Rio Tinto has posted record iron ore production for the quarter, but the sharp fall in iron ore prices continues to raise worries about its reliance on the commodity.
The world’s second largest iron ore miner beat market expectations by increasing iron ore production by five per cent in the September quarter to 67 million tonnes, compared to the prior corresponding period.
That included record quarterly Western Australian Pilbara ion ore production of 62.9 million tonnes, also a five per cent lift.
However that comes at a time when iron ore prices plunged from an average $US168 a tonne in 2011 to a three-year low of $US86.70 in September.
It also follows reports on Tuesday that the Mongolian government wanted to renegotiate the terms of the Oyu Tolgoi copper mine in Mongolia, its biggest new project.
Rio is understood to have rejected the request, which would involve an increase in taxes and royalties at the nearly completed project.
Iron ore currently represents more than 70 per cent of Rio’s earnings before interest and tax, while copper is its second-biggest earner at about 20 per cent.
Morningstar senior equities analyst Mark Taylor said while the production performance of iron ore was strong it was a negative that it represented such a large share of its portfolio.
“The flipside is that it is bad that the portfolio wasn’t more balanced with higher copper or aluminium – especially aluminium – contributions,” he told AAP.
The aluminium division contributes modest earnings and has weighed on it since the notorious $US40 billion purchase of Alcan in 2007.
It has lowered its aluminium guidance to 2.2 million tonnes from 2.3 million tonnes following a 10 per cent drop in Alcan’s production from a year ago, while alumina and bauxite production lifted.
Mr Taylor predicted it would eventually contribute meaningfully in the future, hopefully in a way that offset iron ore’s demise in earnings.
“I don’t know why they are selling bauxite to (Chinese) third parties though … the reason the aluminium price is so woeful is because Chinese smelters are putting in masses of capacity and pumping the stuff out,” he said.
Despite the volatile iron ore price – currently at about $US117 a tonne – and plans to cut annual costs by $500 million, Rio is pushing on with the next stage of its expansion to 283 million tonnes a year by the end of 2013.
It maintained this year’s iron ore guidance of 250 million tonnes, having produced 187 million tonnes in the first nine months of 2012.
Rio Tinto chief executive Tom Albanese said the miner had delivered another strong set of production results as markets remain volatile.
Its share shed 1.25 per cent to $5.12.
Third quarter sales of 61 million tonnes were three per cent higher than the third quarter of 2011 and year to date sales of 170 million tonnes is up four per cent, less than its production as it builds up stockpiles.
Mined copper concentrate increased 21 per cent to 132,000 tonnes from a year ago, on the back of better grades, but fell from the previous quarter, disappointing analysts.
Guidance was lowered slightly to 560,000 tonnes to 580,000 tonnes.
Thermal coal output improved 21 per cent for the quarter but hard coking coal decreased 13 per cent.
