Rio Tinto CEO Dismisses Criticism Regarding iron Ore Expansion Projects

On Saturday, Rio Tinto's (LSE:RIO) (ASX:RIO) (NYSE:RIO) CEO Sam Walsh defended the company’s recent decision to expand iron-ore supply projects and dismissed criticism as “absolute nonsense” that the company coordinated with global producer to drive out competition.

In an interview with The Wall Street Journal, the 64-year old Walsh denied reports that Rio Tinto’s expansion projects were in place to wipe out competition, saying the plans had been in place “upwards of five years ago.”

“There’s been some comments that we’re doing this to affect others,” Walsh said. “That’s not true. We’re doing this because it makes sound economic sense for Rio Tinto.”

Rio along with companies like BHP Billiton have added millions of tons of new production capacity to their iron ore operations, driving prices for the metal to a new five-year low and in the process making it harder for smaller, higher-cost producers to profit.

Expansion projects have also ripped into government royalties in Australia. Colin Barnett, the state’s premier, warned last month that major producers were risking regulatory attention from the World Trade Organization and European trade officials if the oversupply continued.

“The projects were fully approved by Premier Barnett, as minister for state development. At the time, his government thought that projects were a good initiative,” said Walsh.

According to Walsh, the company’s strength lies in its ability to survive narrow profit margins.

“We are the lowest-cost producer in the world. If you’re the lowest-cost producer, you will be in a particularly privileged position, so we’re continuing to invest on that basis.”

Rio Tinto, which is currently the world’s number two iron ore producer, has been accused in the past of working together with other large producers (BHP Billiton and Vale) to affect market prices. All three companies have denied such activities. 

The company is currently in the final stages of its Mine of the Future™ program which aims to streamline mining operations with the use of autonomous technology and machinery. 

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