Rio Tinto Mulls Iron-ore Push Amid Brazil Cutbacks

   By Rhiannon Hoyle 
 

PERTH--Rio Tinto PLC (RIO.LN) is closely monitoring iron-ore mining disruptions in Brazil to determine whether it should accelerate any projects to increase its own production, and should have a clearer idea by the end of this year, said Chief Executive Jean-Sebastien Jacques.

Exports of the steel ingredient from Brazil, one of the world's top iron-ore mining hubs, have fallen as mining giant Vale SA (VALE) cut production in the wake of a deadly waste-dam disaster in January in the rural Brazilian town of Brumadinho.

"There's a lot of uncertainty around Vale. We don't know what the regulator is going to be doing in Brazil," Mr. Jacques told reporters following an annual shareholder meeting in Australia. "By the time we get to the end of this year, we will have a better assessment of the supply-demand balance and if it makes sense to push harder or not."

He said there's plenty of options for the Anglo-Australian miner, the world's top exporter of iron ore alongside Vale, to consider across its 16-mine iron-ore network in northwest Australia, including accelerating the second phase of a new US$2.6 billion iron-ore mine in the Australian Outback that will be the miner's most high-tech operation to date and was intended to buoy future production as older pits are depleted.

Iron-ore prices have surged on a shortfall as Vale cut production. In March, Vale said it expects minimum 2019 sales of 307 million metric tons, compared with last year's total of 309 million tons. The company's prior guidance for this year was 382 million tons.

The miner recently reported a sharp fall in first-quarter iron-ore production, which was down 11% on the year-earlier period and 28% on the three months immediately prior.

As a result, iron ore is trading around its highest price since mid-2014. The price for the steelmaking ingredient has risen by roughly 30% during 2019.

Rio Tinto has, however, faced some of its own operational setbacks. It recently scaled back its 2019 target for iron ore production after a cyclone and port fire disrupted Australian operations.

Still, strong iron-ore prices have led shares to rise sharply. Rio Tinto's Australian stock last month notched its highest value since 2008.

Mr. Jacques said Rio Tinto is more leveraged to, and consequently focused on, market prices versus its production volumes. Every US$10-a-ton move in the iron-ore price generates an extra US$2 billion in free cash flow for the miner, which sells some of the most profitable iron ore in the world and relies on the market for the bulk of its profits.

"What the team is always doing is, as we have done in the past, is to assess if we add additional volume what will be the impact on the price," he said.

Ultimately, "the value over volume mantra will remain for us," said Mr. Jacques.

Write to Rhiannon Hoyle at [e-mail]

(END) Dow Jones Newswires

May 09, 2019 02:33 ET (06:33 GMT)

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