Rio Iron Ore Output Jumps 12% as Ports, Mines Expanded

  • Producer says Australia infrastructure upgrade now complete
  • Copper guidance narrowed on lower grades, maintenance

Rio Tinto Group, the world’s second-largest mining company, reported third-quarter iron ore production rose 12 percent after completing key elements of its infrastructure expansion in Western Australia and boosting mine capacity.

Total output expanded to 86.1 million metric tons in the three months to Sept. 30, London-based Rio said Friday in a statement. That compared with 76.8 million tons a year earlier and the 87 million ton median estimate of five analysts surveyed by Bloomberg.

Benchmark iron ore prices have fallen more than 70 percent from a 2011 peak amid slowing economic growth in China and as the largest suppliers, including Rio and BHP Billiton Ltd., raise output to boost savings and squeeze out higher-cost rivals. Prices will extend declines in 2016 as additions to supply overwhelm output cuts by smaller producers, according to BMI Research.

Rio’s “mantra has not changed, and this quarterly production report shows that they are not blinking,” Evan Lucas, a markets strategist at IG Ltd. in Melbourne said by phone. “They are still squeezing the market, and still giving the lower end of town real pressure.”

An expansion of Rio’s infrastructure in the Pilbara region, which includes 1,700 kilometers (1,050 miles) of railroads and four port terminals, to provide capacity for shipments of 360 million tons a year has been completed, Rio said in the statement. Upgrades added about 40 million tons a year of mine capacity at its West Angelas, Nammuldi and Brockman sites, the producer said.

Rio fell 1 percent to A$53.69 in Sydney trading, extending its decline this year to 7 percent. That compares with a 21 percent drop in the Bloomberg World Mining Index.

Weaker Prices

Fortescue Metals Group Ltd., the fourth-biggest exporter, has halted output expansions citing weaker prices and a saturated market. The supplier’s founder and chairman Andrew Forrest in August accused large competitors of “market vandalism,” by raising production amid weak demand. Rio rejected his analysis as overblown.

Iron ore delivered to China in the three months to Sept. 30 averaged about $55 a ton, compared with more than $90 a ton in the same period a year earlier, according to Metal Bulletin Ltd. data. Faltering growth in China, the biggest consumer of metals and energy, has slashed commodity prices and eroded earnings for producers including Rio, which reported a 43 percent drop in first-half profit.

Rio is on track to meet full-year guidance of global shipments of 340 million tons and said iron ore inventories built up as it expanded infrastructure in Australia will be used by early 2016.

“We continue to deliver efficient production, rigorous cost control and sound allocation of capital,” Chief Executive Officer Sam Walsh said in the statement. “This approach is ensuring that our tier one assets generate substantial free cash flow even during a challenging economic environment.”

Copper Outlook

Copper mine output fell 24 percent to 115,000 tons in the quarter on maintenance at Utah’s Bingham Canyon and amid declining grades at Chile’s Escondida, Rio said. The total beat the 113,400 ton-median estimate of five analysts surveyed by Bloomberg.

Full-year mined copper output in 2015 is forecast to be 510,000 tons, compared to previous guidance of between 500,000 tons and 535,000 tons, the company said. Copper supply is underperforming on mine disruptions, Rio Copper & Coal Chief Executive Officer Jean-Sébastien Jacques said Wednesday in a London presentation.

Aluminum production rose 1 percent to 830,000 tons, while bauxite output jumped 4 percent to 11.3 million tons, Rio said.

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