First quarter 2013 operations review

First quarter 2013 operations review

16 April 2013

Rio Tinto chief executive Sam Walsh said "Our operations achieved a solid performance in the first quarter, recovering rapidly from the seasonal weather disruptions. At Bingham Canyon, last week's pit wall slide will have a significant impact on our copper production this year. A recovery plan is being implemented to minimise the economic impact. Our two major growth projects in the Pilbara and in Mongolia achieved significant milestones in the first quarter. Both of these industry leading projects remain on track for first production this year and are poised to deliver attractive returns for our shareholders in the years ahead.

"My streamlined Executive Committee structure is now in place and demanding targets for 2013, including for cash cost savings, are locked into our performance measures. We are making good progress in achieving our cost reduction targets and other priorities for 2013, and are determined in our pursuit of greater value for shareholders. "

Highlights

·; Record first quarter iron ore production, shipment and rail volumes reflected the recent re-rating of Pilbara capacity through debottlenecking and productivity improvements with minimal capital expenditure. The Pilbara iron ore operations swiftly recovered from the cyclone season, and are now running at full capacity of 237 million tonnes per year.

·; Expansion of Pilbara capacity to 290 million tonnes per year remains on budget, and on time to achieve the accelerated completion date in the third quarter of this year. The project reached a major milestone in the first quarter with the installation of the new shiploader with a nominal 55 million tonne annual capacity on the new wharf at Cape Lambert.

·; Mined copper benefited from a sustained recovery in grades at Kennecott Utah Copper and Escondida since the first quarter of 2012. On 10 April 2013, the Kennecott Utah Copper mine experienced a slide along a geotechnical fault line of its north eastern wall. Waste movement associated with the Cornerstone extension has restarted but ore production remains suspended and timing to restart ore production remains under evaluation. The concentrator has been shut down while the smelter and refinery are currently operating at reduced levels. Based on an early assessment of information currently available, it is estimated that 2013 refined copper production at Kennecott Utah Copper will be approximately 100,000 tonnes less than previously anticipated.

·; Commissioning of the Oyu Tolgoi copper-gold mine continued with first concentrate produced in January 2013. Commencement of commercial production remains on track by the end of June 2013, subject to the resolution of the issues being discussed with the Mongolian government.

·; Year to date cash cost savings are tracking on target as the impact of headcount reductions and productivity gains are gathering pace.

IRON ORE

Rio Tinto share of production (million tonnes)

Global iron ore production of 61 million tonnes (Rio Tinto share 48 million tonnes) set a new record for a first quarter. The attributable total was six per cent higher than in the same period of 2012.

Pilbara operations

The quarter was impacted by three tropical cyclones which forced shiploading to be suspended or slowed for several days on each occasion. Despite this temporary closure of the ports for shipping, the mine sites, and rail haulage from mine to port, continued to operate at close to capacity throughout the period.

Pilbara marketing

First quarter sales of 55 million tonnes (100 per cent basis) were seven per cent higher than the same period of 2012, setting a new first quarter record. Sales in Q1 2013 were lower than production due to interruptions in shipping caused by tropical cyclones in the Pilbara.

Pilbara expansion

The expansions of the Pilbara infrastructure to 290 Mt/a by third quarter of 2013 and 360 Mt/a by the first half of 2015 remain on track, with the following progress during the quarter:

·; A new shiploader at Cape Lambert with a nominal 55 million tonne annual capacity was installed at the new wharf, which will eventually extend 1.4 kilometres from the shore. This new wharf comprises a two-sided berth that will provide facilities and loading for two very large ore carriers with the capacity to deliver up to 250,000 tonnes of iron ore to each.

·; All major coastal infrastructure for the 290 Mt/a project is now on site and in place.

·; All wharf piling for the 360 Mt/a project at Cape Lambert is complete.

·; Work has commenced on the 70 kilometres of rail duplication into Cape Lambert as part of the 360 Mt/a project.

