RIO TINTO's "290" expansion programme in Western Australia. Photo: Rio Tinto

RIO TINTO's "290" expansion programme in Western Australia.
Photo: Rio Tinto

Short-Sighted Walsh Leaves Questions Unanswered

Issue 131, July 2015

On the hottest day of the year in London, the FTSE turned out in force for the Melbourne Mining Club dinner at Lords cricket ground last night, jostling elbows in a sweltering Peroni-packed tent.

“Stinking f@#!ing hot,” was the key takeaway for the Australian Financial Review. Mark Cutifani was busy trying to escape delegates from the Chinese embassy, whilst Graham Birch was lamenting the milk price, but all eyes were turned to Rio Tinto's Sam Walsh and his keynote speech. It was amusing, though not always intentionally so.

Sounding like a less persuasive version of mine-promoter Robert Friedland, Walsh pointed to urbanisation and population growth as two unavoidable, overriding drivers behind coal, iron ore, copper and aluminium, “the building blocks” of industry and transport (and Rio Tinto).

“Urbanisation is not slowing,” Walsh said defiantly. “It continues at pace.”

Electric cars consume four times more copper than conventional vehicles, he said, whilst India's population will overtake China's and Africa's population will double, generating infrastructure spending of $57 trillion in fifteen years. “By 2050, another 2.5 billion people will move to an urban environment… The demand signals are strong and clear.”

Some statistics went unmentioned. Rio Tinto has lifted its iron ore output from 199m tonnes in 2012 to 290m this year, an expansion rate that population growth has predictably failed to keep pace with.

But if Walsh lacks restraint, or any plans to counter the cycle, he is good at manning his guns. Rio Tinto can flood the copper market as it has flooded iron ore, he seemed to promise, repeatedly jibing his head of copper, Jean-Sébastien Jacques, to “get a move on” with an expansion of Rio's massive Oyu Tolgoi copper mine in Mongolia.

His bullishness in quashing questions, almost all of which were hostile except those from Rio's own staff, made one fact abundantly clear: Rio has the size, the might and the short-sightedness to destroy the economics of whichever commodity is strongest.

For copper bulls and high-cost copper producers, Walsh has sounded his warning.

“Stinking f@#!ing hot.”

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