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BHP warns Australian mining not ready for low-cost competitors
The boom in demand from China’s industrialization is now “past the period of aggressive growth,” BHP’s Australia President said.
Miners from Bogdanka coal mine, Poland | Wikimedia Commons.
World’s second largest miner Rio Tinto (ASX, LON, NYSE:RIO) sees the bad times for the industry finally coming to an end and says its top management will soon stop focusing on cost cuts to make room for growth alternatives, WSJ.com reports.
Since assuming the company’s leadership in January last year, CEO Sam Walsh, 64, has taken several measures to build a more focused and accountable business, including aggressive cost cutting measures that saw the firm firing hundreds of people, shelving projects and selling non-core assets.
As a result the company — the world’s No. 2 iron-ore producer after Brazil’s Vale— achieved higher underlying earnings of $10.2 billion in 2013, driven by its iron ore division and cost cutting, and increased dividends by 15%.
Speaking to Australian shareholders on Thursday, Rio’s chairman Jan Du Plessis, however, was quick to provide investors with a reality check. While he was somehow optimistic, he warned the world economy remains volatile and the political environment has become more fragile.
“While the outlook is now brighter in some parts of the world, we believe that volatility looks set to remain in the short to medium term as a number of structural deficiencies remain unresolved,” he was quoted by The Australian as saying.
But he also noted that Rio tends to out-perform most market indexes during times of such difficulty, and that meant the company should be able to capitalize over the next couple of years.
”If we play our cards well, a volatile world should actually suit us well,” he added. ”In really healthy boom conditions as a company we tend to be outperformed by the minor indexes.
Copper assets in sight
While Rio has said it is not planning major acquisitions this year, the company will focus expanding its iron ore and copper businesses, its two largest divisions.
For Walsh, the most obvious and significant growth opportunities for Rio are in the red metal sector. He told WSJ.com the company has high expectations for its Resolution project in Arizona, which has the potential to become North America’s largest copper mine. He added Rio looks forward to proceeding with the underground development of Oyu Tolgoi in Mongolia.
Other expansion opportunities include the La Granja project in Peru and a planned bauxite operation in Australia’s Queensland state.
