Rio Tinto chief executive Sam Walsh on Friday dismissed criticism the company’s rising production has led to a steep fall in iron ore prices, saying the business is about survival of the fittest.
Iron ore prices have halved this year to the lowest in more than five years as the top producers, including Rio Tinto, flood the market with millions more tons, hurting smaller miners.
Walsh has been criticized for relying too heavily on iron ore and failing to capitalize more on Rio’s other businesses, including aluminum, copper and other industrial minerals.
Critics, including Ivan Glasenberg, the chief executive of rival Glencore, say the strategy of mining more iron ore has backfired and led to the 50 percent fall in prices.
“Being low cost and focused on having the most productive tier one mines, that gives us the competitive advantage in times like now,” Walsh told Reuters on Friday.
“When prices are high, it hides the relative economics, and people get away with tier-three and tier-four assets,” he said.
Even at today’s prices, Walsh said Rio’s margins are healthy and the company is pushing ahead with expansion plans.
Rio rebuffed a takeover approach from Glencore earlier this year. Walsh said he was not being distracted from day-to-day duties by market speculation it will return with a hostile offer.
Rio’s iron ore division, the second-biggest in the world, will receive the lion’s share of next year’s roughly $8 billion capital spending budget as it pushes to lift annual output 20 percent to 350 million metric tons by 2017 and capture market share abandoned by rivals.
Walsh has set a target to deliver iron ore to China for $35 a ton by 2020, down from $47 a ton in 2012, ensuring the business, which made up 92 percent of earnings in the first half of 2014, remains profitable. Iron ore delivered to China last traded at $69.70.
That compares with costs as high as $70 a ton in Australia and $100 or more in China, where iron content of ores is much lower.
“I can understand there are all sorts of people out there who are feeling pain and they are the high-cost producers,” Walsh said.
Falling prices are pressuring smaller producers that do not enjoy economies of scale and face higher production costs, and has led to the elimination of about 125 million tons of annual production.
Fortescue Metals Group said on Friday it was halving its capital spending for the 2015 financial year.
Source: The Jakarta Globe
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