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Peter Ker
May 11, 2012

THE two-speed economy has morphed into a ”three-speed” economy with iron ore leaving the rest of the mining sector in its wake, according to resources group Rio Tinto.

Reinforcing its message that Australia has become a harder place to do business, the Rio chief executive, Tom Albanese, said most of the mining sector was finding life difficult and fewer new mining projects would be launched.

Rio flagged it would be unable to go ahead with all its growth and expansion projects, with soaring capital costs forcing it to be more ”selective”.

Speaking at Rio’s annual general meeting in Brisbane, Mr Albanese said suggesting Australia had a two-speed economy was outdated.

”It’s not just resources versus the rest of the economy, it’s iron ore versus the rest of resources versus the rest of the economy,” he said.

Rio’s Pilbara iron ore operations contribute three-quarters of the company’s profits, prompting Mr Albanese to dub it the best business in the world apart from Apple’s production of iPads.

Rio suggested it was likely to approve a significant expansion of its Pilbara iron ore division later this year, despite iron ore prices being 20 per cent lower than in mid 2011. But Mr Albanese said other commodity prices were ”coming off the boil” compared to their peaks in 2010, and Rio’s other divisions would find the funding pool for new projects would no longer go as far.

”We probably cannot develop as many projects as we could have done a couple of years ago spending the same level of money, so that means we have to be more selective, to focus our investment efforts into just the best projects,” he said.

His chairman, Jan du Plessis, reinforced the message, saying the notion of a ”mining boom” was not true for many metals and commodities.

”Across the rest of Australia the mining industry has not got an easy time at the moment,” he said. ”Costs have gone up tremendously because of inflation and with the Aussie dollar where it is today it means Australia has become an expensive country.”

Rio singled out Queensland as a place where projects were less attractive than four years ago.

Mr Albanese said he was confident that Rio Tinto was well positioned to push ahead with the Simandou iron ore project in West Africa, despite recent reports that a Chinese-led consortium was seeking to snatch the project.

Read more: http://www.smh.com.au/business/iron-ore-shifts-into-overdrive-in-threespeed-economy-20120510-1yfm0.html#ixzz1uVrNZvHi

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