Rio Tinto’s Iron Ore Production Misses Analyst Estimates

Rio Tinto First-Quarter Iron Ore Output Misses Estimates
Trucks operate at Rio Tinto Group's West Angelas iron ore mine in Pilbara, Australia. Photographer: Ian Waldie/Bloomberg

Rio Tinto Group, the third-biggest mining company, reported a lower-than-estimated 9 percent increase in first-quarter iron ore production as inclement weather disrupted mining operations.

Output of the steelmaking raw material rose to 45.6 million metric tons in the three months to March 31 from 41.9 million tons a year earlier, London-based Rio said in a statement today. The result compares with the 47 million-ton median estimate of three analysts surveyed by Bloomberg.

Rio, the second-largest iron ore exporter behind Brazil’s Vale SA, is spending at least $15.6 billion on expanding its iron ore operations to meet demand from China. Three tropical cyclones in the quarter forced the stoppage of exports at its West Australian operations in the Pilbara.

“There were weather activities that have hit some of those production locations so it is just slightly below the area of expectations,” Jamie Spiteri, head dealer at Shaw Stockbroking Ltd., said by phone from Sydney. “They will be able to recover that lost production.”

Rio rose 2.3 percent to close at 3,517.5 pence in London trading after dropping 0.8 percent to A$64.70 in Sydney earlier.

“We had a solid first quarter,” Chief Executive Officer Tom Albanese said in the statement. “We were therefore well positioned for the relatively strong markets in the first quarter, albeit with continued volatility as we anticipated.”

Steel Production

Steel production in China, Rio’s biggest customer, rose to a record last month as new plants increased production amid higher prices, the National Bureau of Statistics said on April 13. Spot iron ore prices gained 6.5 percent in the quarter.

“Inventories of steel have stopped rising, and have started to decline in the last month which is a good sign for the market, suggesting it’s not just a margin story but a demand story,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd., said by phone yesterday.

Rio said today it expects to produce 250 million tons of iron ore this year from its operations in Canada and Australia. It may report net income of $6.7 billion in the first half, down from $7.6 billion a year earlier, according to the median estimate of three analysts surveyed by Bloomberg.

The company plans to boost output in Australia’s Pilbara region to 283 million tons by the end of 2013 and to 353 million tons by the end of the first half of 2015. BHP Billiton Ltd., the third-biggest shipper of iron ore, is doubling capacity. BHP reports its quarterly production tomorrow.

Copper Down

Rio produced 119,500 tons of mined copper, down 18 percent from a year ago because of lower grades at its Kennecott Utah operation. It expects mined and refined copper output of 600,000 tons and 320,000 tons during this year respectively.

Aluminum output was 9 percent lower at 854,000 tons because of a labor dispute at a smelter in Canada and the closing of a plant in the U.K., taking idled capacity to 412,000 tons, Rio said. Output may total 2.2 million tons this year, it said.

Rio announced in October it’s planning to divest or close 13 aluminum assets, including smelters and alumina plants from Australia to the U.S., to improve the group’s financial performance. Rio may choose an in-specie distribution or a separate listing for the assets, UBS AG said Oct. 17.

Selling Assets

Rio, following a similar announcement from BHP in November, is considering selling diamond assets that delivered earnings of $10 million last year because the mines no longer fit its strategy, the company said last month. Production of the precious gems rose 41 percent in the first quarter.

Hard coking coal rose 5 percent on the previous year to 1.7 million tons. Heavy rainfall during March is expected to hamper production during the second quarter, Rio said. Thermal coal output rose 3 percent to 4.1 million tons after Rio bought the remainder of Coal & Allied Industries Ltd.

Rio expects to spend $16 billion in 2012 on new projects and expansions, it said. “Further project approvals, mainly in the Pilbara, are likely to increase this level of investment as the growth program continues,” the company said.

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