Rio Tinto powering ahead with Pilbara iron ore expansion

Rio Tinto CEO Sam Walsh said the state of the iron ore industry is rational, normal economics which will ultimately see more high-cost producers exit the market.

Speaking at Rio’s annual meeting in London last week, Walsh defended the iron ore ramp up being undertaken by his company.

The price of iron ore has crashed from highs of $US130 a tonne at the start of last year to around $US50 a tonne this week, with many blaming the record tonnages being shipped by Rio and BHP Billiton.

However, Walsh was unapologetic about his company’s part in the depressed price, and instead said the iron ore market was in a state of transition.

“I know there’s a lot of controversy, I know that there’s a lot of late entries into the market who have taken advantage of higher prices and they’re now feeling the impact of that as prices have come down,” Walsh said.

“This is rational, normal economics. It’s what typically happens across a range of commodities, not just iron ore.”

Walsh said the winding back of high cost iron ore producers had already started in China, as well as from seaborne suppliers.

“Major industry shifts of this nature never take place in a smooth and uniform manner, so we can expect continued bumps, before the market settles at a new equilibrium.”

The bumps include Atlas Iron’s move to shut its mines in the Pilbara, and Sinosteel Midwest closing its Blue Hills mine, costing around 800 jobs in total.

 A vocal critic of Rio's iron ore strategy, FMG CEO Nev Power has called on the government to manage what he calls an industry disaster.

“It has ripped the heart out of the industry, the heart out of the suppliers and contractors for the industries, the heart out of communities. There are no winners, only losers,” Power said.

But Rio is showing no sings of slowing down, and is pushing ahead to expand its Pilbara production to 350mtpa by 2017.

“This year in the Pilbara, we will undertake low-capital-cost brownfield expansions as we grow our capacity,” Walsh confirmed.

“This will be achieved at a capital intensity of approximately $US9 a tonne, continuing to ­confirm our competitive position as the world’s lowest-cost supplier of seaborne iron ore.”

The company is also looking to bring its costs down even further.

Rio's average cash cost of iron ore production was $US19.50 a tonne in 2014, and about $US17 a tonne this year. 

"With iron ore now trading around $US50/t . . . we have more to do to ensure that we maintain the margin between ourselves and the high-cost producers," Walsh said.

"We have worked hard to stay in front of the challenges associated with the market, particularly at a time of lowering iron ore prices. It is imperative that we continue to do this.”

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