Sydney - Rio Tinto, the world’s second-biggest miner, will probably pursue a $5 billion expansion of its iron-ore output in Australia, chief executive Sam Walsh said, according to two people present at a meeting with investors and analysts today.
The board is expected to approve in the fourth quarter an increase in annual production to 360 million metric tons from 290 million tons unless there are significant changes to the global demand-supply situation, Walsh told the meeting, the people said.
Chief financial officer Chris Lynch in Sydney also attended, said the people, who asked not to be identified because the gathering was not open to the media.
Iron ore is set for its first surplus in at least a decade as output expands and Chinese mills, the biggest buyers, boost production at the slowest pace in five years.
The steelmaking ingredient was Rio’s most profitable unit last year, providing 78 percent of earnings before interest, tax, depreciation and amortisation, according to data compiled by Bloomberg.
A deferral of Rio’s expansion would help keep the iron-ore market stable until 2018, underpinning prices, Citigroup Global Markets Ltd. analysts Heath Jansen and Jon Bergtheil said in a report last week. They also questioned the move after Walsh said in February the London-based company would pursue an “unrelenting focus” to increase shareholder value.
David Luff, a Melbourne-based spokesman for Rio Tinto, declined to comment on the expansion. Rio held meetings in Sydney today with investors and analysts before the company’s Australian leg of its annual meeting on May 9.
Asset Sales
Since Walsh, 63, took over in January, Rio has announced plans to sell assets and reduce $5 billion of costs as lower commodity prices cut revenue.
Seaborne supply of iron ore will gain 9.1 percent and demand 8.3 percent in 2013, led by exporters from Perth-based Fortescue Metals Group Ltd. to Vale SA, Morgan Stanley forecasts. A surplus will emerge in 2014 and keep widening until at least 2018, the bank predicted in April.
Prices may decline to $115 a ton by the end of December, according to the median of 10 analyst estimates compiled by Bloomberg. Iron ore last traded at $128.10 a ton, according to data from The Steel Index Ltd.
An expansion of Rio’s iron-ore mines in Australia’s Pilbara region to 290 million tons a year is expected to be completed in the third quarter, the company said in February. The second increase to 360 million tons will be operational in the first six months of 2015, it said. - Bloomberg News