Our Pilbara expansion represents a clear and consistent strategic response to the unprecedented, continuing, long-term growth in China.
“The world remains on a path towards greater urbanisation,” Walsh said.
Meanwhile, Walsh said that the company would continue its focus on lowering capital spending. Since 2012, Rio had achieved cost reductions of around $900-million from its copper group and some $800-million each from its aluminium and energy groups, along with $700-million from the iron-ore division and $400-million from its diamonds and minerals division.
The group has a $750-million cost saving target for 2015.
“In capital intensive industries like ours, a robust balance sheet is a competitive advantage – especially during periods of market uncertainty. It protects the business, it protects our shareholders and it creates a platform for the future,” Walsh said.
“Moreover, it provides the flexibility to undertake future projects − when the value case is compelling. And it underpins our ability to reward you, our shareholders – as we have in 2014 − through announcing a total cash return to shareholders of almost $6-billion.
“Our strong financial results reflect a disciplined execution of our long-standing strategy: to operate long-life, low-cost, expandable assets in the most attractive industry sectors.”