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Print[Ferro-alloys.com]SYDNEY — Rio Tinto, the world’s second-biggest miner, will probably pursue a $5bn expansion of its iron-ore output in Australia, CEO Sam Walsh said, according to two people present at a meeting with investors and analysts.
The board was expected to approve in the fourth quarter an increase in annual production to 360-million tons from 290-million tons unless there were significant changes to the global demand-supply situation, Mr Walsh told the gathering.
Chief financial officer in Sydney, Chris Lynch, also attended, said the people, who asked not to be identified because the meeting on Monday was not open to the media.
Iron ore is set for its first surplus in at least a decade as output expands and Chinese mills, the biggest buyers, boost production at the slowest pace in five years. The steelmaking ingredient was Rio’s most profitable unit last year, providing 78% of earnings before interest, tax, depreciation and amortisation, according to data compiled by Bloomberg.
A deferral of Rio’s expansion would help keep the iron-ore market stable until 2018, underpinning prices, Citigroup Global Markets analysts Heath Jansen and Jon Bergtheil said in a report last week. They also questioned the move after Mr Walsh said in February the London-based company would pursue an "unrelenting focus" to increase shareholder value.
David Luff, a Melbourne-based spokesman for Rio Tinto, declined to comment on the expansion. Rio held meetings in Sydney on Monday before the company’s Australian leg of its annual meeting on Thursday.
Since Mr Walsh, 63, took over in January, Rio has announced plans to sell assets and reduce $5bn of costs as lower commodity prices cut revenue.
Morgan Stanley has forecast that seaborne supply of iron ore will gain 9.1% and demand 8.3% this year, led by exporters from Perth-based Fortescue Metals Group to Brazil’s Vale. A surplus would emerge next year and keep widening until at least 2018, the bank predicted last month.
Prices may decline to $115 a ton by the end of December, according to the median of 10 analyst estimates compiled by Bloomberg. Iron ore last traded at $128.10 a ton, according to data from the steel index.
An expansion of Rio’s iron-ore mines in Australia’s Pilbara region to 290-million tons a year was expected to be completed in the third quarter, the company said in February. The second increase to 360-million tons would be operational in the first six months of 2015.
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