Bigger not always better warns Rio

THE age of the mega-mining development is drawing to a close as a shift towards a more sustainable economy crimps demand for key commodities, Rio Tinto’s chief executive says.

Jean-Sebastien Jacques has also cautioned his rivals not to confuse growth with value creation, noting $367 billion in investments made during the mining boom have since been written off.

“Volume growth for the sake of it and mega M&A (mergers and acquisitions) do not equal value creation,” Mr Jacques said at a mining conference in London last night.

The head of the Anglo-Australian mining titan noted that from 2000 to 2010, the 40 biggest resources companies spent $440 billion on new projects and a further $88 billion on mergers and acquisitions.

Of this, $366 billion was later written off.

“We should not confuse growth with creating value,” Mr Jacques said, speaking at the London Metal Exchange’s annual Metals Seminar conference.

“Let me remind you. This industry, and I include Rio here, destroyed around $US250 billion ($366 billion) of value not that long ago. Therefore, there is real strength in discipline.”

Mr Jacques said the drive to create a more sustainable economy, and the application of big data at the mine site, were remaking large mining companies and the projects they pursued.

“This is more than a fad, it is a structural shift,” he said.

For major miners over the coming decade, “big may not necessarily be beautiful”, Mr Jacques said. He said by the end of this year, Rio’s iron ore business in the Pilbara would have shipped almost as much iron ore this decade as it did in the 40 previous years.

“In the past, most major miners have pushed for bigger mines, using bigger machinery, processing ever greater quantities of material,” he said.

“As demand for some materials remains flat or declines, and the circular economy takes hold, the push for scale will change.”

Rather than looking for the next “big bang” new mine, major miners were likely to be best served by looking inward and applying new methods to unlock value from existing assets, Mr Jacques said.

A project studying ways to extract lithium from existing waste rock at a Rio mine in the US was a good example of the type of project, he said.