Rio Tinto lashed by extreme weather

April 14, 2011 By Barry Fitzgerald, Business Day

PROFIT projections for Rio Tinto have been trimmed after the Anglo-Australian miner surprised the market by revealing the impact of extreme weather on its Pilbara iron ore operations was worse than expected.

Rio was expected to report a slump in March quarter production in the Pilbara, as Fortescue did on Tuesday, and as BHP Billiton will next week. But once the extent of the slump became known at 3pm its shares were promptly sold.

Rio shares ended the day down $1.29 at $85.71, with most of the fall recorded after the report was released. Rio's 1.5 per cent fall was more severe than that for BHP, which was off 31¢ at $48.58, in line with general commodity price weakness.
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Rio's Pilbara-dominated iron ore production was a good 5 million tonnes short of market expectations. At current spot prices for the key steel-making raw material, the production shortfall would cost Rio as much as $900 million in revenue.

Again, like Fortescue, Rio is expecting a recovery from the rain, flood and cyclone affected March quarter, one that also took its toll on Rio's coal production in the Queensland coalfields, and at the Ranger uranium operations, Rio's listed uranium subsidiary, Energy Resources of Australia, in the Northern Territory.

Rio's chief executive, Tom Albanese, said that ''most'' of the weather-affected operations were recovering and benefiting from continuing strong prices. Rio does not report iron ore cash operating costs and averaged realised selling prices in its quarterly report.

Fortescue does, and said that while its cash cost of production ballooned to $US44.96 a tonne in the March quarter, its average realised sales price for the quarter was $US162 a tonne.

Rio is a lower-cost producer than Fortescue and its iron ore commands higher prices. So its margins are as fat as ever and will underpin a forecast profit surge in 2011 - even after the first quarter weather impacts - to more than $US18 billion, up from the $US13.9 billion profit in 2010.

Rio's attributable share of Pilbara and Canadian iron ore production for the March quarter was 42 million tonnes. That was down 3 per cent on the first quarter of 2010 and down 16 per cent on the fourth quarter of 2010. It was well short of the 47 million tonnes the market had been expecting.

Capacity of Rio's Pilbara ''system'' has been increased to 225 million tonnes a year and is on its way to an annual rate of 283 million tonnes.

The Queensland floods cut Rio's coking coal production by 12 per cent on the previous corresponding period to 1.62 million tonnes. March quarter output was down by 29 per cent on the 2.27 million tonnes in the preceding December 2010 quarter. (sourced smh.com.au)