Rio chief flags Pilbara iron ore capacity call
Rio Tinto says it will make a decision this year on whether to up its iron ore capacity in wake of Vale’s woes.
Rio Tinto chief executive Jean-Sebastien Jacques says the mining giant will make a decision this year on whether it will add additional capacity to its Pilbara iron ore operations in response to supply problems at Brazil’s Vale.
Mr Jacques said Rio (RIO) would not be quick to rush into a decision over pushing its Pilbara iron ore operations, which shipped 338 million tonnes of iron ore in 2018, but said Rio’s finance teams were running the numbers on what impact adding tonnes into the market would do to the price for Rio’s products, and whether increasing production was the best way to deliver cash to the company’s coffers.
Vale’s January tailings dam disaster knocked an estimated 40 million tonnes of supply out of the market, after Brazilian regulators temporarily closed a number of other mines with similar tailings dam structures.
The Brazilian iron ore miner briefly won the permission of a court to re-open the 30 million-tonne-a-year Brucutu mine in April, but that ruling was reversed by a higher court this week.
Speaking on the sidelines of Rio’s annual shareholder meeting in Perth today, Mr Jacques said the difficulty in predicting the outcome of regulatory investigations into Vale’s operations made it more difficult to for Rio to whether to increase output in response to Brazil’s supply problems, or simply ride the higher price wave.
“There is a lot of uncertainty around Vale — we don’t know what the regulators are going to be doing,” he said.
“By the time we get to the end of this year we’ll have a better idea of the supply-demand balance and whether its makes sense to push harder or not.”
The Rio boss told reporters that an annual $US10 a tonne rise on the iron ore price was worth $US2 billion in free cash to Rio from its Pilbara iron ore operations
“The important thing is that $US10 is worth $US2bn of free cash after tax from iron ore. And we are more leveraged on the price than on volumes.” he said.
“And the other dimension is that if you were to move more volume faster, then you bring (capital spending) forward as well. And at the end of the day the whole volume-over-value mantra is how do you optimise the free cash flow of the Pilbara going forward.”
The benchmark iron ore price for 62 per cent ore had surged from about $US72.50 a tonne at the start of the year to $US95/tonne this week, on the back of Vale’s misfortunes.
Rio’s shares eneded the session down 60 cents, or 0.63 per cent, at $95.35 against broader market gains.