Rio Tinto's integrated operations will be progressively updated as follows:

·; 237 Mt/a - current operating capacity

·; 290 Mt/a by the third quarter of 2013 - Cape Lambert 53 Mt/a increment

·; 340 Mt/a by end of 2014 - Cape Lambert 50 Mt/a increment

·; 360 Mt/a by H1 2015 - Cape Lambert 20 Mt/a increment

The expansion from current operating capacity to 290 Mt/a is fully approved. All capital expenditure for the port, rail and power components of the phase two expansion to 360 Mt/a has also been approved. The new mines required to grow production from 290 to 360 Mt/a are still in study, pending future investment decisions.

Iron Ore Company of Canada (IOC)

First quarter saleable production was 20 per cent higher than the same period of 2012 following the completion of the Concentrate Expansion Project (CEP1). During the first quarter of 2013 the full capacity of the CEP1 expansion was successfully demonstrated, leading to a 4 Mt/a step change in annualised production capacity.

2013 production guidance

2013 production guidance is unchanged at approximately 265 million tonnes (100 per cent basis) from global operations in Australia and Canada, subject to weather constraints.

COPPER

Rio Tinto share of production

Kennecott Utah Copper

Production of copper contained in concentrates improved significantly on the same quarter of 2012, reflecting higher grades. The decline in production from the fourth quarter was also mainly grade-related and was partly offset by higher throughput. Gold in concentrates was slightly lower than previous quarters due to lower grades.

On 10 April 2013 Kennecott Utah Copper's Bingham Canyon Mine experienced a slide estimated to be in excess of 150 million tonnes of material along a geotechnical fault-line of its north-eastern wall. No injuries were sustained as a result of the slide. The slide was contained on Kennecott's property, without impact to local communities.

Movement on the north-eastern wall accelerated in recent weeks and pre-emptive measures were taken to relocate equipment, infrastructure and roads prior to the slide. However, the mine did experience some damage to equipment including three of the existing 13 shovels, 14 of the existing 100 haul truck fleet and other ancillary equipment. The extent of the damage and recoverability of the equipment is being assessed.

Waste movement associated with the Cornerstone extension has restarted but ore production remains suspended. The concentrator has been shut down while the smelter and refinery are operating at reduced levels.

The single mine access ramp for heavy equipment was damaged and is not usable in the area of the slide. Options are being evaluated to continue mining ore from lower sections of the pit in addition to existing stockpiles. Timing to restart ore production remains under evaluation.

Based on an early assessment of information currently available, it is estimated that 2013 mined and refined copper production at Kennecott Utah Copper will be less than previously anticipated by approximately 125,000 tonnes and 100,000 tonnes, respectively.

Escondida

Mined copper production increased 24 per cent on the first quarter of 2012. This increase was driven by higher ore grades, an improvement in crushing and conveying systems and the completion of the relocation of the in-pit crusher move which took place in the first quarter of 2012.

Oyu Tolgoi / Turquoise Hill Resources

First concentrate at the Oyu Tolgoi copper-gold project was produced on 31 January 2013 and commencement of commercial production is expected by the end of June 2013, subject to the resolution of the issues being discussed with the Mongolian government.

Grasberg

Based on the January 2013 Freeport estimates, 2013 production from Grasberg is not expected to exceed the metal attributable to Rio Tinto's joint venture partner, because of planned mine sequencing in areas with lower metal grades. Accordingly, Rio Tinto's share of joint venture production is expected to be zero for the year.

Northparkes

First quarter production was two per cent higher than the same quarter of 2012, reflecting higher throughput.

Palabora

Mined copper production was significantly lower than the first quarter of 2012 due, in part, to the south winder bearing failure and illegal industrial action at the underground mine, both of which were resolved in Q1 2013. Lower ore grades were also a contributor, consistent with expectations as the current lift 1 operations draw to an end in 2015.

The previously announced sale of Rio Tinto's 57.7 per cent interest in Palabora remains subject to customary regulatory approvals in South Africa and China and is expected to complete in the first half of 2013.

2013 production guidance

Rio Tinto's forecast copper production is currently being re-assessed following the slide at Bingham Canyon. Based on an early assessment of information currently available, it is estimated that 2013 mined and refined copper production at Kennecott Utah Copper will be less than previously anticipated by approximately 125,000 tonnes and 100,000 tonnes, respectively. As a result, Rio Tinto share of mined and refined copper production in 2013 is expected to be approximately 540,000 tonnes and 205,000 tonnes, respectively.

