Rio Tinto chief executive Jean-Sébastien Jacques has noted that his company is keeping a close watch on merger and acquisition (M&A) opportunities in a bid to overcome market uncertainties surrounding COVID-19 with a more diversified portfolio.
Speaking at a virtual presentation at Bank of America, Jacques said part of Rio Tinto’s strategy to adapt to the “new norm” in the business environment was to further expand its portfolio.
“We are keeping a watching brief on M&A. Right now, the market is finding it difficult to value companies and the Covid-19 recovery pathway is not clear. Rio Tinto will only transact if an opportunity creates value,” he said.
Jacques also warned that the pattern of market recovery from the Covid-19 impact remains uncertain, noting that market volatilities might remain in place for the next decade.
“In terms of recovery, many predict either a W or a V shaped economic recovery. Although, to be honest, it is just too early to tell,” he said.
“As recent events have shown, we need to expect the unexpected. And I do not see this changing in the decade ahead.”
The Rio chief however noted that Rio Tinto’s balance sheet remained strong with the company’s net debt lowered from $13.8 billion to $3.7 billion over the last four years and simplified portfolio divesting $12 billion in non-core assets.
“These moves mean we are therefore well positioned to withstand shocks,” he said.
Jacques also hinted that Rio might focus more on smaller mine development projects in the future to generate quick cash flows.
“You have heard me say before that mining developments of the future may start smaller and be embedded with optionality for growth over stages, yielding quick cash flows to shareholders, communities and governments,” he said.
“In the post Covid world this type of development approach may become more viable.”
Rio Tinto reported strong production results in the first quarter of the 2020 calendar year, which Jacques said was driven by sustained demand for products such as iron ore and bauxite.
“Our Q1 production report shows our iron ore assets are performing well in a strong pricing environment. We are on track to meet our 2020 iron ore guidance,” he said.