Rio Tinto Chief Executive Jean-Sébastien Jacques has noted that his organization is keeping a close eye on merger and acquisition (M&A) opportunities in a bid to overcome market doubts surrounding COVID-19 with a more diversified portfolio.
Speaking at a virtual presentation at Bank of America, Jacques said part of Rio Tinto’s approach to adapt to the “new standard” in the company environment was to enlarge its portfolio further.
“We are currently studying M&A. Right now, the market is finding it difficult to value companies, and the Covid-19 recovery pathway is not apparent. Rio Tinto will only transact if an opportunity creates value,” he explained.
Jacques also cautioned that the pattern of market recovery from the Covid-19 impact remains uncertain, noting that market volatilities might remain in place for another decade.
“In terms of recovery, many predict either a W or a V-shaped economic recovery. Although, to be honest, it is just too early to tell,” he said.
“According to recent events, we need to expect the unexpected. And I don’t see this changing in the decade ahead.”
The Rio chief noted that Rio Tinto’s balance sheet remained strong, with the company’s net debt reduced from $13.8 billion to $3.7 billion over the last four years and simplified portfolio divesting $12 billion in non-core assets.
“Therefore, we are well-positioned to withstand shocks,” he said.
Jacques also hinted That Rio might focus more on smaller mine development projects in the future to create quick cash flows.
“You have heard me say prior to that, mining developments of the future may start smaller and be embedded with optionality for growth within phases, yielding quick cash flows to shareholders, governments, and communities,” he said.
“In the post Covid world, this kind of development strategy may become more viable.”
Rio Tinto reported robust production results in the first quarter of the 2020 calendar year, which Jacques said was driven by the sustained demand for products such as iron ore and bauxite.
“Our Q1 generation report reveals our iron ore resources are doing well in a strong pricing environment. We’re on track to meet our 2020 iron ore guidance,” he said.