Rio Tinto's iron ore output reaches record level in third quarter

Rio Tinto's iron ore output reaches record level in third quarter - UPDATE

	Published : Wed, 17 Oct 2007 08:03 By : Agencies Print this Story

SYDNEY (Thomson Financial) - Rio Tinto, the world's third-largest mining group, said Wednesday its iron ore output reached a record level in the third quarter as it cranked up operations at its mines in Western Australia's Pilbara region to meet soaring demand from Asian steel makers.

The group's copper division, which was Rio Tinto's largest contributor to group earnings in 2006, also improved its performance, lifting refined copper output 30 percent from a year before, when the group's Kennecott Utah copper smelter in the US was shut down for scheduled maintenance.

The latest quarter's result is not expected to greatly alter full year earnings forecasts, which are centered on a 7.4 billion US dollar net profit before one-off items. This will be little changed from last year as higher costs reduce margins amid continuing strong commodity prices.

One Melbourne-based analyst, who did not want to be named, said costs remain a worry for Rio Tinto while its Australian coal mines were continuing to suffer from rail and port infrastructure constraints in Australia which had reduced the amount of coal exported.

Rio Tinto closed down 3.50 Australian dollars or 3.1 percent at 46.30 dollars after the output report was released.

It was the last quarterly report before Rio Tinto completes the 38.1 billion US dollar recommended takeover of Canadian aluminium giant Alcan Inc which is expected to be finalized in the final quarter.

Rio Tinto said in its third-quarter production report that iron ore production rose to 36.39 million tonnes in the third quarter from 35.74 million tonnes in the second, taking output for the first nine months to 105.75 million tonnes, up from 97.7 million a year earlier.

The rise in iron ore output comes ahead of annual price negotiations for iron ore sold under contract. Supply tightness has led to market expectations that Australian iron ore miners will win price increases of more than 30 percent for the year starting April 1.

Rio Tinto said production at its Australian iron ore mines, the source of most of the group's iron ore output, was 11 percent higher in the first nine months, despite two derailments which impacted production in the third quarter.

The company said its new Yandicoogina iron ore mine in the Pilbara region reached its capacity of 52 million tonnes a year during the third quarter, making it the largest single iron ore mine in Australia.

Rio Tinto said development of its 50 percent-owned Hope Downs project, also in the Pilbara region, neared completion in the third quarter. Once in production, Hope Downs will add 22 million tonnes per annum to Rio Tinto's iron ore production.

The group said while production is increasing, margins in the Pilbara region remain under pressure due to continuing increases in contractor and other mining input costs.

'Further measures have been put in place to ensure tighter control of manageable costs,' it said.

On the other side of Australia, infrastructure challenges of congested ports and railways in Queensland and New South Wales continued to impact hard coking and thermal coal production in the third quarter.

As a result, Rio Tinto reported a 10 percent decline in coking coal output from the same quarter last year to 1.56 million tonnes and a 24 percent drop in Australian thermal coal production to 5.85 million tonnes.

While refined copper output was up, mined copper output suffered from declines in output by Kennecott Utah, due to a five-day planned maintenance shutdown and at the Grasberg mine in Indonesia due changes in metal sharing arrangements with joint venture partner Freeport McMoran Inc.

The changed arrangements decreased Rio Tinto's share of copper production but increased its share of gold production at the Grasberg mine.

Group mined copper output fell 6 percent to 172,500 tonnes in the third quarter from the previous third quarter's 82,800. Mined copper output for the first nine months was also down 6 percent at 557,100 tonnes.

Kennecott Utah's molybdenum output, which was an important contributor to 2006 group earnings, fell 26 percent to 3,500 tonnes as a result of lower grades at the Utah operations.

But gold output was up 35 percent at 335,000 ounces, taking production for the nine months to 941,000 ounces, up 33 percent from a year earlier.

(1 US dollar = 1.13 Australian dollars)

bruce.hextall@thomson.com

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Rio Tinto's iron ore output reaches record level in third quarter - UPDATE