CEO warns industry as Rio reaps bumper profit

RIO Tinto confirmed its third consecutive year of record profits today but the company’s outgoing chief executive Leigh Clifford warned on Friday that the cyclical nature of the resources industry had not been circumvented and that Australia needed to rely on more than just its resources to remain globally competitive.

Kate Haycock

Speaking at a business lunch in Perth hosted by the Western Australian Chamber of Minerals and the Chamber of Industry and Commerce, Clifford said he was an optimist about the future of mining but he did not believe the cyclical nature of the commodities market had disappeared.

His comments came just before the company officially posted another record profit today for the 2006 calendar year, with its net earnings for the year reaching a high of $US7.44 billion ($A9.52 billion), up from $5.2 billion in 2005.

“I know minerals will always be in demand and this country …is as well-placed as most to satisfy this demand,” Clifford said at the business lunch.

“[But] I’m not one of those who would argue that the essentially cyclical nature of supply and demand in our industry has somehow changed.”

Clifford sounded a note of caution for the future for the mining industry in Australia in a global commodities marketplace, warning against complacency.

“There are competitors out there … [minerals, gas and coal] can all be found elsewhere, and more will be found elsewhere. There are very many more countries which are open for business in the minerals industry [now] and I think we’ve got to recognise the competition is a lot more fierce than it was previously.

“Other nations are beginning to exploit their minerals riches, and what we now understand is that Australia’s mineral is not the unique advantage. Twenty years ago, Indonesia imported coal. Now it exports more thermal coal than Australia.

“What is less common is the happy coincidence of minerals, experienced operators, and prudent governments that want to maximise the long-term contribution that resources can make to society.”

Clifford pointed his finger at the skills shortage, the WA uranium mine embargo, and rising capital costs as problems for Australia’s mining industry.

He said that government policy settings were vital for “rational” development, singling out the industrial relations system recently overhauled by the Liberal Government, as an example of policy that “shackled” the commodities industry, particularly coal.

He flagged permitting and executing new projects in an efficient and timely way as a challenge facing both companies and government.

Clifford also cited the experiences of coal producers battling for berth space on publicly owned or shared infrastructure as an example of how infrastructure issues could damage the country’s industry.

“Sharing capacity has proven to be a torturous business. Next time around, those ships may be loading coal in places other than Australia.”

Rio Tinto’s shares were up A31c or 0.4% at $74.81 in morning trading today.

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