FORTESCUE Metals Group chief executive Nev Power has warned that moves by iron ore heavyweights BHP Billiton and Rio Tinto to ramp up output in a falling market could ultimately cost the mining giants’ executives their jobs.
Speaking at a breakfast in Perth hosted by stockbroker Morgans this morning, Mr Power said he was “somewhat amused” by the iron ore giants’ plans to continue growing their output.
“When there are higher returns in the future by investing we should invest, and when we don’t see those incentive prices and returns we should not be investing” Mr Power said.
“Investing because you’re more profitable than the next guy seems to be a very flawed strategy to me and one that will inevitably lead to self-inflicted wounds, low returns to shareholders, and probably replacement of management teams like we’ve seen in some of those companies in the past.”
The chief executive and chairman roles at major miners including BHP and Rio underwent major overhauls in 2012 and 2013 amid rising investor concerns about overpriced acquisitions, rising costs and a lack of focus on shareholder returns.
Iron ore prices have fallen more than 40 per cent this year as prices respond to a significant rise in supply — predominantly from Australian producers including Fortescue — and an easing in demand out of China.
Both BHP (BHP) and Rio (RIO), which are the two lowest cost iron ore producers in the world, have flagged their desire to continue growing their output.
“I’m not quite sure why anyone would want to be the last man standing in a low price, low return environment,” Mr Power said.
“For me, what we’re interested in in the iron ore industry is ensuring we’ve got high returns to our shareholders.”
The moves by BHP and Rio prompted a tough response from West Australian Premier Colin Barnett, who at first accused the two giants of colluding to try to drive smaller iron ore miners out of business.
After saying in parliament they appeared to be acting “in a concert way “ and had “some sort of arrangement”, the Liberal leader said he didn’t mean to suggest the mining giants were colluding.
But he remains unrepentant, telling fellow MPs yesterday that BHP Billiton iron ore president Jimmy Wilson had brushed off the impact of the company’s ballooning iron ore output on smaller players with the words “it’s a tough old world out there” and “such is life”.
“The issue was already around in the media before I made any comment,” Mr Barnett told Fairfax radio today. “And I answered it honestly.
“I do have a concern that I don’t resile from.
“I feel every right and entitlement to speak out on behalf of the people of Western Australia.”
Mr Barnett said the companies had complained about his comments but he had not spoken directly with Rio Tinto chief executive Sam Walsh, who this week said he didn’t know “where Colin is coming from”.
“There’s been calls to my office and everything else - I think they’re concerned we’re going to put up the royalty rate and I’ve made it very clear that’s not our intention at all,” Mr Barnett said.
“We won’t be doing that.
“We’ve got a principle of 10 per cent royalties, the iron ore pays its fair share, so that’s where it will stay.”
Source: The Australian
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