Thursday, May 3, 2012

Rio Tinto CEO warns of growing risks to global supply of metals

Tom Albanese warned investors Thursday that rising costs and calls for buybacks and special dividends eat away at incentives to build new mines.

Global miner Rio Tinto warned on Thursday of risks to keeping up the global supply of metals as increasing demands from governments, rising costs and calls for buybacks and special dividends eat away at incentives to build new mines.

"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 told investors at a Sydney conference.

"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 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, including Oyu Tolgoi in Mongolia, one of the world's largest copper-gold mines.

Albanese said operating conditions for coal miners in Australia were difficult but stopped short of confirming a report that Rio was reviewing its coal expansion plans there, largely due to capital costs and investor pressure to return more cash.

The Australian Financial Review had said Rio's proposed $2 billion Mount Pleasant coal project in New South Wales State looked likely to be shelved.

He said separately the miner had no shortage of suitors interested in its diamond business, put up for sale earlier this year.