Rio Tinto lifts iron ore sales, production in second quarter
Rio Tinto has cut its Pilbara iron ore guidance again as it missed expectations for second quarter production.
Rio Tinto has cut its Pilbara iron ore guidance again as it missed analyst expectations for second quarter production, despite good weather.
Rio continues to be the iron ore major pulling back its output the most in the wake of last year’s calls for production restraint.
The Anglo-Australian miner (RIO) said it expected to ship 330 million tonnes of iron ore this year from Western Australia’s Pilbara region, down from its most recent guidance of 335 million tonnes of production ((including minority partners’ share).
In April, Rio told The Australian the 335 million tonne guidance still stood.
The cut comes in the wake of problems with the company’s autonomous rail program that have cut up to 20 million tonnes of annual shipments from 2017 guidance, the exit of former iron ore chief Andrew Harding under new chief Jean-Sebastien Jacques, and the shifting of the company’s now-humming Iron Ore of Canada operations to the Energy and Minerals unit run by Alan Davies.
It also comes after an announcement from rival producer Fortescue that it would beat 2015-16 production guidance by about 5 million tonnes.
Pilbara guidance of 330 million tonnes to 340 million tonnes of production for 2017 remains intact.
Rio’s minority partner in IOC has been flagging production of 20 million tonnes this year, meaning Rio’s former global guidance of 350 million tonnes is likely to still be met and the market had to some extent factored in the Pilbara guidance miss.
At 10.:33am (AEST), Rio shares were up 24.5c, or 0.5 per cent, at $50.39. BHP Billiton shares were off 0.7 per cent and Fortescue shares were up 0.5 per cent.
Despite the slide in Pilbara forecasts, guidance for Rio’s key commodities was left unchanged and the result was broadly in line with expectations.
“It was a steady quarter versus our estimates, although likely to disappoint the market on the performance in iron ore,” Morgans analyst Adrian Prendergast said.
“Although a softer quarter, the rise in commodity prices is creating more upside risk to second half earnings that could see Rio keep rallying.”
In the three months to June 30, Rio Tinto had total global iron ore sales of 85.3 million tonnes on a 100 per cent basis, just shy of expectations for 88m tonnes.
Second quarter iron ore output for the group came in at 68.9m tonnes, against analyst expectations for 71 million tonnes, Bloomberg forecasts show.
The result was dominated by its giant Pilbara operations, which recorded a 6 per cent increase in shipments compared to the corresponding quarter last year, to 82.2m tonnes. Production at its Pilbara operations lifted 8 per cent to 80.9m tonnes, but fell short of Deutsche Bank estimates for 83.3m tonnes.
For the first-half sales were up 8 per cent and production climbed 10 per cent.
“This performance reflects minimal weather impacts as well as the successful implementation of operational improvements and the ramp up of expanded and new mines across the Pilbara,” the miner said in a statement.
Rio retained guidance for 350m tonnes of total global iron ore production for the full-year, on a 100 per cent ownership basis, despite the drop in Pilbara forecasts.
It also said its Pilbara shipments would likely fall in a range of 330m-340m tonnes next year, in line with the lower guidance it issued last quarter.
The group also fell short of expectations with copper production as 141,000 tonnes of copper output was recorded. Bloomberg estimates pointed to expectations for 153,300 tonnes of production.
The modest numbers were in part due to a fall in production at its Oyu Tolgoi mine compared to last year.
Rio did, however, maintain forecasts for copper production of 575,000 to 625,000 tonnes for the full-year.
The miner also left its bauxite and aluminium forecasts unchanged, with production of the former topping estimates in the second quarter, while its diamond production expectations were lowered from 21 million carats to a range of 18-21 million carats.
A positive change was seen to its thermal coal output projections, with a lift from a range of 16-17 million tonnes to a range of 17-18 million tonnes.
“Rio Tinto has delivered another robust quarter of operational performance,” chief executive Jean-Sebastien Jacques said.
“We continue to focus on value and maximising cash flow from our assets, through both commercial and operational excellence while maintaining capital discipline.”
In a note on the results Macquarie analysts — who had slightly lower expectations for iron ore production than the market — said the overall performance for the second quarter was “mixed”.
“Rio’s Q2 production result was mixed with in-line iron ore volumes, stronger aluminium and weaker copper the key highlights. Production guidance for all key commodities has been left broadly unchanged and there was no change to the development schedules for Nammuldi, Amrun or Oyu Tolgoi,” the group said.
“Buoyant spot iron ore prices continue to present upside risk to our base case earnings forecasts for Rio in 2016 and the stock’s superior cash flow generation at spot prices and stronger balance sheet are key drivers behind our preference for Rio over BHP.”
