Analyzing Rio Tinto’s 3Q15 Production: A Solid Set of Numbers

(Continued from Prior Part)

Iron ore volumes are key to Rio Tinto’s (RIO) iron ore segment revenue. The other factor, seaborne iron ore prices, is determined by demand and supply dynamics, which are currently pressuring prices. In this scenario, it’s big iron ore miners’ stated strategy to increase their volumes in order to reduce the pressure on revenues, cash flows, and ultimately bottom lines. In this article, we’ll see how RIO’s volumes are progressing in iron ore.

• RIO’s production for 9M15 (the first nine months of 2015) increased by 11% year-over-year (or YoY) to 185.1 million tons. 3Q15 production was 81.3 million tons, which is 12% higher YoY.
• This was due to the continued ramp-up of the company’s Nammuldi operations as well as a number of productivity improvements. Favorable weather in 3Q15 also meant minimal disruptions compared to 1Q15 and 2Q15.
• Shipments at Pilbara, Rio Tinto’s main iron ore producing asset, were 16% higher YoY in 3Q15. Sales at Pilbara in 3Q15 were higher by 4.2 million tons due to a drawdown of inventories.
• The Iron Ore Company of Canada also demonstrated much improved operational performance. Its 3Q15 production increased by 21% YoY. This was due to improved haul truck and mill availability and enhanced productivity rates.

• RIO maintained its guidance for 2015 shipments at 340 million tons (on a 100% basis) from its operations in Australia and Canada.
• Low-cost brownfield developments have helped the company achieve de-bottlenecking and productivity improvements, which should contribute towards full capacity utilization of 360 million tons per year (or Mtpa) over time.

Rio had said that iron ore is in a relatively balanced position, as 120 million tons of capacity should exit this year with 45 million tons still at risk compared to 100 million tons of new seaborne iron ore capacity coming online.

BHP Billiton (BHP) (BBL) will release its production highlights on October 21. BHP’s management believes iron ore prices will remain subdued and high-cost operations will remain curtailed.

Vale SA (VALE) will release its production highlights on October 19 while Cliffs Natural Resources (CLF) will release its 3Q15 results on October 29. Cliffs is experiencing lower iron ore shipments due to lower export volumes and lower demand from steelmakers in the United States (SPY) (IVV). Rio and BHP form 1.7% and 5.0% of the SPDR S&P Natural Resources ETF’s (GNR) holdings, respectively.

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Browse this series on Market Realist:

• Part 1 - Rio Tinto Delivers a Strong Set of Production Numbers for 3Q15
• Part 3 - Rio Tinto: In-Line Aluminum, More-than-Expected Bauxite Production
• Part 4 - Why Rio Tinto’s Copper Production Could Have More Downside