Metals offset costs for Rio Tinto

June 22, 2008

June 22nd (The Australian Business) – STRONGER metals prices are helping Rio Tinto offset margin pressure from rising input costs, according to chief executive Tom Albanese. His statement comes at a time when the company is touting its value in light of a hostile takeover offer.

“We’re seeing costs pressures in a number of sectors,” Mr Albanese told Dow Jones Newswires. But surging prices had helped to offset those costs, “if not totally mitigate” them. In aluminium production, for example, rising power costs and increasing prices for inputs such as pitch, coke and caustic soda had been dampened by the roughly 20 per cent rise in London Metal Exchange aluminium prices this year, he said.

In addition to room for greater aluminium price appreciation on a stronger Chinese currency, increasing marginal costs and increasingly constrained smelting on a lack of available power, “we see continued strength in iron ore,” Mr Albanese said. That should carry “into the foreseeable future” as supplies continued to be tight, he said.

In copper, low inventories had helped increase the red metal’s price, and “it’s going to take time” for new copper projects to come online enough to boost supply, Mr Albanese said.

For example, the company’s Mongolian copper-gold Oyu Tolgoi project would probably not begin production until at least 2011, he said. “We see a strong macro outlook for (Rio Tinto’s) products,” Mr Albanese said, adding that the company had been communicating its “very robust growth profile to 2015” with its shareholders in light of BHP Billiton’s hostile $US141 billion all-share offer.

The wide-ranging interview also touched on Rio’s ongoing iron ore talks with Asian steel mills, with Mr Albanese saying Rio is still seeking a freight differential and that he couldn’t predict how long the talks will extend. “I hope we’re in the latter stages, and the timing is becoming more urgent,” he said.

Regarding the announced Chinese boycott of the company’s spot ore, Mr Albanese said Rio was still “comfortable” with the expectation that it would sell 15 million tonnes into the spot market.

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