BlackRock Inc. (BLK)’s Evy Hambro, who manages the $10 billion World Mining Fund, says he will seek talks with Rio Tinto Group (RIO) management on a planned iron-ore expansion that some analysts say will result in lower prices.
Chief Executive Officer Sam Walsh has made recent comments about increasing returns to shareholders, reducing costs, managing the balance sheet and maintaining a single A credit rating, and “those kind of things sit with canceling or deferring that growth decision,” Hambro said in an interview today with Francine Lacqua and Guy Johnson on Bloomberg Television’s “The Pulse.”
The world’s second-biggest mining company will probably pursue proposals for additional output in Australia, CEO Walsh said this week, according to two people present at a meeting with investors and analysts. Iron ore is set for its first surplus in at least a decade as output expands and Chinese mills, the biggest buyers, boost production at the slowest pace in five years.
A deferral would help keep the iron-ore market stable until 2018, underpinning prices, according to a Citigroup Global Markets Ltd. report last week.
“Rio (RIO) Tinto are not stupid, they are obviously very well aware of this and they’ve obviously stress-tested this investment decision significantly,” Hambro said. “But we are looking forward to exploring a little bit further with them at the mid-year point, when we catch up with them after their results, exactly the dynamics behind that investment.”
The board is expected to approve in the fourth quarter an increase in annual mine production to 360 million metric tons from 290 million tons, unless there are significant changes to the global demand-supply situation, Walsh told the gathering, the people said. Rio has already approved $5.9 billion of spending on port and rail as part of that expansion.
“When the comments were made earlier this week with regards to taking forward that investment decision to the board by the end of the year, which is still the existing timeframe, I think the markets were a little bit surprised by that,” Hambro said. “The market had been looking for some kind of leadership from Rio with regards to that investment.”
Rio is the largest holding in BlackRock’s World Mining Fund, representing 9.7 percent of the fund at March 28, valued at $930 million, Bloomberg data shows. BlackRock, the world’s largest asset manager, is the second-biggest shareholder of Rio’s London-listed stock with 9.1 percent, the data shows.
Rio gained 0.1 percent to 3,103 pence at 12:06 p.m. in London trading. A spokesman for Rio in the city declined to comment.
The steelmaking ingredient was Rio’s most profitable unit last year, providing 78 percent of earnings before interest, tax, depreciation and amortization, according to data compiled by Bloomberg.
“Walsh did say shareholder feedback on whether or not to go ahead with the project is mixed, based on the potential impact on prices,” JPMorgan Chase & Co. analysts led by Lyndon Fagan said in a May 6 report. The CEO told the meeting that the additional supply of 70 million tons was unlikely to result in a $20-a-ton price decline, they said.
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