Rio Tinto Group [RIO TINTO] and BHP [BILLITON] attracted traders this morning as they appeared as the protagonists in a war of iron ore production.
The two giants of iron ore manufacture are going head to head to increase production in the fields of Western Australia. Rio Tinto project an increase to 360m tonnes next year, and HP raise are planning to push annual production up by almost 30 per cent to 290m tonnes by 2017. BHP also plan to cut unit production costs. Both companies see their plans as maintaining their overall market share rather than allowing smaller enterprises into the market.
In the meantime, they have a common adversary in the form of the Western Australian premier Colin Barnett, who has criticised the strategy, convinced that the successful commodity market will deflate with a production flood, with prices slumping and shareholders losing out. Rio’s Andrew Harding, head of iron ore maintains that his critics are wrong in their projections, stating the demand was strong in the long-term from China, Asia and India and that shareholders will gain rewards from the increase in market share. Barnett has hinted at raising the royalty rate charged by the Australian government on each tonne mined.
This comes in the wake of an address given by Rio Tinto chief financial officer Chris Lynch, committing Rio Tinto to Australian mining. He said on 25 September 2014, International Mining and Resources Conference (IMARC), Melbourne;
“As a sector, resources accounts for up to 18 per cent of gross value added in Australia and almost 10 percent of total employment when direct and indirect jobs are included. The industry’s tax and royalty contribution in the last two fiscal years alone is forecast by Deloitte Access Economics to exceed $40.2 billion. These numbers put to bed any suggestion that mining is not paying its way here. It always has and it will continue to do so. We are clearly a long term industry which has stood the test of time and weathered many storms.”
On 7 August 2014, Rio Tinto announced a 21 per cent increase in first half underlying earnings to $5.1 billion.
Rio Tinto recently rejected a merger with Glencore.
BHP Billiton Iron Ore employs 13,000 people across the Pilbara in Western Australia.
Billiton Plc has a primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index. Market capitalisation was approximately £41.5 billion ($69.5 billion) as of 19 August 2014.
CFDs on RIO TINTO and BILLITON stocks are traded on STOCK.com