Tuesday, August 14, 2012

Mitsui Remains Committed to Australia

Further issues with resources in Australia. Aivars Lode.


TOKYO—Mitsui 8031.TO +0.94% & Co.'s chief financial officer said Tuesday that Australia remains the most attractive place to invest in natural resources for the time being, and that the trading house will stick to plans to step up its involvement in the country despite the rising costs and falling returns that have caused mining majors to consider pulling back on investments there.

"There's no thinking along the lines of: 'This is becoming an expensive place to do business, so let's go somewhere cheaper,'" Joji Okada said in an interview with The Wall Street Journal.

Still, mindful of industry trends, Mr. Okada said Japan's second-largest trading house by revenue—behind Mitsubishi 8058.TO -0.32% Corp.—has also begun to look into coal-mining opportunities in Mongolia and Africa. Outside of Australia, Mitsui currently has iron-ore assets in Brazil.

Australia Business Confidence Masks Weak Economy

While Australia has long been the bedrock of the global mining boom, increasing wages and a controversial mining tax in the works are prompting some companies to rethink their positions in the region.

Anglo-Australian miner BHP Billiton Ltd. BHP.AU -1.00% said in May it would shut a mine at Norwich Park in Queensland after a joint venture with Mitsubishi racked up sustained losses.

"We're not close to [that stage yet]," said Mr. Okada. For now, the additional cost burdens don't outweigh the risk of doing business in Australia, he said.

Mitsui, currently involved in four major Australian resource projects, is looking to expand its existing investments to increase production capacity in the future, a point Mr. Okada underscored. The company previously said it earmarked ¥200 billion ($2.54 billion) in the fiscal year through March 2013 toward expanding existing metals projects as part of its two-year midterm management plan.

In February, Mitsui agreed to contribute funds to build a new port in Western Australia to increase iron-ore exports as part of its joint venture with BHP Billiton and, more recently, acquired a 49.9% stake in a private Brisbane-based mining-equipment rental company last month.

Mitsui, along with Japan's other major trading houses, has been hit by the falling price of resources such as coal and iron ore. The trading house said its net profit for the three-month period ended in June slid 21% to ¥104.4 billion.

Mitsui boasts the highest annual production capacity in iron ore and second in coal of Japan's five major trading houses. Mitsui's Australian assets account for about 52% of its net profit in commodities, according to Deutsche Bank.

While the situation remains workable in Australia for now, Mr. Okada concedes cost control may compel the Tokyo-based firm to explore other options down the line, mentioning prospects in Mongolia and Africa.

"We need to raise our revenue, so as costs go up we'll have to think how to control them and another thing is to think about other regions," he said.

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