Rio Tinto bullish but still wary

MOST of Rio Tinto's operations were running at capacity in the first three months of 2010, but the giant miner was still cautious about short-term volatility, chief executive Tom Albanese said yesterday.

Speaking at the annual meeting in London overnight, Mr Albanese said, however, strong demand from China and recovery in OECD market allowed the miner to look to the long-term future with confidence.

"Over the next 15 years we expect consumption trends to lead to a doubling in demand for iron ore, aluminium and copper," he said. "We also expecte substantial increased demand for energy."

But the first-quarter operations report released yesterday ahead of the meeting disappointed analysts, who said it showed weaker than expected production so far this year.

It came on the eve of more signs from the Chinese Government that it is baulking at prices the major ore miners want to charge steelmakers.

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Rio, along with BHP Billiton and Brazil's Vale, are being investigated over the possibility they may be monopolising supplies of iron ore, according to a report by Bloomberg.

A spokeswoman for BHP Billiton dismissed any insinuation that the Chinese Government was alleging cartel activity.

"There is no question of collusion," she said. "We have said for years we wanted to move away from annual pricing and now that we are doing it, we are meeting stronger resistance from Chinese customers."

Mr Albanese told the Rio meeting that he was determined that the recent events involving the conviction of former Rio executives would not affect the company's commitment to improve its relationship with China.

"To this end, we recently issued extra guidelines to help employees working with and within China about gathering information in China," he said.

In its first quarterly report of the year, Rio said it was "ramping up growth projects with sustained investment in our iron ore business and the start to development of Mongolian copper and gold mine Oyu Tolgoi".

The company's global iron ore production increased 39 per cent compared with the same, very wet quarter last year.

Rio has reduced debt by about $4.5 billion in the first quarter and booked $3.5 billion worth of asset sales. It estimates that $5 billion will be spent on capital works during the year.

Although slightly more iron ore was produced in the final quarter last year, the latest quarter saw production rise to 43 million tonnes from 31 million in the previous corresponding quarter.

While more than a third more coking coal was produced, thermal coal production tanked by 53 per cent in the US and eased 8 per cent in Australia.