ALUMINIUM

Rio Tinto share of production (000 tonnes)

Bauxite and alumina

Rio Tinto Alcan's bauxite production was ten per cent higher than the same quarter of 2012, driven by higher volumes at Weipa in line with increased bauxite requirements from the expanded Yarwun refinery and increased third party demand. When compared with the fourth quarter of 2012, production was down by twelve per cent due to weather events in Queensland.

Rio Tinto Alcan's alumina production was flat compared with the same quarter of 2012 with greater alumina refining capacity at Yarwun offsetting the impact of ex-tropical cyclone Oswald at both refineries in Queensland. This inclement weather led to an 18 per cent drop in volumes compared with the fourth quarter of 2012. Both refineries recovered from the weather disruption, reaching close to planned capacity by the end of the quarter.

During the quarter, Rio Tinto announced that Pacific Aluminium's Gove alumina refinery would continue operating as planning, approvals and delivery of the gas to Gove project progresses. This decision followed a commitment from the Northern Territory Government to release a portion of its contracted gas for on-sale to Gove. A number of important steps remain to deliver gas to Gove.

Pacific Aluminium's alumina production was ten per cent lower than the same quarter of 2012. This followed the shutdown of one of three digestion stages at Gove in late February after inspections identified concerns about the weld integrity on some heat exchangers. These will be refurbished or replaced to bring the digestion stage back on line by the end of the fourth quarter. The temporary shutdown is expected to reduce full year alumina production by 700,000 tonnes compared with 2012. Pacific Aluminium's full year bauxite production is expected to be in line with 2012: bauxite exports will be increased to help offset the financial impact of reduced alumina production.

Aluminium

Rio Tinto Alcan's aluminium production was 14 per cent higher than the same quarter of 2012, reflecting the resolution of the lockout at Alma and the power outage at Shawinigan. Production at Alma continued to ramp up and the smelter operated at close to capacity throughout the quarter.

2013 production guidance

In 2013, Rio Tinto Alcan's share of bauxite, alumina and aluminium production is expected to be 33 million tonnes, 7.8 million tonnes and 2.5 million tonnes, respectively. These numbers exclude Pacific Aluminium and Other aluminium assets that have been identified for divestment or closure.

ENERGY

Coal

Rio Tinto share of production (000 tonnes)

Hard coking coal production in Australia was ten per cent lower than the first quarter of 2012. Coal production at Hail Creek was impacted by lower than expected overburden removal during 2012, as well as wet weather. A planned shutdown of the Kestrel Mine Coal Handling Preparation Plant was undertaken during March for upgrade works as part of the Kestrel Mine Extension project.

Semi-soft production was 72 per cent higher than the first quarter of 2012, as operations in the Hunter Valley changed their production profile to take advantage of the stronger short term market for alternate product to hard coking coal due to wet weather in Queensland.

Australian thermal coal production increased by 19 per cent compared with the first quarter of 2012. This was driven by an 80 per cent rise in production at Clermont as well as increased production at sites in the Hunter Valley following brownfield expansions and ongoing work to improve the efficiency of operations.

First quarter production in Mozambique was impacted by heavy rain in January and February, with force majeure called for two weeks in late February due to the closure of the rail system.

Uranium

Rio Tinto share of production (000 lbs)

Uranium oxide production at ERA benefited from milling higher grade ore which had been stockpiled prior to the completion of Pit 3 in late 2012. ERA will continue to feed the mill from stockpiles, with the continued milling of higher grade ore in the second quarter reducing to average stockpile grades in the second half of the year.

First quarter production at Rössing was nine per cent lower than same period of 2012 as a result of reduced mill throughput and lower mill head grades.

2013 production guidance

In 2013, Rio Tinto's share of Australian hard coking, semi soft coking and thermal coal production is expected to be 8.5 million tonnes, 4 million tonnes and 21 million tonnes, respectively. Rio Tinto's share of uranium production in 2013 is expected to be 9.0 million pounds.

DIAMONDS & MINERALS

Rio Tinto share of production

At Argyle, carats recovered were 15 per cent lower than the first quarter of 2012 reflecting lower plant availability. The Underground Project progressed well during the quarter with the first crusher and associated ore delivery system and one third of the production drives now in operation. 

