We Will Do Better, Says Rio Tinto
Sydney Morning Herald
Tuesday November 27, 2007
RIO TINTO plans to increase its dividends, raise its iron ore production forecasts and divest more assets than previously expected as it seeks to fend off an unwanted takeover approach from BHP Billiton.
In his first public comments since Rio rejected the proposed offer earlier this month, Rio's chief executive, Tom Albanese, last night told media his company's track record of "under-promising and over-delivering" must be ended."That's led to an underappreciation of what we are as a company," he said. "We believe we have a better growth pipeline than our competitors."The Rio board yesterday approved a $US2.4 billion ($2.7 billion) investment in two new iron ore mines in the Pilbara and a $US563 million underground expansion to its Diavik diamond mine in Canada.In an uncharacteristically bullish statement, Rio said it was targeting 20 billion to 30 billion tonnes of extra iron ore resources in the Pilbara, which could underpin an expansion to 420 million tonnes a year by 2018. Rio had previously announced plans to produce 320 million tonnes a year by 2012."We have clear plans to take advantage of higher prices by significantly increasing production over the next few years," Mr Albanese said. "We have no doubt it's Rio Tinto's growth potential and execution capacity that BHP wants to access at a price less than its value."He also focused on lesser-known growth options within the Rio portfolio, such as the La Granja copper project in Peru, the Simandou iron ore project in Guinea and aluminium options it picked up through its $US38.1 billion acquisition of Alcan. Rio has previously been reluctant to provide many details of early-stage projects but Mr Albanese last night released updated production targets for La Granja and Simandou. La Granja could produce 500,000 tonnes of copper a year starting in 2015, while Simandou could produce 70 million tonnes of iron ore a year, with the option to expand to 170 million tonnes a year.Rio also said it would achieve $US940 million a year of after-tax cost savings from the Alcan merger, up from an earlier estimate of $US600 million a year.Despite plans to spend $US9 billion on growth projects in 2008 and 2009, Rio announced its total dividend would rise by 30 per cent this year, and by at least 20 per cent in 2008 and 2009. The company said it would sell at least $US15 billion of assets - up from $US10 billion - to help it pay down $US40 billion of debt associated with the Alcan deal.The assets for sale - including Alcan's packaging and engineered product units and some of Rio's smaller mines in the US and Australia - are potentially worth up to $US30 billion.Mr Albanese rejected suggestions Rio had considered a so-called "Pac-Man" bid for BHP. On speculation Rio could turn to Brazil's CVRD, Xstrata or Anglo American to fend off the BHP approach, he said: "There are no shortage of people that would want to give us a call but we will not be engaging." In a commodities outlook statement, Rio's chief economist, Vivek Tulpule, said it was too early to suggest the current price cycle had peaked. "Projections for iron ore, aluminium and copper suggest that demand could double and even triple over the next 25 years," Mr Tulpule said, noting that in the short term infrastructure constraints and capital cost increases would help to limit supply. Rio shares closed $9.60 higher at $138, while BHP shares closed $1.84 higher at $42.11 yesterday. Rio made its main announcements after the market closed.China interested - page 24
© 2007 Sydney Morning Herald