Rio Tinto’s Albanese Sees Metals Growth Continuing

A bullish outlook for metals wasn’t the only reason London-based mining giant Rio Tinto decided to buy Canadian aluminum behemoth Alcan, Rio Tinto’s chief executive told Dow Jones Newswires. While critics have questioned whether the purchase comes at the top of the aluminum market and could endanger Rio Tinto’s copper and iron ore earnings, CEO Tom Albanese said in an interview that the combination of expected metals returns and Alcan’s “net present value” presented an attractive buy. Rio Tinto sees “continued strong demand growth” for copper, aluminum and iron ore through 2011 as China continues to consume,Albanese said. Demand possibly will taper off somewhat after that but will remain strong through 2015. At the same time, the sector will see capital inflow but will also see constraints on the supply side, with supply growth not presently meeting increased demand growth,Albanese said. Eventually, the market will move back to equilibrium, he said, and the leveling-out point will come around the sector’s marginal cost of production. He noted that this cost of production is rising, in part because of high energy costs. “We see that supply increases are inevitable,” the 49-year-old Albanese said. While aluminum prices haven’t risen to the same extent as copper and iron ore prices, the acquisition of Alcan, which greatly expands Rio Tinto’s aluminum reach, was a unique opportunity,Albanese said. He also stressed that Rio Tinto is happy with the present and potential drivers of the metals markets. Rio Tinto expects the $38.1 billion deal - the mining industry’s largest takeover - to close in the fourth quarter, pending regulatory approval and competition reviews, he said. Responding to criticism that Rio Tinto has been too conservative in the past, Albanese said the company’s past acquisitions seem smaller because the company was smaller, and the company has “a very strong pipeline of organic growth” internally.