Iron ore mining giant RIO Tinto (ASX:RIO), has released strong Q4 production results, which show an increase in the production and shipment of several commodity classes.
Iron Ore Production
RIO states that the iron ore production for Q4 2015 was at 91 million tonnes, 11% higher than the corresponding period in 2014. This was in line with a full year production of over 336 million tonnes, which was 11% higher than 2014.
The operations at Pilbara contributed the most to iron ore production, with around 309 million tonnes being produced there. Q4 2015 production at the Pilbara was 82 million tonnes, which was 9% than the preceding period in 2014.
Iron ore sales coming out of the Pilbara grew quite steadily during the last quarter. With sales volume of approximately 71 million tonnes, 10% higher than the preceding Q4 in 2014. Contributing to full year sales of 260 million tonnes, 10% higher than 2014.
Moreover, with the Brownfield and Pilbara infrastructure projects completed, the focus has now shifted to the Nammuldi Incremental Tonnes project, which delivers high grade, low phosphorus ore into the Pilbara blend. Construction has been initiated, which will take increase the annual capacity from 5 to 10 million tonnes. The project is to come into fruition in the fourth quarter of 2016. Over the year 2015, RIO achieved average pricing of $48.4 per wet metric tonne, on a FOB basis (Free on Board).
Production of Aluminium improved throughout 2015. Bauxite production for Q42015 was 11.2 million tonnes, 4% higher than the corresponding period in 2014. Furthermore, full year production was around 43 tonnes, which was 4% higher than 2014.
Alumina Q42015 production was 2 million tonnes, with full year production at 7.7 million tonnes, both being 4% higher. Aluminium Q42015 production was 4% higher than the previous Q4, at 864 thousand tonnes. In line with a full year 1% increase in production, at 3.3 million tonnes.
Moreover, RIO’s expected share of Aluminium production for 2016 of Bauxite, Alumina and Aluminium is 4.5, 7.8 and 3.6 million tonnes respectively.
Whilst copper production was lower in 2015, RIO expects its share of mined copper production to increase between 575-675 thousand tonnes. With the majority of production coming from their Kennecott mine.
Furthermore, as at the 31st December 2015, RIO estimated 189 million pounds of copper sales, priced at 219 cents per pound. This is 24% lower than the preceding period in 2014, which was valued at 288 cents a pound.
Coal production remained relatively steady throughout 2015. Q4 2015 Hard coking coal production was 16% higher than the corresponding period in 2014, at 1.9 million tonnes. With full year production 16% higher, at 7.8 million tonnes, following improved production at Kestrel mine.
Q4 2015 semi-soft coking coal production was 9% higher than the previous period in 2014, at 797 thousand tonnes. This was in line with full year production which was 14% higher than 2014, at 3.6 million tonnes.
Furthermore, Q4 2015 thermal coal production was 9% higher than Q4 2014, at 5.1 million tonnes. On the contrary, full year production was overall down 1%, compared to 2014, at 18.6 million tonnes.
However, for the year 2016, RIO expects hard coking, semi-soft coking, and thermal coal production to be between 7-8, 3.3-3.9 and 16-17 million tonnes respectively.
Exploration and Evaluation
Pre-tax and pre-divestment expenditure on exploration and evaluation charged to the P/L account in 2015 was $576 million. This is around 25% lower than 2014.
Approximately 6% of it was spent on iron ore, 2% on aluminium, 38% copper and coal, 23% diamonds and minerals, with the remainder on central exploration.
RIO has increased its focus on exploration in copper, in order to diversify its asset portfolio, amongst the ongoing slump in commodity prices, particularly in the likes of countries such as Australia, Botswana, Chile and many more.
RIO Tinto CEO Sam Walsh commented on the results: “Against a challenging market backdrop for the industry, RIO Tinto remains focused on operating and commercial excellence to leverage the low-cost position of our tier 1 asset base.”
Despite the relatively positive results, investors have reacted negatively, with RIO shares down (As at 10.54am AEDT) approximately 0.8%, to $38.35. RIO shares have performed quite poorly this year. Amongst the slump in commodity prices, along with the ongoing volatility in China, RIO shares have already fallen over 14% in 2016.
Author: Matthew Dibb
Jan 19, 2016
Matthew has an extensive track record in equity markets and derivative advisory. Spanning a career in several investment banks and prviate wealth groups including Macquarie Bank, his specialist knowledge relates to capital market advisory and equity market analytics. Matthew has a diploma in Financial Advisory, Applied Finance and is ADA 1 & 2 accredited.