Rio Tinto upholds strong position as rivals falter amidst price deterioration
Despite collapsing prices of iron ore, the Rio Tinto Group is confident with the safety of their dividend. The collapse in iron ore by 45 percent has had producers in a battle for survival.
“There are a lot of producers that we believed would leave the market that are hanging on by their fingernails,” Sam Walsh, executive officer of Rio Tinto, told Bloomberg Television in an interview. “They are burning up cash reserves of their shareholders,” he added.
Prices are continually falling for large companies such as Vale SA, Rio Tinto and BHP Billiton Ltd. Last week, iron ore fell below US$39 (AU$54.23).
“I suspect that right now, even at a price of $39 a tonne, there are people that are suffering pretty loudly,” Walsh said. “We are well positioned -- the strongest balance sheet, the least debt of any of the majors ... It puts the dividend in a strong position,” he confidently added.
Rio Tinto and BHP Billiton are the only miners that vowed to still pay higher dividends annually, which analysts perceived as unsustainable given the highs and lows of the business.
Walsh believed that shareholders are important because they are a contributing factor towards the success of the business. Their faith requires a fair return. However, at the end of the day, it’s a board decision and not his. Some of the miner’s shares have been negatively affected after the drop in prices. Rio Tinto dropped 37 percent this year but stock rose at 1.7 percent in London.
“The global iron ore industry has slipped into turmoil during the past 18 months, given the steady collapse in the spot iron ore price,” Citi Group Inc. analysts stated in a report Tuesday. “The market is becoming increasingly concerned about the survival of the higher-cost producers,” they added.
Walsh anticipates a rough year in 2016 but is confident with the fact that Rio has the lowest debt in the business.
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