Rio Tinto upbeat on iron ore despite global fears

Chief Executive Tom Albanese, addressing the firm's annual meeting in Australia, voiced some caution over near-term prospects and said he would manage capital cautiously, but made no substantial revision to the firm's overall bullish outlook.

The outlook for global iron ore remains very positive and growth fundamentals remain the same as before the financial crisis, dominated by the rise of China, Albanese said, echoing comments he made in April to a London meeting of UK shareholders.

Since that meeting global investor confidence has been shattered by concerns that Europe's sovereign debt crisis could spark another international banking crisis.

Commodity prices have tumbled, with the CRB index <.CRB> shedding nearly 11 percent in the past month in part due to a surging U.S. dollar.

Iron ore prices <.IO62-CNI=SI> have fallen by more than 20 percent in the last month on signs China's appetite may be cooling. Copper prices are down by 12 percent and aluminum by 13 percent.

A prolonged downturn in iron ore and other metal prices could hit Rio, BHP Billiton , Vale and other miners furiously digging for more supplies.

Current annual worldwide demand for 1.3 billion tonnes of iron ore suggests a deficit, according to official Australian government forecasts.

But that deficit could vanish if iron ore output matches some growth forecasts of 50 percent more ore by 2015, while according to UBS uncertainty over the timing and scale of China's fiscal stimulus over the next two to three years creates uncertainty for iron ore's demand outlook.

But Rio Tinto's Albanese put a brave face on the sell-offs in commodities at the Melbourne meeting on Wednesday, keeping faith with his longer-term predictions for booming Asian demand, led by China.

On aluminum, a metal that once threatened to wreck the company's finances after a disastrous acquisition in 2007, Rio Tinto was also upbeat.

China is still the driver of commodities even if its growth goes to 8 percent and Rio is simply reflecting that sentiment in today's remarks, said Eagle Mining research analyst Keith Goode.

Rio shares rose as much as 4.5 percent, outpacing gains in the wider market, ending up 3.7 percent at A$63.95.

IRON ORE JV PRIZE

Rio Tinto said despite concerns about Australia's hefty new mining tax proposal it remained committed to its planned iron ore joint venture with BHP Billiton in Western Australia's Pilbara region.

Albanese and Chairman Jan du Plessis deflected questions about shareholders complaining that the $5.8 billion BHP has agreed to pay to equalize its stake in the joint venture is too little, focusing instead on the long term benefits of combining the businesses were far more significant.

Du Plessis said the $5.8 billion that had been negotiated was a good faith attempt...to establish a number which appropriately compensates Rio Tinto for the proportion of the business that will move across to BHP effectively.

There is too much focus on the detail of this number. In the long run, the industrial benefits to us and to BHP Billiton and indeed the industry of putting these businesses together is what the deal is about, du Plessis told reporters, when asked whether there was scope to renegotiate the equalization payment.

The two companies have estimated that combining their iron ore operations would result in savings of more than $10 billion.

Albanese said in his talks with shareholders, the focus was on the importance of the synergies.

They like the synergies, he said.

Rio Tinto is concentrating on getting the joint venture approved by regulatory authorities around the world, he said.