From the AFR comes news that London fund managers are pressuring Rio:
The so-called “360” project entails the approval of up to $US5 billion of spending on new mines needed to match port and rail capacity improvements that have already been approved. It would lift Rio’s annual production by 70 million tonnes from the 290 million tonne capacity it will reach in the third quarter of this year.
Another concern raised in the market is that by adding another 70 million tonnes of new production, Rio will lower the global iron ore price, with ensuing negative ramifications on its existing business which is highly dependent on iron ore for earnings.
Citi said the net present value of the 360 project would evaporate if the price fell by $US15 a tonne due to new supply entering the market.
If Rio chose not to proceed with the project, there is a good chance that another miner will add new supply and it will lose market share. Rio’s total costs are hovering around $US47 a tonne including shipping to China, royalties and sustaining capital and costs are expected to fall further as a result of expansions. Therefore, Rio will still enjoy great margins even if the iron ore price fell to long-term levels closer to $US90 a tonne.
Errr, welcome to competition.
