Bloomberg News

Rio Tinto Aims to Double Shipments on Own Vessels in Four Years

November 02, 2011

Nov. 1 (Bloomberg) -- Rio Tinto Group, the world’s second- largest mining company, aims to almost double the amount of commodities shipped on vessels it owns or hires to get iron ore and coal to customers more quickly.

Ocean freight haulage on ships it controls is set to climb to 300 million metric tons a year by 2015 from 155 million tons last year, Michael Harvey, chief operating officer at Rio Tinto Marine, said in an interview yesterday. Rio can control freight costs by owning vessels and mixing shorter- and longer-duration charters, helping to manage risk and save money, he said.

Rio plans to expand output of iron ore by 6.5 percent a year until 2015 and coal by 7.6 percent to meet Chinese demand for raw materials. Shipments on vessels it operates, or a so- called cost-and-freight basis, may rise to between 60 percent and 70 percent of commodities sold within five to seven years from less than half now, said Harvey, who spoke in London.

“If we are waiting for customers to supply ships, we are not in control,” he said in a June presentation to investors published on Rio’s website. Relying on vessels provided by customers prevented the company from making deliveries as quickly as possible or managing lines of ships waiting to load at ports, Harvey said.

Expanding iron-ore production at mines in Western Australia may also boost shipments by Rio, as well as the takeover of coal producer Riversdale Mining Ltd. and the Simandou iron-ore project in Guinea, Harvey said.

Cargill, BHP

Rio is the second-biggest shipper of dry-bulk commodities after Cargill Inc., the presentation shows. Cargill, the commodity trader that’s the largest closely held company in the U.S., says it transports 185 million tons of dry-bulk commodities by sea a year. BHP Billiton Ltd., the biggest mining company, shipped 137 million tons for the year ended June 30.

Rio hired 148 dry-bulk ships for short-duration or single voyages in 2011 through the week ended Oct. 28, according to data from Clarkson Research Services Ltd., a division of the world’s largest shipbroker. About 40 percent to 50 percent of charters were on the short-duration market and the rest were for longer periods, Harvey said.

Vessels owned by Rio will account for about 10 percent of all its deliveries. The company has 15 ships on order at yards in Asia, with a goal of bringing them into service starting as soon as next year.

The cost to own and operate a capesize vessel that hauls iron ore and coal was about $20,000 daily, while rents varied from about $10,000 to $200,000 a day over the last five years, according to Harvey. Rio Tinto Marine earned $473 million in total from 2006 to 2010, he said.

--Editors: Dan Weeks, Nicholas Larkin.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net


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