Trade Risks, Costs to Test Mining Rebound, Cautions Rio Tinto

By Rhiannon Hoyle

The chairman of Rio Tinto PLC, the world's second-largest listed miner, said escalating trade tensions and rising costs threaten to stall the mining sector's recovery.

"This year promises to be more challenging than the last, as the industry faces rising cost inflation, as well as geopolitical uncertainties, particularly in relation to trade," Simon Thompson said in remarks prepared for a shareholder meeting in London.

Commodity producers fear being caught in the crossfire of a U.S.-China trade conflict, which has already seen the U.S. put steep new tariffs on some steel and aluminum imports.

Better global growth is helping miners emerge from a multiyear downturn that prompted mass layoffs and hefty writedowns on investments.

But the sector faces a fresh cost crunch as prices for things including fuel, wages and chemicals begin to climb. The return of inflationary pressures already sparked earnings misses for several mining titans during the latest corporate-earnings season, damping their stock-market rally.

Mr. Thompson said Wednesday that Rio Tinto was "well prepared" and would continue to cut costs, improve productivity and pursue new technologies to counter fresh headwinds.

"There is much work to be done" but Rio Tinto is "confident of our performance in the year ahead," he said.

Rio Tinto in February reported a net profit of $8.76 billion for 2017, up 90% from a year earlier, as prices of coal, copper, aluminum and iron ore rebounded.

Chief Executive Jean-S?(C)bastien Jacques said the longer-run outlook remains positive.

"While we see some emerging inflationary and input cost pressure in the near term, as well as increasing volatility driven by trade and protectionism, mid- to long-term global growth is solid," said Mr. Jacques. "The world needs the metals and minerals we provide."

He said the miner will, however, continue to sell unwanted operations. Rio Tinto earned $2.7 billion from asset sales in 2017, and has offloaded more assets worth nearly $5 billion so far this year, including the recent sale of several Australian coal mines.

"We will continue to exit any assets or projects that do not fit our strategy," said Mr. Jacques.

Write to Rhiannon Hoyle at [email protected]