Speaking at the company’s annual general meeting in Brisbane this morning, du Plessis said the world economy was unpredictable, dangerous and volatile.

“Whilst the European Central Bank has in recent months managed the sovereign debt crisis in Europe well, recent events have shown that the situation is clearly not resolved and the potential for contagion continues to linger,” he said.

“At the same time, promising signs of a recovery in the US have improved the global picture compared to six months ago.

“China is not growing at the same rate as we have seen in recent years, but the rate of growth is still very favourable in comparison to global economic growth.

“Overall, we are somewhat more confident than six months ago, in addition to which I believe our strong balance sheet will serve to strongly underpin our business in the face of short-term volatility.”

Du Plessis said during the uncertain financial climate, the company was remaining flexible and preserving its investment options to meet growing demand for metals and minerals.

“Our organic growth programme continues and we will make value-enhancing acquisitions as the opportunities arise,” he said.

“Where necessary we will refocus our activities to fit our strategic objectives of running large, cost-competitive operations.”

Rio chief executive Tom Albanese said rising costs, particularly in Western Australia and Queensland, remained a major challenge.

“Increasing costs are an industry-wide problem, particularly in hotspots like here in Queensland, and I am determined to be on the front foot in tackling this challenge,” he said.

“We must ensure we are proactively tackling issues now that may impact productivity in years to come.”

Albanese said energy costs were rising rapidly and the company was also facing the introduction of the carbon tax in Australia from July 1.

“We are not immune from cost pressures, but have built a great track record of new project delivery and excellent operational performance from our mines,” he said.

“These skills, coupled with our strengthened balance sheet, put us in a strong position to invest in growth, in some of the best projects anywhere in the industry.

“The expansion of our Pilbara iron ore operations is, we believe, the highest quality project of its kind in the sector, which means it is the best value creator for you, our shareholders.

“The nature of our projects means that we have the flexibility to take a phased approach to expansion and can adapt our plans to changes in the economic environment.”

Rio shares last traded A24c higher to $61.47.