Weather slows Rio iron ore production
BAD weather has achieved what rival miners and senior politicians have failed to do - rein in Rio Tinto’s iron ore production.
The mining giant has lowered its full year iron ore guidance to 340 million tonnes, from around 350 million tonnes after unseasonal weather events, including two cyclones, hurt its Pilbara operations.
Rio estimates the bad weather lowered its June quarter production by about seven million tonnes, which helped lead a mini- revival in depressed iron ore prices.
But any respite for struggling junior miners has been short lived, with Rio’s operations apparently now back on track and concerns about China weighing on the price of the commodity. Iron ore prices hit a 10- year low of $ 44.10 last week amid a meltdown in the Chinese share market, but the material has since lifted back above $ US50.
Rio is sticking with plans to lift its annual production to 360 million tonnes a year and BT Investment Management analyst Brenton Saunders expects the mining giant to be producing at that run rate by the end of 2015.
Mr Saunders said the reduction in Rio’s target for this year was no surprise, given its well known production issues during the first half.
“Rio is in the middle of a very aggressive ramp up in production and this is really the first hitch they’ve had along the way,” he said.
“Disruptions are to be expected with all big ramp- ups in any sort of mining.” Rivals like Fortescue founder Andrew “Twiggy” Forrest have hit out at Rio and BHP Billiton’s moves to increase production in the face of waning demand from China.
Meanwhile, West Australian Premier Colin Barnett has labelled the company’s expansions plans “dumb”, while Prime Minister Tony Abbott initially appeared to back a parliamentary inquiry into the mining giants actions, before deciding against the move.
Many have laid the blame for the collapse in the ore price, which has more than halved in the past year, squarely at the feet of Rio, BHP and Brazilian giant Vale.
But Mr Saunders says that as the lowest cost producer in the Pilbara, it was not in Rio’s interest to pull back production. “Unless you have some kind of meeting of the minds of some of all the big players, it is difficult for someone at the bottom of the cost curve to concede they need to be cutting production,” he said.
“Despite being financially worse off, Rio’s iron ore business is not under stress, the assets still produce reasonable returns on capital.”
Rio Tinto shares gained 19c to $ 53.31.