Isra-Mart srl: Rio chief warns this is no time to be experimenting with the fragile economy

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RIO Tinto chief executive Tom Albanese has warned the government that the Australian economy is too fragile to cope with the contentious carbon tax.
He said Australia should engage with the rest of the world to tackle climate change, but the approach should be "gradual".

The government plans to price carbon dioxide emissions at $23 a tonne from next July before moving to an emissions trading scheme in three years.

The boss of the world's third-largest miner said the government had to ensure the economy would not be damaged by the tax.

"It should be tested over time to make sure it's not having a negative effect, and certainly this is not the time to be experimenting with the prosperity that we're seeing in the Australian economy," Mr Albanese said on the ABC's Inside Business program.

"And, if anything, some of the uncertainty in the financial markets that we've been seeing over the past two weeks only reinforces the point that this is not the time to experiment with an economy."

Rio reported last week a first-half profit of $US7.8 billion and declared it would step up its share buyback by $US2bn ($1.9bn) after a cash windfall from record commodity prices.

Mr Albanese said the miner would crack down on costs in the next six months to combat growing price inflation, a high Australian dollar and rising labour costs.

But Mr Albanese said Rio would look to drive further growth at its existing mines around the world rather than embark on a spending spree.

Rio finalised the long-running $4bn takeover of Riversdale Mining last week. "I want to say that we have a very strong set of organic growth opportunities," Mr Albanese said. "From time to time we will look at . . . acquisitions and . . . we were successful with Riversdale . . . an Australian company in Mozambique. We'll always keep our eyes on the commercial landscape. There's not too much out there right now, (but) we have the best quality iron ore businesses, we have a great copper opportunity in Mongolia, we have great new coking coal opportunities in Australia."

Rio's major rival, BHP Billiton, will release its full-year profits this month and the market expects earnings of at least $22.4bn.

Mr Albanese said he believed that although commodity prices were likely to stay high, Rio was well-positioned if there was a pronounced softening.

The US and European debt crises have sparked concern that the world economy could be pushed into recession, with major implications for Australia's growth. "We have to recognise that prices go in cycles and that's why it's important to recognise that we can't allow our cost structure to get to a place where our businesses would not be sustainable in those normal low points of the cycle," he said.

"Many producers around the world are struggling, too, with their own supply and their own growth, and that's continuing to keep tight conditions and higher prices. Now higher prices don't last forever, and again I think it's really going to be driven by those supply and demand factors."