* Says pressures from govts, investors to weigh on incentive
to build
* Points to coal challenges in Australia
* Sees no shortage of suitors for diamond business
By Clara Ferreira-Marques
LONDON, May 3 (Reuters) – Miner Rio Tinto has told
investors it is listening to their worries over spending on
major new projects, even as it warned of the ensuing risks to
supply, as soaring costs and clamouring stakeholders eat away at
incentives to build mines.
Increasing demands from governments, combined with capital
costs that have doubled over the last four years and calls from
shareholders for buybacks and special dividends, are denting the
incentives to invest in new supply — something Rio
warned on Thursday that forecasters may be underestimating.
“It is getting harder and harder to find supply, harder and
harder to find resources. And resources are in places where
stakeholder activism is tough and resource nationalism is
tougher. It takes longer to get permits approved, if they get
approved at all,” Rio Chief Executive Tom Albanese said.
“So the next five years is going to be a supply story; the
last five years has been a demand story. I am not sure the
economic forecasters have cottoned on to that observation yet.”
Soaring prices for labour, materials and power have dented
profits and forced miners to review some potential growth
projects. They are also facing increased demands from
governments that want a larger share of the resources pie.
Meanwhile, investors have begun to fret over miners’ ever
larger and more capital intensive projects, demanding that
companies do a better job of balancing growth with the need to
compensate shareholders with dividends and buybacks.
Rio, a day after BHP Billiton reassured
investors at the same Sydney conference, said it was listening
to concerns over spending discipline. But warned that would mean
fewer projects across the sector. [ID:nL5E8G2HWZ ]
“Each of you in this room want more money back. You want
buybacks, you want dividends, you want special dividends. You
don’t want us spending as much money,” he said.
“We recognise that. We respect that. But what that means,
and we are hearing it, we know our peers are hearing it, (is)
there is going to be less supply coming in.”
Rio has more than $33 billion of major capital projects
underway. Its largest projects include Oyu Tolgoi in Mongolia,
one of the world’s largest copper-gold mines, and the expansion
of iron ore operations in the Pilbara region of Western
Australia, with a projected capital investment of $20 billion.
Analysts said Albanese had signalled in separate meetings
that Rio would focus on high ranking projects like the Pilbara
expansion to 353 million tonnes per year, but could push back
projects in Australia where operating conditions are tough and
competition for equipment, staff and other resources is intense.
Analysts said greenfield projects which could be pushed back
include the proposed $2 billion Mount Pleasant coal project in
New South Wales.
“Some of the comments around coal projects being at risk are
clearly politically motivated ahead of potential removal of the
diesel fuel rebate and overburden tax deduction in the
(Australian) budget, but the capex and cost inflation is very
real,” Citi analyst Clarke Wilkins said in a note.
Rio’s Albanese said in his presentation that operating
conditions for coal miners in Australia were tough but stopped
short of confirming a retreat.
He said separately the miner had no shortage of suitors
interested in its diamond business, put up for sale earlier this
year.
