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BHP’s Mackenzie says “resources industry is worth backing”

Speaking to a high-powered audience at the official opening of is new global headquarters in Melbourne, BHP Billiton  (ASX: BHP) CEO Andrew Mackenzie provided a positive outlook for the Australian mining sector, suggesting that Chinese demand for natural resources may prove to be stronger than currently believed.

Mackenzie believes that resources from Australian miners will be in high demand to continue developing not only China but also “much of north Asia as well.” He said, “These resources are going to be fundamental to them securing the economic prosperity they crave for themselves and their citizens.”

Investors and analysts have expressed their concerns in recent years that demand from China would continue to fall as their rate of growth slowed; however, Mackenzie stated that what we should really be worried about is our ability to remain competitive against other countries, such as Brazil.

His comments come as many of Australia’s miners ramp up their levels of production whilst also decreasing costs and increasing productivity. BHP has a current target of producing 212 million tonnes of iron ore for the year whilst Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) will also increase their output substantially in the coming years.

Mackenzie urged that “the Australian resources industry is worth backing”, particularly as demand for commodities remains strong. The past five months in particular have seen stronger than anticipated prices for commodities, including iron ore, which has remained resilient around the US$130 per tonne mark.

Signs of confidence have been returning to the mining industry as these strong prices boost the profit expectations of the miners themselves. Shares in Mount Gibson Iron (ASX: MGX), for instance, have soared 175% since June whilst BC Iron (ASX: BCI) has also climbed 80% in the same time.

Foolish takeaway

Investors have recognised that perhaps there are still gains to be made from the mining industry, and indeed there could be! However, there are also a number of significant risks facing the sector, so investors need to determine if the risks are worth the potential benefits.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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