Rio earnings listing as coal ships sit idle
A HUGE backlog of ships waiting to load coal at Newcastle Port is expected to cut earnings by more than half at Rio Tinto’s Hunter Valley coal operations.
Rio subsidiary Coal & Allied yesterday said it would report a profit of about $60 million for the second half of 2006, compared to $163.7 million in the first half.
“The significant shipping queues, particularly in November and December, have not only impacted sales volumes and demurrage [the fees levied on ships idling at port], but they have had flow-on effects through the production chain, leading to lower volumes and production inefficiencies,” Coal & Allied managing director Doug Ritchie said.
The backlog does not seem to have eased in the new year.
A report on the Newcastle Port’s website on Monday said 55 vessels were waiting to load more than 5 million tonnes of coal.
“It puts focus on the severe infrastructure constraints around some of these mining regions,” Shaw Stockbroking analyst John Colnan said. “It may see the tightness in the [coal] market creep up.”
In its fourth quarter production report, released yesterday, Rio revealed it had produced a record 121 million tonnes of iron ore from its operations in Western Australia last year.
But it said expanding production when operating at full capacity had proved challenging.
“Ongoing acute shortages of mining inputs in the [Pilbara] region continue to put pressure on costs,” the company said.
Annual production at Rio Tinto’s copper division, which provided the bulk of its earnings last year, fell due to a month-long strike at the giant Escondida mine in Chile.
The company also warned it was a victim of the falling copper price, which has dipped to nine-month lows this month.
At the end of the quarter, its sales of copper amounted to 324 million pounds, provisionally priced at $US2.87 a pound. In comparison, at June 30 Rio had 343 million pounds of copper sales provisionally priced at $US3.37 a pound.
Goldman Sachs JBWere last week announced its first major earnings downgrades of Rio and BHP Billiton for some time, due to the falling copper price.
But analyst Neil Goodwill predicted a sharp recovery of the copper price in the second quarter could lead to share price rebounds of 30 per cent.
Rio’s production report revealed it spent $US283 million on exploration last year, up from $US250 million in 2005.
It is exploring in Russia as part of a joint venture with Norilsk Nickel, and said prioritisation of prospects was under way.
Rio is also conducting brownfields exploration near several operations such as its Pilbara iron ore mines, its Northparkes NSW copper and gold areas, Kennecott Utah Copper, and Rio’s joint venture with Freeport McMoRan at the Grasberg mine in Indonesia’s West Papua province.
Rio shares closed $1.20 lower at $71.30 yesterday.
