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Rio Tinto Iron Ore Production Edges Up as Prices Rebound

Despite Strong Performance and Iron Ore Price Rally, Miner to Remain Focused on Cost Reductions

by Deyana Ivanova

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Rio Tinto Iron Ore Production Edges Up as Prices Rebound

Rio Tinto Iron Ore Production Edges Up as Prices Rebound

“Another Year of Strong Operational Performance” for Rio’s Iron Ore Business

Global miner Rio Tinto Plc (LON:RIO) has announced another year of strong performance for its iron ore business. As reported by The Financial Times on 15 January 2013, the world's second-largest iron ore producer behind Brazil's Vale (NYSE:VALE) posted a record output of the steelmaking commodity in 2012, beating the company’s own guidance.

Rio Tinto reported on Tuesday that fourth-quarter global iron ore production increased two per cent from last year to 66 million tonnes, of which the London-listed miner’s market share was 51.97 million tonnes -- one per cent higher than last year. According to the company’s official statement, global iron ore production for the full year increased four per cent to 253 million tonnes, of which Rio Tinto’s contributed 198.87 million tonnes. The mining giant also noted that global iron ore shipments of 247 million tonnes were achieved in 2012 despite severe weather disruptions and a significant maintenance shut-down during the year.

Rio Tinto’s chief executive Tom Albanese said: "This was another year of strong operational performance across the Group. We achieved record annual iron ore production and shipments as our expansion programme continues on schedule, delivering industry leading returns for our shareholders.”

Pushing Ahead with Expansion Plan

In 2011, Rio Tinto launched an aggressive expansion plan of its iron ore operations, which the company maintained even after the market was rattled for much of last year by worries over China, the commodity’s top buyer. The UK-based mining company, which derives more than two-thirds of its revenue from iron ore, resisted trimming back its expansion plan despite the prolonged weak period in the sector, confident its rich ores and low cost operations would provide adequate profit margins.

Now Rio has approved further expansion of its Australian iron ore mines, in the latest sign that a rebound in the price of the steelmaking commodity is rekindling investment in the sector. The miner had already approved lifting capacity in the remote Pilbara region to 290 million tonnes by the end of 2013. On Tuesday, Rio Tinto said it aims to increase the production capacity of its Australian operations to 360 million metric tons a year by mid-2015. According to the statement, Rio had most board approvals in place for the next phase of its expansion and if achieved, Rio could surpass Vale as the world's biggest iron ore producer.

Iron Ore Price Rally

Iron ore prices have enjoyed a spectacular rally since September, rising by almost 80 per cent. As iNVEZZ reported on 9 January 2013, Iron ore rebounded dramatically in the three months through December 2012 as demand from China resurged supporting optimism that the world’s second-largest economy is recovering.

After collapsing to $86.70 a tonne in September, iron ore prices reached levels last seen during the boom days of early 2011, when the benchmark grade rose to almost $200 a tonne. Last week, ore with 62 per cent iron content was trading at $158.50 a tonne on the spot market -- a three per cent increase which has boosted the commodity to its highest trading value since October 2011.

Despite Strong Performance and Iron Ore Price Rally, Miner to Remain Focused on Cost Reductions
Despite Strong Performance and Iron Ore Price Rally, Miner to Remain Focused on Cost Reductions
Rio to “Roll Back Unsustainable Cost Increases”

Despite the recent iron ore price rally, CEO Albanese said rolling back “unsustainable cost increases” in “volatile” markets remained a priority for Rio Tinto. He said: “This further enhances our resilience and competitive edge as we enter 2013.”

In November, Rio announced plans to slash from its mining operations over the next two years to offset the impact on profits of weaker commodity market. Rio’s two most challenged businesses – Australian coal and aluminium – are expected to bear the brunt of the cost-cutting. Indeed, in Tuesday’s update Rio said it was “actively reducing controllable costs” in its Australian coal operations because of lower thermal coal prices, rising costs and the impact of the Australian dollar.

As of 16 January 2013, 15:18 GMT, the Rio Tinto share price was trading at £3,456.50 -- almost one percentage point below the previous day’s closing level.

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