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Major iron-ore expansions in current market ‘foolish’ – Fortescue CEO

Fortescue CEO Nev Power

Fortescue CEO Nev Power

Photo by Bloomberg

17th October 2014

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

  

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PERTH (miningweekly.com) – The CEO of iron-ore major Fortescue Metals, Nev Power, on Friday questioned the major investments in iron-ore expansion projects while the prices remain low.

“There is no point continuing to expand just because you are a dollar cheaper than the guy next door to you. What we should be looking at is being responsible with our shareholder returns and making sure we are maximising those through our companies,” Power said.

His remarks come as mining giants BHP Billiton and Rio Tinto are pushing to expand their iron-ore production in the Pilbara, despite the historically low prices being achieved for iron-ore.

BHP expects to produce 225-million tonnes of iron-ore a year by 2015, while Rio is ramping-up production to 360-million tonnes a year.

Western Australian Premier Colin Barnett earlier this week also questioned the majors’ policy around expansion in the current market conditions, calling it flawed.

“I’m not quite sure why anyone would want to be the last man standing in a low price, low return environment,” Power said at a breakfast on Friday.

Power noted that while Fortescue had recently completed its own multibillion-dollar expansion to 155-million tonnes a year, this expansion had been announced in 2010, when iron-ore prices were significantly higher.

“When the iron-ore price was at $180/t, there was no significant interest in expanding, but now with the iron-ore price at $80/t, suddenly everyone is talking about expanding. I find that a little odd.”

Power had called the major’s policy of investing capital to expand production in the current market foolish.

“Investing because you are more profitable than the next guy seems a foolish strategy to me, and one that will inevitably lead to self-inflicted wounds, minimal returns to shareholders and probably replacement of the management teams, like we’ve seen from some of those companies in the past.”

Edited by Mariaan Webb
Creamer Media Contract Publishing Editor

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