The head of Rio Tinto has issued a stark warning to the mining industry, saying it will have to work hard to protect margins and generate cash against a backdrop of rising costs and increased political risk.
Rio chief executive Jean Sebastien-Jacques said cost inflation driven by near $80-a-barrel oil was affecting the entire sector and all commodities, while resource nationalism was gaining momentum.
“The outlook for global growth remains positive — but there are some significant risks. Volatility in markets . . . trade wars and resource nationalism are all sources of uncertainty,” Mr Jacques told investors at the Bank of America Merrill Lynch conference in Miami.
“And as we predicted last year, cost pressures have returned. In this environment asset quality really matters and operating capability is critical. Protecting margins and generating cash will be hard across the industry.”
The mining industry has just emerged from the worst downturn in a generation with its costs and debts under control. The challenge for miners, which have promised to boost returns to shareholders, is to ensure the benefits from years of belt-tightening are not lost against a backdrop of rising oil prices and contractor costs.
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