March 23, 2011 / 1:57 AM / 6 years ago

UPDATE 5-Rio CEO decries 'curse of resource nationalism'

5 Min Read

* Albanese cites concerns of stakeholder "activism"

* Eyes organic growth, smaller M&A deals (Recasts, adds background)

By Denny Thomas

HONG KONG, March 23 (Reuters) - Rio Tinto warned the "curse of resource nationalism" has become a major obstacle to mining projects worldwide as governments have stepped up efforts to keep control over key commodities.

Rio Chief Executive Tom Albanese, who is fighting to keep the company's rights to part of Guinea's giant Simandou iron ore concession, said mining companies need to do more to tackle moves by governments looking to hike royalties and taxes, claim bigger stakes in projects or block deals.

From Mongolia to Australia, governments in the past few years have intervened on more mining-related deals, seeking to stop or interrupt sales to foreign buyers that would expand the global supply of such resources as coal and iron ore.

Albanese said executives need to be more conscious of reaching out to government officials ahead of cross-border resource deals to highlight potential benefits.

"From a Rio Tinto perspective, we have to do a better job on the curse of resource nationalism," Albanese told a packed audience at the Credit Suisse Asia Investment Conference in Hong Kong on Wednesday.

While technical factors such as hard-to-reach assets in emerging countries do play a role in limiting supplies, Albanese said, people can be a bigger obstacle.

"Besides technical constraints, we are also seeing human constraints. We are seeing a combination of resource nationalism in some cases," he said, citing "difficult governance" in certain countries.

"And in countries with good governance and infrastructure, you have this very new pattern that is increasingly challenging for our sector of activism of stakeholder engagement," he said.

The global fight for natural resources has intensified in recent years with the fast growth of emerging markets, leading to some high-profile cross-border takeovers being blocked by governments.

Last year, the Canadian government killed BHP Billiton Ltd's $39 billion bid for fertiliser maker Potash Corp .

Rio, which invested $680 million in what it said is the world's largest undeveloped iron ore deposit in Guinea, has been in dispute with Guinea over blocks 1 and 2, which the government gave to BSG Resources.

The West African state's top mining official said in October that Rio had until February to give up its formal rights, or would risk losing remaining stakes.

Last year, Rio Tinto also fought the Australian government's planned resource super profits tax, which Albanese called his number one sovereign risk worldwide at the time.

Rio worked with BHP and Xstrata to convince the Australian government to cut the tax and limit its application to iron ore and coal.

Copper Demand Strong

The chief executive did not shed any new light on the company's A$3.9 billion offer for Riversdale Mining , saying only that emerging market demand was driving the deal.

Albanese told CNBC after the speech that he was restricted on what he could say on the matter, given that it's a pending transaction.

Shareholders of Mozambique-focused coal miner Riversdale will receive A$16.50 a share if Rio reaches more than 50 percent acceptances by March 28. The offer reverts to A$16 a share after that and remains open until April 6.

Albanese said while the long-term demand for copper remained strong, in the short-term, supply could catch with demand as Chinese growth is beginning to mature.

"At the demand rate we are seeing now... we could be in an environment where over the next 20-30 years, the world will consume as much copper as it consumed through all of human history," Albanese said.

Big miners such as Rio and BHP have benefited from strong metals demand from rapidly growing emerging economies such as China, India and Brazil.

Albanese said the focus for Rio is to spend its vast cash flow to expand into iron ore, develop new copper resources and to grow "organically."

He sounded a note of caution on big mergers and acquisitions to drive growth, saying most of the assets being pitched are not of high quality. Rio will limit its deal making to smaller targets, Albanese said.

Rio Tinto mines 225 million tonnes of iron ore annually, mostly in the Pilbara region of Australia, making it the world's No.2 producer behind Brazil's Vale SA .

Rio said on Tuesday tight global iron ore supplies could be stretched even further as Japan embarks on a massive reconstruction following the earthquake and tsunami. (Additional reporting by Sonali Paul and Donny Kwok; Editing by Michael Flaherty and Vinu Pilakkot)

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