Rio Tinto is “beefing up” its sales and marketing operation as the Anglo Australian miner looks to boost cash generation by $5bn over the next five years through a productivity drive.
Ahead of a presentation to analysts and investors in London, Rio chief executive Jean-Sébastien Jacques said the company could do a better job selling its commodities, which include iron ore, copper and coal.
“We need to strengthen not only our technical capability but most importantly our commercial capability,” Mr Jacques told the Financial Times on Tuesday. “That’s why we are beefing up our sales and marketing team in Singapore.
Rio, the world’s second biggest producer of steel-making ingredient iron ore, generates more than three quarters of sales in Asia. Unlike its arch rival BHP Billiton the company, which has built a sale marketing operation, Rio has traditionally placed less emphasis on sales and marketing.
That is starting to change. Rio recently told steel mills in China that they would have to pay a premium for its highest grade iron, It has also increased the price it seeks from Chinese traders for its Pilbra Blend product.
“What’s important for us is to extract full value from the market for the product we are selling” said Mr Jacques.
He explained the market for high quality iron ore was “tight” because of the explosion in coking prices, another key steel-making ingredient.
“People are becoming more and more selective about their burden [raw material] management for furnaces,” he said.
Mr Jacques again refused to be drawn on an unfolding payments crisis that is threatening Rio’s reputation as one of the best managed mining companies.
Rio contacted law enforcement authorities in the US, UK and Australia last month about how in 2011 it paid $10.5m to a consultant who helped secure the company’s rights to a giant iron ore deposit called Simandou in Guinea.
It subsequently emerged that the consultant, François de Combret, was also working as an informal adviser to Guinea’s president at the same time, raising questions about whether Rio broke anti-corruption laws by making the payment.
“I can’t say much more than we have put in our press release. I take integrity and our code of conduct seriously, said Mr Jacques. “Wherever we operate we must do the right thing.”
On China, the world’s biggest consumer of raw materials, Mr Jacques said he had no doubt the economy “was doing well” but the “puzzle” for Rio was to work out what the restructuring of state-owned enterprises would mean for commodity supply and demand.
“It could be positive or negative for us,” he said. “If the Chinese restructure iron ore business it is a massive tick for us for obvious reasons. If they restructure the steel industry [and close mills] it’s potentially a negative.”
Faced with an uncertain outlook for prices, Mr Jacques said Rio would focus on strengthening its balance sheet, a strategy adopted by several of its peers including Anglo American and Glencore.
Rio is officially targeting a gearing ratio (net debt as a percentage of book value) of between 20 per cent and 30 per cent. However, Mr Jacques said the company would feel more comfortable with a ratio below 20 per cent.
“We want stop at 20 per cent for the sake of it,” he said
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