Maintaining returns at low prices
Rio Tinto’s (RIO) CEO (chief executive officer) said that the company can maintain cash returns even if iron ore prices drop to near record lows. As reported by Reuters, speaking during a mining (COMT) conference in Barcelona, Jean-Sebastien Jacques stated: “In 2016, we returned $2.7 billion dollars—or 28 percent of our cash—to our shareholders.”
Jacques also said that last year’s return was achieved at an average price of $53.6, adding, “The average year to date has been $74, so a price of $42 for the rest of the year will give us a similar outcome.”
BHP and Vale
Vale SA (VALE) believes that the iron ore market is “well balanced” currently. The executives at Vale feel that since less supply is expected this year, prices should find support at a level higher than that of last year. BHP (BHP) and Rio’s iron ore volumes are expected to be lower than their initial guidance due to weather disruptions during 1Q17.
Speaking during an industry conference in Perth, BHP’s president of Western Australia Iron Ore Asset, Edgar Basto mentioned that pressure on iron ore prices should persist due to burgeoning inventories at Chinese ports. The company has also mentioned that they are prepared for much lower prices.
Cliffs Natural Resources
Cliffs Natural Resources’ (CLF) CEO, Lourenco Goncalves, has been very critical of the volume over value route taken by the major iron ore players in the seaborne market. However, Goncalves acknowledges that Rio and Vale have somehow changed this policy to the benefit of iron ore price outlook.
Speaking during Cliffs’ 1Q17 earnings call, Goncalves stated: “If the other majors, Rio Tinto and Vale, stay the course and something positive happens at BHP either with the help of Elliott, the activist, or just with them seeing the light, very unlikely, our current forecast of $700 million for 2017 adjusted EBITDA will prove itself conservative.”