Rio Tinto (
) reported a strong Q3 operating performance across most business
segments. The company reported record quarterly iron ore
production, primarily due to increased production from its Pilbara
mines in Australia. Copper production was higher due to the ramp up
at Oyu Tolgoi in Mongolia and the continued recovery at Kennecott
in the U.S. Copper, thermal coal and aluminum production were
all higher this quarter on a year-over-year basis.
Rio also completed the first phase of its iron ore production
expansion at Pilbara in Australia. This region will now produce 290
million tonnes of iron ore per year. When the second phase is
completed, the production capacity will expand to 360 million
tonnes, thus making Rio the biggest producer of iron ore in the
world, ahead of Vale.
The company releases financial numbers on a semi-annual basis
rather than a quarterly basis. Hence, there is no data available on
price realizations for iron, aluminum and copper - the three most
watched commodities in the market. Market prices of iron have been
rising on the back of resilient Chinese demand while that of
aluminum and copper have been declining.
We have a
Trefis price estimate for Rio of $55
, which represents 7% upside to the current market price.
See Full Analysis for Rio Tinto Here
Iron ore production for the quarter was reported to be 68.3
million tonnes while total shipments stood at 68 million tonnes.
While production was higher by 2% on a year-over-year basis, sales
were higher by 4%. The higher production was attributed to
productivity improvements and commissioning of the Hope Downs 4
mine. The company maintained its yearly iron ore production
guidance of 265 million tonnes. You can check the effect of iron
ore shipments on Rio's valuation using our interactive graph
At 162,300 tonnes, mined copper production was 23% higher
year-over-year. Production grew due to a sustained recovery in ore
grades at the Kennecott Utah Copper and Escondida mines and
increased production at the Oyu Tolgoi mine. While production of
thermal coal showed a 14% year-over-year growth, the production of
hard coking coal declined by 6% due to the ongoing transition at
the Kestrel mine in Australia. Bauxite production was 9% higher
than in Q2 2012, driven by higher requirements at the expanded
Yarwun alumina refinery and increased third-party demand. Aluminum
production was 9% higher than the corresponding quarter in 2012,
reflecting the resolution of the lockout at Alma and the resumption
of production following the power outage at Shawinigan.
Notable Developments And Outlook
Production guidance for 2013 remains largely unchanged, except
for copper, expectations for which were revised upwards. Instead of
the previous annual production guidance of 150,000 tonnes at the
Kennecott Utah mine, Rio now expects a production figure of 185,000
tonnes. This is due to progress in building a new road to help
with waste removal and remediation work at the mine which had
suffered a landslide six months ago.
Rio Tinto had set itself an exploration and evaluation spend
reduction target of $750 million for 2013. In the first nine
months, it has already managed to achieve savings of $729 million
and is therefore on track to meet the annual target
Rio Tinto entered two deals to sell non-core assets in line with
its strategy of focusing on core assets which give good returns.
The company entered a binding agreement to sell its majority stake
in the Northparkes copper mine to China Molybdenum Corporation for
$820 million. This transaction is expected to be completed by the
end of the year.
Earlier this month, Rio also signed a conditional Sale and
Purchase agreement to sell its mothballed Blair Athol coal mine in
Queensland to Linc Energy. The financial terms of the deal haven't
been disclosed so far and the transaction is expected to be
completed within six months.
a Company's Products Impact its Stock at Trefis