By Jane Lanhee Lee
BEIJING (Reuters) - Global miner Rio Tinto (AX:RIO) (L:RIO), which gets 92 percent of its revenue from iron ore, is unfazed by the drop in ore prices and sticking to plans to raise output, chief executive Sam Walsh told Reuters in an interview.
The Anglo-Australian miner, which rebuffed an approach from commodities trader Glencore Plc (L:GLEN) in August, is also confident of increasing returns to shareholders at full-year results in February, Walsh said, adding that it has no plans to cut its 2015 capital spending target of $8 billion (5.04 billion pounds), announced last year.
The spot price of iron ore <.IO62-CNI=SI>, which traded as high as $160 a tonne in Feb 2013, has crashed 40 percent to hit a five-year low of $75. Some analysts expect prices to fall even lower next year as mining majors continue to feed an oversupplied market, even though China is losing economic steam.
But Walsh, who ran Rio Tinto's iron ore business for eight years before taking the top job in 2013, is confident that Rio's production costs of $20.40 a tonne in the first half of 2014, the lowest in the industry, will help it ride out the storm.
"Between me and the current iron ore price there is tier two, tier three and tier four (producers). We have positioned our business to be the lowest-cost producer in the world, so I don't think I'll be losing sleep about our iron ore business," he said.
Walsh said the low production cost had also secured enough margins to materially increase shareholder returns.
Rio Tinto is on track to lift output 9 percent to 290 million tonnes ahead of a push to 360 million tonnes. That ranks the Anglo-Australian company number two in size behind Brazil's Vale (SA:VALE5), with BHP (AX:BHP) a distant third.
GLENCORE LURKING
With Glencore lurking in the background, Rio, whose shares have fallen about 10 percent this year as commodities prices hit a cyclical trough, is under pressure to please its shareholders.
Bloomberg reported that Glencore had talked to Rio's top shareholder, Chinese state-owned Aluminum Corp of China (Chinalco)[ALUMI.UL], after Rio's rejection, and that Glencore was testing the waters with other shareholders to weigh its next steps.
Asked if he was worried that Chinalco, Rio's top shareholder with 9.8 percent, could be swayed by promises of benefits from a merger with Glencore, Walsh said it was a decision that each of its shareholders had to make.
Walsh reiterated that Glencore's proposal, which would have created a $160 billion mining goliath, had been rejected by the board after a "very thorough diligence".
Glencore's chief Ivan Glasenberg has accused top iron ore producers of feeding a glut and "killing the super-cycle". Walsh, however, said Rio was taking a long-term view of the market and meeting clients' needs well into the future.
"Other companies have a much shorter-term view. Other companies - some do not invest in exploration, are against greenfield projects and want to trade on a short-term basis," he said.
Walsh described Rio's relationship with Chinalco as "very open and transparent". He said they had made good progress on their mining joint venture in China, and that exploration activities had started on potential sites.
"We're very hopeful that this will actually enable a joint copper project," he said.
Rio, which is looking to boost its copper output to reduce dependency on iron ore, started commercial production from its flagship Oyu Tolgoi mine in Mongolia last year.
But its $6 billion expansion plan has run into disagreements with the local government, which owns a stake in the mine, on construction costs. The ousting of Norov Altankhuyag as prime minister this week has also raised concerns of delays.
"This is a very long-term project, so you need to get the fundamentals right. And we are patient as we work through that process," Walsh said.
(Writing by Fayen Wong; Editing by Ian Geoghegan and Kevin Liffey)