Rio Tinto 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Cash from ops 14b

“We reported underlying earnings of $9.3 billion. We increased volumes and reduced costs, which enabled us to significantly reduce the impact of weaker prices. A focus on cash generation throughout the business led to net cash from operations of $14.3 billion. ”

We’re now in a position of strength

“We’re now in a position to strength, which allows us to not only meet our commitment to materially increase cash returns to shareholders, but also to be robust against low prices, to be in a position to take advantage of opportunities, which may present in the future.’

100m tonnes of new iron ore next year but only 20m in new demand

“If you look at 2015, we’re expecting that about 100 million tonnes of new capacity will come on. There will be growth in demand of about 20 million tonnes.”

Our cost is $17, still making nice margin

” if you take a current spot exchange rate and the spot energy price into account, in the iron business, costs are running at around $17 per tonne cash cost, as compared to the selling price today of $62 a tonne.”

You have to take off a lot of capacity to really balance the market

“as I’ve said before, if you want to balance the market, then you can’t just take off three or five million tonnes and expect that suddenly the price is going to go through the roof. You’ve actually got to take off sizable chunks, probably 100 million tonnes of capacity.”

No OPEC in iron ore

“So whether you like it or not, there is no OPEC in iron ore, its independent producers making their independent decisions. And the decisions that we make are in the best interest of our shareholders. That’s very, very important.’

Hi cost producers didn’t phone us up and say I’m bringing iron ore to market, so I’m not doing anything for them

“No, look, these people when they came into the market didn’t phone me up and say, jump for joy, I’m going to bring on some high cost production. So I don’t feel any responsibility for them. Now, yes, I’m sad for employees and communities and so on, but our people need to realize that the mining industry is cyclical. It goes through cycles. It’s supply and demand. It’s seasons. It’s a whole raft of things.”

Not lookng at M&A

“In relation to M&A, yes, I was very strident in my comments that we’re not looking at any major M&A. There are raft of things that, I don’t know, are on the market. These are a lot of the stress assets, and guess what, they distress for a reason. The high cost, the sorts of businesses that we are talking about earlier when we talk about and people needing to take the business of the market because it’s underwater, losing money.

If you look at the true opportunities for M&A, never say never, but these are few and far between if you’re really focusing on tier-1 low-cost opportunities. And unfortunately if one of those came on to the market and who knows when, that will be contested. So despite the fact that we’ve got a very strong balance sheet, it doesn’t automatically flow that we’re going to rush out and do it.”