Rio Tinto has maintained its faith in Chinese growth by raising its Pilbara iron ore production target, even though it admits customers are becoming increasingly cautious about the world economy.
The world’s second-biggest iron ore producer lifted its production capacity target in Western Australia’s Pilbara by 20 million tonnes a year (mtpa) to 353 mtpa by the first half of 2015.
Rio Tinto chief executive Tom Albanese said at an investor seminar in Sydney on Monday that when the company looked beyond the current market turmoil, it saw that China’s growth had a long way to go.
Mr Albanese said he expected the Chinese economy to grow at eight per cent next year, even as monetary tightening continued and the European situation hit Chinese exports.
Expenditure per capita on aluminium, iron ore and coking coal had grown by 12 per cent in China and India since 2007, he said.
“As the world gets richer we expect to see literally billions of people moving through increasingly metal-intensive phases of development,” he said.
“This development of course will go through periods of volatility, just like we currently are experiencing.”
While Europe’s debt crisis was having a huge effect on global financial markets, the short- to medium-term outlook for Asian markets was more positive with recent policy tweaks in China improving small business sentiment, Mr Albanese said.
“Our extensive network of customer contacts helps get early indications of changes in the strength of demand,” he said.
“Customers remain cautious but we continue to sell everything we produce.”
The company expected to spend $US14 billion ($A14.3 billion) on projects in 2012, after spending about $US12 billion ($A12.26 billion) on capital expenditure this year.
City Index chief market analyst Peter Esho said it was hard to see Rio Tinto hitting the market consensus of second-half underlying profit of about $US14.4 billion ($A14.71 billion) due to recent falls in the iron ore price and absence of aluminium profits.
Mr Esho said he was not bullish about the stock but there could be short-term value.
Mr Albanese committed the company to investing in uranium, citing Chinese plans to quadruple its nuclear program by the end of the decade.
He said the company was facing “headwinds” on other fronts, such as recent weaknesses for specialty minerals, volatile spot iron ore prices, industrial action, a shortage of skilled labour and “resource nationalism”, such as the new Australian mining tax.
That would mean impairments on its aluminium and diamond assets in its full-year financial results due in February, due to weaker sales and currency effects.
Last month, Rio Tinto announced plans to sell 13 of its poorer-performing aluminium assets.
Mr Albanese said the mining tax ignored cyclical, capital intensive nature of mining that took decades to generate returns for shareholders.
Rio Tinto posted a record $US7.6 billion ($A7.76 billion) profit for the first half of 2011.
Its shares gained $1.32, or 2.1 per cent, to close at $63.27, a gain that was in line with the broader market.
