Rio Tinto chief executive Jakob Stausholm said he had no fear of missing out on mining sector deal-making, labelling a potential takeover of rival Anglo American as “all-consuming” for the world’s second-largest mining company.
The Rio boss said it was now in “better shape” and could digest an acquisition, but warned that big deals risked putting the company off course after spending a decade rebuilding its balance sheet and reputation with governments and local communities.
“There’s a big risk when you do major M&A, not just in the acquisition itself, but it can derail the whole company,” he said.
Regarding a possible approach for Anglo, Stausholm said that “such an acquisition could be all-consuming for a company like Rio Tinto”, although he caveated that he could not comment on whether or not it is interested.
Rio Tinto has seen its larger Australian rival BHP drive global moves to consolidate the sector in order to access more supplies of copper, a mineral vital to clean energy.
Two months ago, BHP dropped a £39bn mega-merger attempt for London-listed Anglo, before agreeing a $3bn deal on Wednesday for undeveloped mines in Argentina.
Stausholm’s comments on M&A came as Rio said it had reached an “inflection point” after producing what it called a “consistent and stable” first-half performance.
The company reported a 3 per cent rise in underlying earnings before interest, tax, depreciation and amortisation to $12.1bn in the six months to June 30.
A strong profit performance from its copper and aluminium operations offset a 10 per cent profit decline in its large iron ore division after a train derailment and drop in the price of the commodity.
Stausholm said the group was in a strong position to deliver on a number of large projects that would drive future growth, including the Simandou iron ore development in Guinea, the Oyu Tolgoi underground copper mine in Mongolia and its Rincon lithium plant in Argentina.
Stausholm said Rio Tinto had instead looked at smaller moves including the buyout of Oyu Tolgoi’s minority shareholders and investments in renewable energy.
He said any deals had to add value. “That doesn’t mean I’m ruling out big M&A, not at all,” he added.
The Danish chief executive has retained a cautious approach. He said Rio Tinto had room to expand in copper, but the market for assets was “a little bit heated” and the company was not prepared to pay the prices that sellers expect. “It’s not an easy market to buy into,” he said.
Lithium is another area where Rio is keen to grow. It received a boost after its Jadar project in Serbia was handed back its permits last month. Prices for the key material for electric car batteries were red-hot in 2022 but have collapsed, bring down valuations of producers.
“Could we add more [lithium projects]? Absolutely,” said Stausholm. “But obviously I don’t want to add more assets than what my team are able to develop.”
Rio Tinto expects iron ore shipments to rise in the second half after a slow six months. Stausholm said he expected demand from China to remain “robust” as green energy, infrastructure and industrial demand offset weakness in the country’s property sector.
The outlook for other metals proved stronger, with underlying aluminium earnings up 38 per cent. Stausholm described demand for aluminium, an electric vehicle ingredient, as “relentless” and slightly stronger than copper.
Lachlan Shaw, an analyst with UBS, said in a note that Rio Tinto’s future growth projects were progressing well, but an unchanged dividend payment of $1.77 a share — equivalent to half its profit — looked slightly soft.
Stausholm remained confident that the Resolution copper mine in Arizona, developed with BHP, would go ahead despite public opposition from some indigenous groups and environmentalists. “We are making real progress there,” he said, although he declined to specify a timeline.
On the analyst call, he dismissed requests from an activist investor to unify its dual corporate structure and move the primary listing to Sydney, citing tax costs, the lack of valuation benefit and no current impediments to doing stock-based M&A.
