Forrest calls on BHP and Rio to ‘act like grown ups’ and cap iron ore production

Andrew “Twiggy” Forrest says placing a cap on iron ore production would see the price of the commodity to jump back up to $US90 a tonne.

Speaking at an Austcham business dinner in Shanghai, Forrest said he was happy to cap FMG’s production in order to usher in an iron ore price rise.

Forrest challenged Rio Tinto, BHP Billiton, and Vale to put a lid on their current production increases, saying if they did “we'll find the iron ore price goes straight back up to US$70, US$80, US$90”.

"I'm happy to put that challenge out there, let's cap our production right here and start acting like grown-ups," he said.

The comments come after the price of iron ore fell to $US55 a tonne last week, its lowest level since 2008.

Australia’s major iron ore miners are being blamed for the depressed iron ore price, and show no signs of slowing down production.

BHP plans to produce 65 million more tonnes of iron ore a year, increasing its annual output to 275 million tonnes per annum by the 2017.

Rio Tinto is already producing about 290 million tonnes of iron ore a year and has plans to increase this to 360 mtpa by 2017.

Forrest said the strategy to drive for market share at any cost was “smashing the revenue of your host nation and you’re smashing the revenues of your shareholders in the end you smash your own credibility.”

An iron ore price of $US90 a tonne means more money for schools, hospitals, roads and universities for Australia, Forrest said.

"Why don't those companies who derive their fortunes from our nation act like grownups and just agree to cap their production?"

At an iron ore conference in Perth last week, both Rio and BHP executives defended their iron ore strategies.

Rio’s iron ore boss Andrew Harding said curtailing iron ore production would do little to help with a price rise.

Describing the strategy as “economically nonsensical”, Harding said if Rio stopped producing tonnages, an operation somewhere in the world would be quick to fill the gap.

“If we don’t supply it, somebody else will,” Harding said.

BHP’s iron ore boss Jimmy Wilson also defended the company’s expansion plans.

Wilson said holding back production in the hope the iron ore price would pick up was not the answer.

“If we pulled back volume, that volume would be filled by other companies,” Wilson said.

This is not the first time Forrest has called on Rio and BHP to play fair.

Speaking at FMG’s annual general meeting in Perth last year, Forrest questioned the miners’ decision to continue with rapid expansions of their operations despite falling demand.

He said the plan by BHP and Rio seemed to be aimed at forcing their rivals to shut up shop, including Chinese producers, and warned this tactic could create tension with Australia’s biggest iron ore customer.

“They have said they’re out to restrict the growth of other companies and restrict other opportunities being brought into the marketplace by their competitors,” Forrest said at the time.

“To me I think that’s a very fine line to tread when your major customer is one of those people you are trying to shut out of the market.

In Shanghai last night, Forrest reiterated this concern, stating that steel mills in China were concerned with their iron mines were being priced out of the market.

Low iron ore prices are taking their toll on FMG, which posted a first-half profit of $US331 million, down from the $US1.7 billion it posted a year ago.

Last week the company was forced to abandon a planned $US2.5 billion ($3.2bn) refinancing after it was unable to secure acceptable terms from both the US term loan and bond market. 

The plan was aimed at securing capital to push out its debt maturity profile as the low iron ore price bites into its margins.

On Tuesday FMG’s chief executive officer Nev Power told The Australian that it may look to sell a minority stake in its Pilbara assets.

Power said FMG was unique in that it owned 100 per cent of its operations.

"We wanted to take all the construction risk and development risk out of it. Now that those assets are operating, and they’ve got a really good history, they’re completely de-risked from that point of view, those are very ­attractive assets,” Power said.

“There are lots of options in that basket for us to consider.”