The rising toll of the global slump and downturn in commodities, is hitting Rio Tinto.
And, as is usual in the north of Australia during the wet, the weather played its part again.
The world’s third biggest miner revealed yesterday in its March quarter production report that first-quarter iron ore output fell 15% after floods cut deliveries from its Australian mines and demand from steelmakers slumped.
The company said it expects demand from the Chinese steel industry to improve later this year, and CEO Tom Albanese said the company was still committed to the controversial $US19.5 billion deal with Chinalco.
Rio also revealed plans to cut new exploration spending by 60% this year as it continues to tighten its belt.
Production was 31.6 million tonnes in the three months to March 31, down from 37.4 million tonnes in the first quarter of 2008.
Rio reported record quarterly output of 42.4 million tonnes in the September quarter of last year, so the fall from that peak is substantial, off more than 25%.
Rio is holding to its 2009 full year guidance for iron ore output of 200 million tonnes, which would mean it would have to lift iron ore output around the world to record levels of 55 million tonnes or thereabouts for each of the next three quarters.
That’s a tall order, even if the Chinese industry does recover.
China imported a record 52 million tonnes in March as it builds up stockpiles to help it through any possible contract hiccups with Rio, BHP and Vale of Brazil.
Those talks have yet to be concluded.
Rio has curbed production of iron ore, aluminum, coal and diamonds as a global economic slump sapped demand in China, the largest metals consumer, and pushed world prices lower.
Rio said in February it halted some mining operations and rail movements as lines connecting its Pilbara mines with the coast flooded.
"First quarter production was in line with reduced market demand and iron ore was further affected by heavy rains, CEO, Tom Albanese said in a statement to the ASX yesterday.
"We have acted swiftly where necessary to reduce costs and conserve cash. Markets remain volatile and the timing of global economic recovery uncertain.
"We made good progress on divestments in the quarter with sales of $2.5 billion agreed.
"We remain committed to delivering the Chinalco transaction and our focus is on successfully navigating the regulatory processes before putting it to a shareholder vote,” he said.
Rio said its first quarter global production of iron ore is down 15% on the first quarter of 2008 but in line with the previous quarter.
"Global iron ore guidance for 2009 remains around 200 million tonnes (100 per cent basis) with an expected recovery in Chinese steel demand in the second half of 2009.
"Pilbara iron ore production of 36 million tonnes (29 million tonnes on an attributable basis), down 15 per cent on the first quarter of 2008 but stable compared with the prior quarter, was adversely impacted by severe weather conditions.
"Pilbara iron ore shipments of 39 million tonnes (100 per cent basis), down nine per cent on 2008.
"Bauxite production down 19 per cent, alumina down two per cent and aluminium down six per cent, compared with the first quarter of 2008 following production cutbacks in response to the sharp fall in demand.
"Mined copper production up nine per cent on the first quarter of 2008, following significant recovery in copper grades at Kennecott Utah Copper and Grasberg, partly offset by a further decline in copper grades and continued operational difficulties at Escondida.
"Refined copper production up 33 per cent on the first quarter of 2008 resulting from improved performance and higher concentrate grades at Kennecott Utah Copper and higher throughput at Escondida.
"Australian hard coking coal up 32 per cent on the first quarter of 2008. Australian thermal coal production was down two per cent on the same period.
"Uranium production steady at 3.4 million pounds.
"Minerals production contracted in line with market demand with borates and titanium dioxide feedstock down 27 per cent and nine per cent, respectively.
"During the first quarter, Rio Tinto announced divestments totalling $2.5 billion, including $850 million for the undeveloped potash assets in Argentina and Canada, $750 million for the Corumbá iron ore operation in Brazil, $761 million for the Jacobs Ranch coal mine in the United States and $125 million for the Ningxia aluminium smelter in China.
"The Corumbá and Jacobs Ranch divestments remain subject to regulatory approval.
"The Group’s financial position is consistent with the fourth quarter with no significant movement in net debt."
The company yesterday priced $US3.5 billion in five and ten year debt, its debt first raising for some time.
It also revealed cuts to its exploration spending.
"Exploration and evaluation expenditure across the Group has been scaled back in 2009, in line with the recent announcements on the Group’s commitment to reduce controllable operating costs by at least $2.5 billion per annum in 2010.
"The 2009 central budget for greenfield exploration has been cut by approximately 60 per cent to $100 million (before tax and divestment proceeds).
"Pre-tax and pre-divestment expenditure on exploration and evaluation charged to the profit and loss account in the first quarter of 2009 was $127 million compared with $159 million in the same period of 2008. During the quarter the Group realised $68 million (pre-tax) from the divestment of central e