Carats recovered at Diavik were 21 per cent higher than the same quarter of 2012 despite a five per cent reduction in ore processed, due to higher grades from the underground mine.

Borates production was lower than the same quarter of 2012 in response to current market conditions but increased 11 per cent on the fourth quarter, ahead of the start of the second quarter shipping season, and a planned maintenance shutdown in April.

During the quarter, Rio Tinto Minerals formally launched its Asia Technology Centre to serve the growing market for borates in Asia. This provides important internal capabilities in glass and ceramics, metals and advanced materials, and agriculture and specialty chemicals to support research and development expansion in Asia.

Higher titanium dioxide feedstock volumes were produced compared with the first quarter of 2012 reflecting the doubling of the Group's interest in Richards Bay Minerals (RBM). The decline from the fourth quarter reflected adverse winter temperatures on the RTFT furnaces, partially offset by increased volumes at RBM as production ramped up following a furnace rebuild in 2012.

In response to current demand conditions and in order to reduce operating costs, RBM has placed its zircon and rutile processing operations on care and maintenance, while maintaining production at the core ilmenite mining and smelting operations. In addition, RTFT has taken its upgraded slag (UGS) production facility offline.

Seasonal wet weather had less of an impact on salt production compared with the same quarter of 2012 but led to an overall reduction compared with the fourth quarter of 2012.

2013 production guidance

In 2013, Rio Tinto's share of production is expected to be as follows:

·; Borates - 0.5 million tonnes boric oxide equivalent.

·; Titanium dioxide feedstocks - 1.7 million tonnes

·; Diamonds - 14.8 million carats

EXPLORATION AND EVALUATION

Pre-tax and pre-divestment expenditure on exploration and evaluation charged to the profit and loss account in the first quarter of 2013 was $257 million compared with $531 million in the same period of 2012. Of this 2013 expenditure, approximately 27 per cent was incurred by the Copper Group, 21 per cent by Iron Ore, 19 per cent by Energy, 8 per cent by Diamonds and Minerals (which now includes the Simandou project), 1 per cent by Rio Tinto Alcan and the balance was incurred by Central Exploration. There were no significant divestments of central exploration properties in the first quarter of 2013 and 2012.

Exploration highlights

Drilling programmes to define additional resources continued at two projects in the orbit of the Amargosa bauxite resource in Brazil and reconnaissance drilling was commenced at a third prospect with encouraging initial results. In Laos drilling to define bauxite resources continued at the Sanxai project.

On the Saskatchewan Potash project in Canada, a joint venture with North Atlantic Potash Inc., a subsidiary of JSC Acron, results for well SASP0016, sited on the northern JV permits, show a high-grade upper potash unit and a thickened lower potash unit. Processing of the 2012 3D seismic survey is ongoing

At Rössing (Namibia) the third phase of drilling at the Z20 uranium project continued. 

In the Bowen Basin (Queensland, Australia), work continued on resource models to support Order of Magnitude studies at Mt Robert and Elphinstone, located near Hail Creek.

At Tamarack (USA) a major winter drilling programme was successfully completed with significant zones of nickel sulphide mineralisation intersected across the project area, including extensions to previously known mineralisation.

In South Australia RTX partners, Tasman Resources reported anomalous copper intercepts within Olympic Dam-style lithologies and alteration in two of the four holes drilled at the Vulcan project in 2012. The first of five hole follow-up drilling programme was commenced.

Drilling in Chile at Olimpo, near the Collahuasi copper operation, intersected minor copper mineralisation but has provided geochemical vectors to guide future drilling,

In Uzbekistan, a licence was formally awarded to Rio Tinto and partners over the Gava copper project.

A summary of activity for the period is as follows:

Mine-lease exploration continued at a number of Rio Tinto businesses including Kennecott Utah Copper, Northparkes, Energy Resources of Australia, Rössing, Diavik and Pilbara Iron.

About Rio Tinto

Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and New York Stock Exchange listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange.

Rio Tinto's business is finding, mining, and processing mineral resources. Major products are aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial minerals (borax, titanium dioxide and salt) and iron ore. Activities span the world and are strongly represented in Australia and North America with significant businesses in Asia, Europe, Africa and South America.

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