Rio in no rush to reach 360mt

Rio Tinto reaffirmed today plans to continue its brownfield iron ore expansions in the Pilbara but has noted all new mine developments are still on hold, leaving a question mark over when it will reach its 360 million tonnes per year production target.

Chief executive Sam Walsh told shareholders in Perth today the company’s Pilbara expansion represented a clear and consistent strategic response to the unprecedented continuing long-term growth in China.

His comments followed repeated criticism of Rio and BHP Billiton, which have been accused of pushing up supply to depress prices and force competitors out of business.

“This is a long-term strategy,” Mr Walsh told journalists after the company’s annual meeting.

“We invest for the long term, not necessarily what’s happening with the spot price on May 7 2015.

“Some of the investments that are just coming to fruition, the investment decisions were made five years ago.

“For example, in our port and rail infrastructure, for 360 million tonnes, that will be completed within the next month.

“The investment is there, now we have the assets.

“It means that continuing with the mine production to meet that port capacity; that is what makes sense for our investors, that is in fact what we’ll do.”

When asked about new mine developments to support that growth, Mr Walsh noted that the company had already deferred greenfield expansion projects.

“I think it’s something the market has overlooked,” Mr Walsh said.

“The fact that a year and a half ago, we announced we were deferring the investment of around a billion dollars in Silvergrass.

“Some six months after that, we again announced we were pushing it out again to late 2014.

“In late 2014 we again pushed it out.

“So three times we have actually pushed out a sizeable, new investment in an iron ore mine.

“And we are continuing to push Silvergrass out as I sit here today, and with that is pushing out Koodaideri and Yandi Billiard and other deposits.

“What we are doing, however, is looking at how do we make the optimum use of the 15 existing mines (and other infrastructure in the Pilbara).

“At this stage, (iron ore chief executive) Andrew (Harding) has said we will achieve 350 million tonnes by 2017.

“We haven’t actually said when we will hit 360.

“That obviously is looking at how do we actually optimise our production and sensibly bring forward our expansions?”

Rio Tinto has invested $US28 billion on its Pilbara expansion over the past eight years, with production expected to hit 330mt in the current calendar year.

BHP Billiton recently lifted its 2014-15 production guidance to 250mt but has deferred new investment at Port Hedland, which means it will take longer to reach its target of 290mt.

Similarly, Fortescue Metals Group, which has led the criticism of its bigger competitors, recently lifted its 2014-15 guidance to 160mt but emphasised it has no plans to go beyond that.

Mr Walsh emphasised that the issues facing the iron ore sector were shared by many other commodity markets, including coal, aluminium, copper and oil.

He also emphasised that iron ore is supplied globally.

“The tonnes that we supply could equally be supplied by Brazil, South Africa, China, you name it,” Mr Walsh said.

Rio chairman Jan du Plessis told the AGM that Rio’s board had extensively reviewed the outlook for Chinese steel production, which was a key driver of the iron ore market.

“Therefore, I can confidently say to you, we continue to believe the long-run peak steel demand in China has a long way to go, approximately the billion (tonnes) number," Mr du Plessis said.

“That’s not a pretence, its not a façade, it’s a serious conclusion we came to after long debate.”

Mr du Plessis also noted that Rio’s share of the seaborne iron ore trade was unchanged over the past decade.

“It’s an astonishing statistic. Ten years ago we had a 20 per cent share of the seaborne iron ore business. A decade later we have got 20 per cent," he said.

“So the idea that we have flooded, or want to flood, or are killing the market, is complete nonsense.”