David Stringer
Rio Tinto Group won’t allow the prospect of a new approach from Glencore to deflect it from plans to give more cash back to investors.
“I’m going to be very careful going forward that I don’t allow people to be distracted,” chief executive Sam Walsh said on Friday in an interview. “The best thing for this company, the best thing for our shareholders, is to continue to do what we say we are going to do, and I’ve been very clear – I’m committed to shareholder returns.”
Rio rejected the July approach, though hedge funds including GLG Partners were told this month in London by former JPMorgan Chase dealmaker Ian Hannam a merger is all-but-inevitable, according to people familiar with the meeting.
While Glencore is effectively barred under UK takeover rules from a new bid until April, sentiment towards a merger is improving among investors, according to Macquarie Group.
With commodity prices tumbling, giving more cash to investors is seen as part of Rio’s strategy to bolster support from holders. The company on Friday deferred plans to approve a new $1 billion (R11.03bn) Australian iron ore mine and lowered its 2014 expenditure estimate to less than $8.5bn, the lowest since 2010 and below its August forecast of $9bn.
A decision by Glencore to halt production at its Australian coal mines for three weeks in mid-December amid weak prices has demonstrated that it could be a better manager of Rio’s iron ore operations, an analyst wrote.
Iron ore has tumbled 47 percent and fell below $70 a metric ton on November 25 for the first time since June 2009, as the largest suppliers expand output. The market needs to absorb a surplus of about 110m tons next year, almost double the 60m tons in 2014, Goldman Sachs estimates.
Rio, the second largest supplier, will increase iron ore output to 350m tons by 2017, the company told investors on Friday at a Sydney seminar.
“Sometimes, people in the audience think they know better,” Walsh said in the interview from Sydney. “Well, it’s actually the people on the field – the coach, or the chief executive – who have the clear vision as to how the game is actually being played.”
Rio’s project deferral follows a decision this week by BHP Billiton, the world’s biggest miner, to trim capital outlays to $13bn in fiscal 2016, down more than 40 percent from 2012. – Bloomberg