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Rio Tinto output beats analysts expectations


Rio Tinto Group, the world’s second- largest mining company, said third-quarter iron ore output rose 6 percent, more than analyst expectations, as it expands its operations in Australia.

Iron ore production increased to 52.6 million metric tons in the three months to Sept. 30, from 49.8 million tons a year earlier, the London-based company said today in a statement. That compares with the mean estimate of 50.65 million tons of four analysts surveyed by Bloomberg. Iron ore output from Australia’s Pilbara region rose to a quarterly record, it said.

“Markets remain volatile, but our business is resilient and our operations are performing strongly, reflecting our consistent strategy of running large, long-life, cost- competitive operations,” Chief Executive Officer Tom Albanese said in the statement.

Iron ore prices have rebounded 30 percent since reaching a near three year low last month. Rio Tinto this month said it’s expanding its Australian iron ore operations, while delaying decisions on investments in other commodities. Fortescue Metals Group Ltd. said today it may resume developing its Kings iron ore deposit and reported a 26 percent jump in quarterly iron ore shipments, topping analyst expectations.

Rio, the biggest exporter of the steelmaking raw material after Vale SA, fell 1.3 percent to A$55.12 at the close in Sydney. The stock has declined 8.3 percent this year.

“Iron ore projects in the Pilbara are offering returns far above other commodity projects,” Myles Allsop, a London-based resources analyst with UBS AG said in an Oct. 10 report following an investor briefing. “Spend on Pilbara iron ore is the bulk of the capex and Tom Albanese made no apologies for spending in iron ore given its superior returns.”

Price Slump

Iron ore averaged $112 a ton in China’s Tianjin port in the quarter, down 36 percent from the year before, according to the Steel Index Ltd. That pushed imports to the highest in 20 months in September as China’s output fell.

The commodity will fetch an average of $115 in the fourth quarter before rising to $135 a ton in the quarter after that, according to the average of nine estimates compiled by Bloomberg. It closed yesterday at $113 a ton, according to data from the Steel Index Ltd.

“Prices now are OK but not spectacular for Chinese production so you’re not going to see a surge of Chinese supply in the market,” Justin Smirk, a commodity analyst at Sydney- based Westpac Banking Corp., said by phone yesterday. “The average cost of global seaborne supply is well under the current price.”

Capacity Shut

Rio Tinto, which exported 192 million tons last year, said Oct. 10 about 100 million tons of primarily Chinese iron ore production had become unprofitable, with a large proportion of this capacity already shut. The miner has an approved spending budget of $22.4 billion on ore projects under way and plans to boost capacity in the Pilbara to 333 million tons in 2015.

Iron ore accounted for 44 percent of Rio’s revenue in the first half, ahead of aluminum, with 18 percent, and copper at 11 percent. The company has 15 buy ratings and one sell with a 12- month target price of A$73.17.

Profit in the six months to June 30 dropped 22 percent as metal prices fell. Rio’s continued spending on iron ore comes as BHP Billiton Ltd., the world’s largest mining company, shelved an estimated $68 billion in projects including an iron ore port and copper mine expansion, while Vale this month said it plans to cut output by 18 percent.

Unchanged Forecast

Rio expects to produce a total of about 250 million tons of iron ore this year, according to the statement, unchanged from a previous forecast.

“It was a fairly standard, solid report,” Stan Shamu, market strategist with IG Markets in Melbourne said by phone.

“People were focused on the iron ore production guidance, which remained the same.”

Mined copper production rose 21 percent to 132,000 tons, with output from the Escondida unit, the world’s largest copper mine, rising 68 percent to 75,200 tons. Alumina output rose 20 percent to 2.7 million tons, while aluminum fell 11 percent to 855,000 tons, Rio said.

Rio will probably delay deciding on a coal expansion in Mozambique, estimated to cost about $5 billion, UBS AG said this month.

(Source: Bloomberg)