19th Jul 2016 11:55
LONDON (Alliance News) - Rio Tinto PLC will need to increase iron ore shipments in the second half of 2016 in order to meets its targets but the multi-commodity miner managed to deliver production results that broadly met expectations in the first half.
Rio Tinto shares were down 3.6% to 2,374.0 pence per share on Tuesday afternoon, the worst performer on the FTSE 100.
The Pilbara operation in Australia that produces the miner's iron ore from a network of 15 world-class mines reported a 10% lift in production in the first half of the year to 160.8 million tonnes, with production rising 1.0% in the second quarter from the first.
Iron ore shipments from Pilbara in the first half were up 8.0% to 158.9 million tonnes and sales increased 7.0% in the second quarter from the first as the company. Rio Tinto sold 1.3 million more tonnes of iron ore than it produced in the second quarter as it offloaded some of the inventory accumulated in the first quarter when production outstripped sales.
Rio Tinto is aiming to ship a total of 330.0 million tonnes of iron ore throughout the whole of 2016 and although the company's production is seasonally weighted to the second half of the year, a large increase will need to be delivered in the second half to meet market expectations.
Based on first half shipments, Rio Tinto would only sell 317.8 million tonnes of iron ore in 2016, meaning shipments need to be at least 7.7% higher in the second half to reach 330.0 million tonnes.
Rio Tinto reiterated its guidance for the year but did state that it will be subject to weather conditions. The company said there was "no major weather events" in the first half, helping to boost the rise in the first half compared to last year when its sales were hampered.
As announced in the first quarter, the delay in the AutoHaul project means production from the Pilbara is expected to be between 330 and 340 million tonnes in 2017, subject to final productivity and capital expenditure plans.
Hard coking coal production in the first half was down 8.0% year-on-year to 3.8 million tonnes, with production declining 9.0% in the second quarter compared to the first. Semi-soft and thermal coal production fared slightly better, remaining flat in the first half of the year as production declined 5.0% in the second quarter from the first.
Rio Tinto still expects to deliver 7.0 to 8.0 million tonnes of hard coking coal in 2016 but now believes it can produce 17.0 to 18.0 million tonnes of thermal coal compared to the previous guidance of 16.0 to 17.0 million tonnes. Semi-soft coking coal in 2016 should still amount to 3.3 to 3.9 million tonnes.
Mined copper production in the first half experienced a 1.0% lift year-on-year to 282.3 million tonnes as production remained flat between the first and second quarters. "Strong performances" from the Kennecott in the US and Oyu Tolgoi in Mongolia, as well as a contribution from Grasberg in Indonesia, offset a weaker performance from Escondida in Chile.
Mined copper production for the full year is still expected to be between 575,000 to 625,000 tonnes whilst refined copper production, which totalled 101,400 tonnes in the first half, is expected to total 220,000 to 250,000 tonnes in 2016.
Oyu Tolgoi is about to enter the next stage of development after Rio Tinto and its partners, Turquoise Hill Resources and the government, approved the underground project earlier this year.
Rio Tinto said over USD4.00 billion of project financing has now been drawn down for the development and said the engineering, procurement and construction management agreement has been awarded.
Rio Tinto, however, did adjust its full year guidance for diamonds, which are housed in the same unit as copper, to 18.0 to 21.0 million carats compared to the previous, narrower guidance to hit that 21.0 million carat mark.
Diamond production in the first half of the year amounted to just shy of 9.0 million carats, lagging that guidance, but was up from the previous year.
Aluminium production was up 10% to 1.8 million tonnes in the first half production steadily rose in the period, rising 3.0% in the second quarter from the first thanks to the modernised and expanded Kitimat smelter in British Colombia delivering its first full quarter at nameplate capacity.
Alumina production was 6.0% higher in the first half of the year to 4.1 million tonnes, with production rising 1.0% in the second quarter from the first, whilst bauxite production was 9.0% higher in the first half at 23.2 million tonnes as production rose 9.0% in the second quarter from the first.
Rio Tinto reiterated its guidance for 45.0 million tonnes of bauxite, 7.8 million tonnes of alumina and 3.6 million tonnes of aluminium over the full year.
"Rio Tinto has delivered another robust quarter of operational performance. We continue to focus on value and maximising cash flow from our assets, through both commercial and operational excellence while maintaining capital discipline. This will ensure that Rio Tinto is well-positioned to generate compelling and consistent returns for our shareholders," said Chief Executive Jean-Sebastien Jacques.
On the corporate front, Rio Tinto's two bond buyback programmes that were launched in April and June have helped to reduce gross debt by USD1.50 billion and USD3.00 billion, respectivley. However, overall first half earnings will decrease by around USD125.0 million as a result of the early redemption costs, it said.
Exploration and evaluation expenditure in the first half amounted to USD267.0 million, split USD128.0 million in the first quarter and USD139.0 million in the second. Of that total expenditure, 38% was spent on energy and mineral assets, 28% was on central exploration, 25% was expended on copper and diamonds and the balance was spent on aluminium and iron ore.
In the first half of last year, total expenditure was slightly lower at USD243.0 million.
Exploration in the second quarter of 2016 was primarily focused on copper targets in Australia, Botswana, Chile, Kazakhstan, Mexico, Namibia, Peru, Russia, the US and Zambia. Mine-lease exploration at operations managed by Rio Tinto also continued in the period.
By Joshua Warner; [email protected]; @JoshAlliance
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