Rio Tinto big on iron ore, aluminum

The Rio Tinto Group is speeding its investments in iron ore and aluminum in Canada because the long-term trend in global demand is robust despite Japan’s nuclear disaster, the Mideast turmoil and Europe’s debt crisis, Tom Albanese, Rio Tinto Group’s CEO, said Wednesday. But the speed at which Western governments dismantle their post-2008-recession stimulus programs may spur short-term volatility and wide swings in commodity prices, he said.

The world commodity boom that began in 2005 will continue because 2.5 million Asians want refrigerators, air conditioners, cars and mobile phones, creating a scramble for aluminum, steel and copper, Albanese said.

“Demand for these metals will double within 20 years, and real prices for almost all minerals and metals will surpass previous boom levels.”

But this not a “supercycle” because mining and metals projects use huge amounts of capital, require long lead times and can be hit by periods of over-production, he said after addressing the Board of Trade of Metropolitan Montreal.

London based Rio Tinto includes Alcan, bought in 2007 for $39 billion U.S., Iron Ore Co. of Canada (IOC), Quebec-Labrador’s biggest iron-ore miner, Quebec Iron and Titanium, a producer of titanium feedstock and cast iron, and part of Diavik Diamond Mines in Northwestern Canada. They generated $8.39 billion U.S. of revenue last year and represent 34 per cent of Rio’s global assets.

Aluminum will see four to five per cent annual growth in long-term demand and will soon overcome post-recession oversupply. Alcan is investing about $1 billion in the Saguenay for its AP60 project and is preparing its Kitimat smelter in British Columbia for a $2.5-billion modernization and expansion – the go-ahead is expected to come soon. The Alma II smelter project in the Saguenay remains under study.

IOC’s future lies in the Asian market, Albanese said, because North American and European markets are mature and will decline. A decision to raise annual output by 40 per cent, to 26 million tonnes, is due next year. IOC retains permits north of Schefferville.

China made up almost 28 per cent of Rio Tinto Group’s total sales revenue last year and “we’re partnering with Chinese companies to find and develop new mineral resources in China and abroad,” Albanese said.

Rio Tinto is considering a re-entry into potash – it sold undeveloped properties in Argentina and Saskatchewan to Vale of Brazil in 2009 for $850 million U.S. to reduce its debt.

“If our geologists can find some or we see a good greenfield project, it’s something that would attract us,” he said.