Bumper year for Rio in iron ore
Rio Tinto's systems produced a record 253 million tonnes of iron ore in 2012, with about 79 per cent of those volumes owned by Rio and the remainder owned by joint venture partners like Gina Rinehart's Hancock Prospecting.
The stellar result from the company's flagship division was slightly better than guidance, and means Rio is on track to meet analyst expectations for a full-year net profit in the region of $US9.2 billion next month.
An operations report released on Tuesday showed Rio did not slow down its iron ore sales during the pricing slump that struck the iron ore sector in the second half of 2012.
The benchmark iron ore price slumped to below $US87 a tonne in September - almost 80 per cent lower than it was fetching this week - but sales data suggests Rio was undeterred, and sold higher volumes of iron ore in each successive quarter of 2012.
JPMorgan analyst Lyndon Fagan said the record iron ore results were pleasing given the commodity was a prime driver of Rio's share price.
"[Iron ore] has had a significant run recently and some investors may view further price gains in iron ore cautiously from here," he said.
Despite producing 15 per cent more thermal coal from Australia in 2012, Rio said there was no sign of relief from the rising costs and lower prices that have overshadowed the Australian coal industry in recent months.
Rio boss Tom Albanese said costs would continue to be cut, meaning there could be more jobs lost in the company's mines in Queensland and New South Wales.
"Rio Tinto is actively reducing controllable costs in this business," he said.
While iron ore clearly dominates Rio's business today, new spending figures show the company is looking to another division to reinforce its future. Exploration spending in 2012 was dominated by the search for copper, which commanded almost twice as much funding as exploration for iron ore.
The breakdown of Rio Tinto's $US1.97 billion spend on exploration and evaluation shows that 41 per cent was spent on copper projects, with greenfields exploration under way in nine countries, including Australia, Chile, the US, Russia, Zambia and Kazakhstan.
"Rio are very keen to grow their copper division, and given they've already got established iron ore resources, we are not surprised to see that outcome," Mr Fagan said.
Copper already ranks as Rio's second-biggest revenue spinner, and the division's profile should grow in coming years as the Oyu Tolgoi mine in Mongolia - the company's prime growth asset - comes into production. Bringing Oyu Tolgoi into production ranks as Rio's most important task in 2013, with commercial production due by June.
Rio confirmed that first ore was processed through Oyu Tolgoi's concentrator on January 2, meaning that production of concentrate should begin around the start of February.
A power supply deal for the project was recently struck with companies across the border in China, and Rio said 25 per cent of the concentrate produced at the mine would go to smelters in the nearby Chinese province known as "Inner Mongolia".
The market appeared happy with Rio's results, with the share price surging more than 1 per cent higher shortly after the release.
Despite losing ground in early trading on Tuesday, the late surge ensured that Rio shares closed only 9¢ lower at $65.90.
Frequently Asked Questions about this Article…
Rio Tinto produced a record 253 million tonnes of iron ore in 2012. For everyday investors this highlights Rio's strong operational capacity in its flagship business and helps explain why iron ore remains a major driver of the company's revenue and share performance.
Yes. Despite a second-half 2012 price slump, Rio did not slow sales and actually sold higher volumes in each successive quarter of 2012, showing a focus on volume growth even when benchmark prices fell.
The benchmark iron ore price fell to below US$87 a tonne in September 2012. While prices were weak, Rio still grew volumes, which supported production results and underpinned analyst expectations for a strong full-year profit.
Analysts were on track to expect a full-year net profit in the region of US$9.2 billion following Rio's 2012 production and sales results, reflecting the strength of its iron ore performance.
Rio produced 15% more thermal coal from Australia in 2012 but said rising costs and lower prices continued to pressure the coal business. CEO Tom Albanese said the company is actively reducing controllable costs, which could lead to further job losses at some Queensland and New South Wales mines.
Rio Tinto spent US$1.97 billion on exploration and evaluation in 2012. About 41% of that was focused on copper projects, with greenfields exploration under way in nine countries including Australia, Chile, the US, Russia, Zambia and Kazakhstan.
Oyu Tolgoi in Mongolia is Rio's prime growth asset and was scheduled to reach commercial production by June 2013. Rio confirmed first ore was processed through the concentrator on January 2 and concentrate production should begin around early February, signalling near-term copper production that could boost Rio's copper division.
The market initially reacted positively, with Rio shares surging more than 1% shortly after the release. After some early trading weakness, a late surge left shares closing only 9 cents lower at $65.90, indicating investor interest in the production results and future growth projects.
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