World No.3 miner Rio Tinto warned on Thursday that rising costs are the key challenge it faces but that would not deter it from expanding its highly profitable iron ore operations in Australia.
"Increasing costs are an industry-wide problem, particularly in hotspots like here in Queensland, and I am determined to be on the front foot in tackling this challenge," Rio Tinto Chief Executive Tom Albanese said in a speech prepared for the Anglo-Australian group's annual meeting in Brisbane.
"We must ensure we are proactively tackling issues now that may impact productivity in years to come."
The comments follow an unusually vocal campaign mounted by Albanese over the past week highlighting soaring costs in Australia that have made coal projects hard to justify, while touting the superior profitability of its iron ore operations.
Rio Tinto, the world's second-largest miner of iron ore after Brazil's Vale, currently runs its Australian iron ore mines at an annual rate of 230 million tonnes and has put in place work to take output to 283 million tonnes.
Despite pressure from shareholders for the top miners to return more capital to investors rather than spend billions on new projects amid global uncertainty, investors widely expect Rio Tinto to approve a multi-billion dollar iron ore expansion to 353 million tonnes.
"Everything is now in place for the expansion to 283 million tonnes and potentially to 353 million tonnes," Albanese said on Thursday. That decision has yet to go the board.
The company reaffirmed it is a little more confident about the outlook for commodities demand than it was six months ago, despite the downturn in Europe and questions about the U.S. economic recovery.
"Overall, we are somewhat more confident than six months ago, in addition to which I believe our strong balance sheet will serve to strongly underpin our business in the face of short-term volatility," Rio Tinto's chairman, Jan du Plessis, told shareholders, repeating comments made at the group's London annual meeting last month.
Investors have fretted China's recent move to lower its target rate of GDP growth would lead to weaker metals demand.
China's ambassador to Australia played down those fears this week, saying the economic adjustment was designed to ensure the country's growth would be sustainable.
"It will mean China's demand for energy and resources will remain strong," the ambassador, Chen Yuming, told Reuters in an interview this week.
Rio Tinto's shares rose 0.4 percent to A$61.50 in early trade in a flat broader market.
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