Rio Tinto CEO Simon Trott talks up strategic ace in US and a silver lining in WA iron ore
Rio Tinto’s rare US copper smelter has emerged as a key bargaining chip in its American expansion plans, as the mining giant navigates delicate relations with China.
New Rio Tinto boss Simon Trott says owning a US copper smelter is an important “strategic card” as the miner looks to expand its American footprint under the Trump administration, while also deepening ties with its biggest Chinese shareholder.
Mr Trott also backed suggestions there could be a $US10bn ($15bn) windfall for Rio after it was forced to reduce the grade of its flagship iron ore product, even as it races to catch up at its Western Australian mines, which still deliver the lion’s share of its earnings.
Both Rio and BHP have in recent days flagged ambitions to boost copper mining in the US beyond their partnership in the Resolution project, as the White House moves to drive onshore production through tariffs and reduce reliance on China across a range of metals.
In his first major comments since becoming chief executive in late August, Mr Trott talked up both growth plans for the US and hailed what he called a much-improved relationship with Chinalco, the Chinese state-owned entity that is Rio biggest shareholder.
Mr Trott — who joined BHP boss Mike Henry at the White House in August to meet Mr Trump and discuss the giant Resolution project in Arizona, which has been tied up in prolonged legal battles over approvals — said Rio saw plenty of opportunity as the US pushes to ramp up production of copper and other critical minerals.
“The US wants to see domestic production … so having the Kennecott Utah Copper (KUC) smelter gives us a strategic card we can play as one of only two smelters in the US,” he said.
“And so we’re certainly thinking about that in the context of the resources around KUC and also potentially obviously with Resolution and other deposits in the US.”
The Rio copper smelter in Utah is the biggest of only two in the US, and considered of great strategic value in terms of the capacity to process Resolution ore in the future. It also gives Rio scope to produce critical minerals like tellurium, and the company is currently in talks with the US government about exploring for other critical minerals.
Mr Trott was speaking as part of a question-and-answer session at a Goldman Sachs conference last week that was not open to journalists. Rio published a transcript of the discussion over the weekend.
Mr Trott said relations between Rio — which is dual listed in London and on the ASX — and Chinalco were getting better, and that he was open to further collaborations beyond their joint investment in the giant Simandou iron-ore project in the African nation of Guinea
Mr Trott said talks with Chinalco included the potential restart of share buybacks.
The Chinese group already owns 14 .56 per cent of Rio’s London stock and is prohibited from going above 15 per cent by a longstanding Australian government ruling.
Chinalco would likely need to agree to a selldown that maintained or lowered its stake as part of a share buyback, and has not done that in the past.
“We’ve certainly heard shareholder interest around that (buybacks) and we’ll continue to engage with Chinalco. I think those relationships are in a good space and it’s about sitting together and looking at it from each other’s perspective and trying to find a way forward through the current structure,” Mr Trott said.
“I think the relationship is much improved. I would say it’s also about looking at the world together and thinking about opportunities and so that’s an area that we will continue to pursue.”
Goldman Sachs analysts led by Paul Young estimate Rio’s move to reduce the quality of its flagship Pilbara Blend Fines iron ore product could benefit the company to the tune of $US5bn-$US10bn, and help it cut BHP’s free cash flow lead in the sector. The estimate is based on Rio being able to increase value and margins by lowering cut off grades, blending, and deferring mine closures and rehabilitation as it phases in replacement projects, factoring in production from the much-anticipated Rhodes Ridge mine around 2030.
Many saw it as a major setback earlier this year when Rio dropped the iron content of Pilbara Blend Fines and warned customers the product would contain higher levels of impurities. The change contributed to a big increase in Pilbara Blend Fines shipments in the September quarter, which were up 55 per cent on the previous three months to 33.4 million tonnes. On the flip side, exports of lower quality SP10 Fines, which incur a big price discount, fell 75 per cent to 3.2 million tonnes.
Rio is now well advanced with a mine replacement program that will see it invest $US13.3bn in the Pilbara over the next five years, with only details around Greater Nammuldi and Rhodes Ridge still unclear.
Mr Trott said Rio was now “a long way through” the process of replacing ageing Pilbara mines, which was a big focus of his time as boss of the iron ore business in WA, and that the changes to Pilbara Blend had allowed it to make changes in the mine development sequences and in strip ratios.
He said Rhodes Ridge, a deposit so highly regarded that Mitsui paid $US5.34bn for a 40 per cent stake earlier this year, gave Rio a host of options with the eventual scale and speed of expansion to be dictated by the market.
“We’ve talked of that 40 million tonne (per year) range, and then obviously that size of ore body gives us a lot of options going forward. We’ll look to add to that as the market requires it, and so you will see the gravity of our business shift out to the East Pilbara over time as some of the other mines come to the end,” he said.
“It’s got some of the last high-grade, low-impurity material in the Pilbara, a little bit akin, a portion of it, to the original days at Tom Price. Whilst I’d love to be in there mining it today, it’s better in front of us than behind us.”
On Simandou, Mr Trott said it was on track to produce a “very small” volume of iron ore this year and was likely to take two-and-a-half years for the mine and attached rail and port operations to reach an annual production of 60 million tonnes. Rio’s share of that will be 27 million tonnes based on its $US6.2bn stake.
“It is probably the most complex project in the industry and so 30 months just reflects that integrated nature of the mine, the rail and the port,” he said.
Originally published as Rio Tinto CEO Simon Trott talks up strategic ace in US and a silver lining in WA iron ore
