Rio boss says Fortescue is ‘panicking’

Rio Tinto had come out swinging against comments made by FMG’s CEO as the fight over WA’s iron ore industry continues.

The war of words was started by Premier Colin Barnett who accused Rio Tinto and BHP Billiton of employing a flawed strategy that sought to increase iron ore production at a time when demand and prices were sluggish.

Fortescue Metals Group chief Nev Power then stepped in to say he agreed with Barnett while at the same time defending the company’s own expansion plans.

"I think it very understandable to hear the Premier's frustration because there seemed to be a rhetoric suggesting that the strategy was to trash the market and then somehow make returns after that," Power said.

"But I think everybody would know that is a flawed strategy that has been tried by people for countless years with little success."

Power said the strategies could see the heads of top companies roll if shareholders lose out.

“Investing because you’re more profitable than the next guy seems to be a very flawed strategy to me and one that will inevitably lead to self-inflicted wounds, low returns to shareholders, and probably replacement of management teams like we’ve seen in some of those companies in the past," Power said.

"The reason we developed our business in the first place is that no one else was developing the iron ore supply."

At a function in Perth on Friday, Rio’s iron boss Andrew Harding hit back, The Australian reported.

“I don’t feel at all worried about my job but clearly it is top of mind for him,” Harding said. 

“Interestingly enough we both commenced our most recent expansions … in 2010. And I can say that Rio Tinto is a producer of very high-quality product and significantly lower-cost production, so I can see why Nev is a little bit distressed, possibly even ­panicking.”

Harding said he struggled to see where Power was coming from, and that Rio was “doing what we said we would do, rather than doing one thing and saying another”.

BHP Billiton has not weighed into the war of words, but recently flagged its intent to expand iron ore production.

“We are going to leverage our installed capacity to its maximum,” the company's ion ore boss Jimmy Wilson said.

“We’re going to go as hard as we can on driving as much volume through our installed capacity as we physically can.”

BHP and Rio have plans to produce an extra 60 million and 70 million tonnes of iron ore a year.

The price of iron ore has fallen 40 per cent this year and UBS cut long-term prices from $US89 a tonne to $US75 a tonne.

“Major miners may want prices below $US90 a tonne,” UBS said.

“An iron ore price in the $US80-$US90 a tonne range may mean greater longer-term returns than one above that brings over­capacity to the market.”

Majors produce ore for the lowest cost per tonne, at just above $US20, while higher cost miners and smaller players will start to the feel the squeeze and look to cut production should prices continue to topple.

BHP’s marketing boss Mike Henry told the AFR iron ore would not get back up above $US100 a tonne.

“What I’m pretty confident about is that you are not going to see iron ore back above $US100 on a sustained basis going forward in real terms . . . Our view is that prices over the long run will be sub that sort of level,” Henry said.

Image: thescoodie.wordpress.com

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.