Iron ore up, coking coal down because of the Queensland floods.
That was the message from Rio Tinto yesterday.
One thing can be said about the very mixed first quarter production report from Rio Tinto: its would-be suitor, BHP Billion will match that report when it produces its third quarter production statement shortly.
Rio posted record first quarter iron ore output, while coal production suffered from severe flooding in Queensland and fell sharply in the three months to March.
But there was no recognition of that problem from CEO Tom Albanese: he was all front foot and ignore the bad news.
He said in a comment accompanying the production report: "Our expansion drive continues to pay off with a record-breaking first quarter for the iron ore and aluminium product groups. Markets remain very strong and the prices of many of our products are at record highs, bearing out our view that the US slowdown will have little effect on global metal and mineral supply and demand balances.
"The integration of the Alcan acquisition is going well, and our investment assumptions for this business are already being exceeded. This year we expect to invest at record levels across the group in bringing new production onstream, so we can continue to benefit from economies undergoing rapid, metals intensive phases of development.”
Even though iron ore prices will rise by at least 65% and coking coal prices could triple in the coming year, the loss of output from the Queensland mines will mean coal returns won’t be as good as they should have been.
But at BHP’s Queensland coal joint venture, BMA, the damage is even worse; so for Rio that’s good news as it continues to fend off BHP’s advances. Poor coal results for both from Queensland is good news for the Rio defence.
Rio said global iron ore production rose by 16% during the three months to March 31 and by 15% in Australia, as the company continued to increase output from its Pilbara operations in Western Australia, through the ramp-up of the Yandi mine and Hope Downs operation.
Hard coking coal output fell 27% to 1.04 million tonnes after heavy rain flooded operations in central Queensland and the infrastructure limitations at railway and port facilities restricted the ability to make up the lost output.
Rio Tinto was forced to declare force majeure on its coal contracts from the Hail Creek hard coking coal mine for five weeks in February and March after the heavy rain, and was forced to draw down on stockpiles from its Blair Athol thermal coal mine after the flooding.
The benefit from the Alcan acquisition last year was seen in the 386% increase in aluminium production to 1.025 million tonnes. That reflected a full quarter of output from the Alcan businesses acquired for $US38.7 billion ($44 billion in 2007 dollars) last year.
"Strong contribution from Rio Tinto Alcan in the quarter, with a significant uplift in production compared to the first quarter of 2007.
“Bauxite increased by 106 per cent, alumina by 236 per cent and aluminium by 386 per cent, following a good performance from the Canadian smelters. On a proforma basis the respective increases for bauxite, alumina and aluminium were 20 per cent, ten per cent and two per cent," Rio said in the ASX report.
Mined copper production fell 6% during the quarter, with improved production at the Escondida mine in Chile offset by lower grades at the Bingham Canyon mine in the United States and Northparkes in NSW.
Uranium production was 20% higher at 3.346 million pounds with higher grades at the Rossing mine in Namibia and improved output from the Ranger mine in the Northern Territory, which was affected by heavy rainfall in the previous corresponding quarter.
Diamond output from the Argyle mine in WA dropped by 37% to 2.172 million carats after production was also impacted by wet weather and a slip in the main pit access ramp restricted access to high grade ore.
Rio shares jumped $3.99, or 2.9%, to $142.10 and closed up $2.49 at $140.60. BHP shares added 80c to finish at $42.80. The 3.4 share BHP offer was worth $145.58. So the offer is around a ratio of 3.2. The market isn’t convinced anything will develop, at this stage.
