“Is coal part of Rio Tinto today? The answer is yes, but any asset is for sale at any point in time,” says Rio Tinto coal boss Jean-Sébastien Jacques. Philip Gostelow
Rio Tinto’s new coal boss Jean-Sébastien Jacques, says it will likely take three or four years before there is “a light at the end of the tunnel” for the depressed thermal coal price, and his main priority in the new job is to try to keep each Rio mine cash flow positive in its own right.
The country’s major thermal coal producers, headed by Glencore and Rio, continue to double down on cost-cutting and productivity drives to battle greater prolonged price pain than expected. Mr Jacques said a recovery in thermal coal would take “a long, long time”.
“In coal we have to be ready that we have multiple years, it could be even three or four years, before we see an inflection point,” Mr Jacques, who also heads Rio’s copper division, told The Australian Financial Review.
Thermal coal is languishing at six-year lows of about US$63 a tonne – down from $US150 a tonne in 2011.
“There will be volatility, don’t get me wrong; but where you say, ‘Well there is a real step change’ – that won’t be in the short term.
“My priority, if you put aside safety, is to remain free-cash-flow-positive in the very challenging environment. It is tough out there.”
Mr Jacques has been at the helm of Rio’s coal division for about eight weeks, since Harry Keynon-Slaney stepped down in a restructure that saw Rio’s copper and coal divisions merged. There will be more jobs lost across the merged divisions.
The restructure, which saw Rio streamlined from five to four product groups, was read by some in the market as the first step in a planned longer-term exit from coal.
Mr Jacques would not discuss whether Rio was planning an exit from the troubled commodity, but stressed the long-term fundamentals and demand for the troubled commodity still looked good.
“Is coal part of Rio Tinto today? The answer is yes, but any asset is for sale at any point in time. If somebody knocks on the door and makes a very good offer, we would have to look at it.”
But said that was true across Rio’s entire portfolio – at the right price, ”all assets are for sale at any point in time in the cycle”.
Rio is one of the country’s biggest coal producers, and most of its production is thermal coal centred on the Hunter Valley in New South Wales.
“There is no doubt that the world needs more energy, and big chunk of it will come from thermal coal. The big question is , where does Australia fit in this?”
And Mr Jacques is confident that Australia, “no doubt” has a role to play.
He is much more optimistic on the price outlook for the other commodity he heads up – copper. He says the “inflection point” for copper prices could be 18 to 24 months away, about twice as quick as the previous forecast he put to the AFR in December last year.
“In copper I can see the light at the end of the tunnel in 18 to 24 months – I think in coal it will take multiple years before we can see the light at the end of the tunnel – a long, long time.”
“The real attractiveness of copper is not about demand, it’s about supply,” he said.
It took an average of 27 years to bring a copper project online from the time the resource was discovered to first shipments.
“The demand will be there, but there is a lag in terms of supply, and therefore we are going to have a very long, and very attractive, cycle in relation to copper.”
Copper is fetching about $US2.90 a pound.
Rio’s copper and coal divisions each have an annual turnover of about $US5 billion turnover, but copper is far more profitable.
Copper is Rio’s key growth commodity, and investors “understand the value of a diversified company, particularly given where iron ore prices are today”, Mr Jacques said.
But Rio’s major greenfields projects have a long lead time, so investors will have to be patient.
“Copper is one of the growth levers for Rio – but do I think it’s going to be easy? Absolutely not.
“The whole question is going to be ’How quickly can we increase our position in copper?’ Because it takes a long time to build a meaningful position.”
Rio’s copper development pipeline includes its Resolution joint venture with BHP in the US, and La Granja deposit in Peru. But first priority is reaching a deal on the troubled underground expansion of Oyu Tolgoi in Mongolia.
Some market observers have given up hope on an Oyu Tolgoi solution, but discussions continue and Mr Jacques says the new government has made lots of “positive noise”.