Rio Tinto First-Quarter Iron Ore Production Misses Estimates

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Rio Tinto Group’s first-quarter iron ore production rose a less-than-estimated 12 percent as the world’s second-biggest mining company continued expansions even as prices trade near a decade-long low.

Output rose to 74.7 million metric tons in the three months to March 31, from 66.4 million tons a year earlier, the producer said Tuesday in a statement. That missed the 82.7 million ton median estimate of three analysts surveyed by Bloomberg.

Shipments from Rio’s mines in Western Australia’s Pilbara region fell as a result of wet weather, London-based Rio said in the statement. Dampier Port, used by the producer, was temporarily closed last month by Tropical Cyclone Olwyn and briefly in January by a storm.

“The weather conditions were known about, so the fall in output won’t be a concern for investors,” Evan Lucas, a Melbourne-based markets strategist at IG Ltd. said by phone. “They’ll be focused on the fact that full-year guidance is unchanged.”

An expansion of mines, railroads and port facilities in the Pilbara to raise output is almost complete, Rio said. It maintained its full-year guidance for total shipments of 350 million tons in 2015.

Rio advanced 1.5 percent to A$55.50 in Sydney trading, trimming its decline this year to 4.3 percent.

Long-Term Rebound

After iron ore prices slumped by more than half in the past year there’s little prospect of a long-term rebound with demand for seaborne supplies likely to peak in 2016, according to Goldman Sachs Group Inc.

The largest producers have little alternative than to raise output to fully utilize their assets and lower costs, even though tumbling prices risk eroding profits and may jeopardize dividend targets, Goldman analysts led by Melbourne-based Craig Sainsbury wrote in an April 16 note.

Rio, the second-largest supplier of the steelmaking ingredient, will draw on its inventory through 2015 to maximize cash flow from its iron ore business.

“That’s making it clear that the long-term game is to be one of the three remaining iron ore producers,” IG’s Lucas said. “They are saying that they will continue to expand and that it doesn’t matter about the price, as long as they generate cash.”

Protect Margins

Ore with 62 percent content delivered to China’s Qingdao advanced 1.3 percent to $51.57 a dry ton on Monday, according to Metal Bulletin Ltd. It fell to $47.08 on April 2, the lowest since 2005.

“Our aim is to protect our margins in the face of declining prices and maximize returns for shareholders throughout the cycle,” Rio’s Chief Executive Officer Sam Walsh said in the statement.

Copper mine output fell to 144,100 tons in the quarter, from 156,600 tons a year earlier, Rio said in its statement. That beat the 133,300 ton-median estimate of four analysts surveyed by Bloomberg.

Metallurgical coal output rose 10 percent to 2 million tons compared with a year earlier, beating a 1.79 million ton median estimate among three analysts. Thermal coal production rose 5 percent to 4.8 million tons.

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