Output rising for BHP, Rio

Mining giants Rio Tinto and BHP Billiton are set to announce solid increases in their output.

Stackers and reclaimers move iron ore to rail cars at Rio Tinto's Port Dampier operations

Mining giants Rio Tinto and BHP Billiton are poised to confirm that they’ve been making the most of the surprise rally in iron ore prices, with the pair set to announce solid increases in their output at their upcoming quarterly production reports.

Rio Tinto is expected to declare a healthy increase in iron ore production out of the Pilbara when it becomes the first of the big miners to release its December quarterly production report around 8.30am on Tuesday morning.

Both Rio and rival heavyweight BHP Billiton, which is due to release its quarterly figures next week, have enjoyed the benefits of a mild start to the Pilbara’s annual cyclone season.

UBS analyst Glyn Lawcock expects Rio to post a 9 per cent jump in iron ore shipments and BHP a 6 per cent increase, with Rio in particular a chance to “positively surprise” the market. Those increases would also leave the pair well placed to cash in on the 20 per cent rise in iron ore prices during the period.

Such a lift would leave Rio Tinto in the middle of its guidance of 325 to 330 million ­tonnes of iron ore production for calendar 2016, with Rio having previously trimmed its guidance back from around 330 million tonnes in October.

A strong end to the year from the iron ore division would be particularly welcome at Rio Tinto, which has otherwise been mired in controversy over its dealings at the Simandou iron ore project in the west African nation of Guinea.

Senior Rio Tinto executive Alan Davies was sacked late last year after emails emerged implicating him and former Rio chiefs Tom Albanese and Sam Walsh in a bribery scandal currently being investigated by fraud authorities.

Mr Lawcock expects BHP and Rio’s arch rival Fortescue Metals Group to record a small drop in iron ore output from 43.8 million tonnes to 42.1 million tonnes when it reports at the end of the month, although the miner’s ongoing cost-cutting success is expected to continue.

UBS is tipping Fortescue’s basic cash costs to fall from $US13.55 at the end of September to around $US13 a tonne at a time when realised iron ore prices climbed from around $US48 a tonne to $61 per tonne. RBC analyst Paul Hissey also expects to see solid production across the resources sector this quarterly reporting season, with the exception of the previously announced issues from South 32’s Illawarra coal operations.

“We don’t see too many reasons to be concerned about overall output levels,” he said. “With little in the way of seasonal weather impacts in the Pilbara, and modest interruptions in the coalfields, we do not see significant excuse for production misses.”

Shares in Rio, BHP and Fortescue have had great runs in the past year. Rio and BHP shares are at their highest levels since early 2015 while Fortescue has hit levels not seen since 2011.