Rio Iron Ore Output Falls From Record on Maintenance

Rio Tinto Group, the world’s third- largest mining company, said iron ore production fell from a record in the fourth quarter because of extended maintenance in Western Australia.

Output of the steelmaking raw material, Rio’s second-highest profit contributor, dropped to 35.1 million metric tons in the three months ended Dec. 31 from 35.7 million tons in the previous quarter, the London-based company said in a statement. Production rose 8 percent from a year earlier.

Record demand from China has global mining companies operating at full capacity, increasing maintenance costs. Cyclones in Australia last year delayed the benefit of the $6 billion that Rio plans to spend increasing production by the end of the year.

“Its fair to say it was a bit lower than expected,” Simon Toyne, an analyst at Numis Securities Ltd. in London, said by phone today. “These businesses are expanding so you would expect to see those numbers rising, but the maintenance has to be done.”

Rio’s shares gained 1 pence to 2,551 pence in London, after falling as much as 48 pence, or 1.9 percent. The stock has dropped 6.1 percent so far this year.

Rio’s thermal-coal producing unit, Coal & Allied Industries Ltd., said today that second-half profit fell by about 63 percent as congestion at a port led to higher costs and delayed exports.

Iron and Copper

“Annual production was impacted by extreme weather conditions early in the year, and the challenge of recovering and expanding production when operating at full capacity,” the company said in the statement to the Australian Stock Exchange. “Global iron ore demand remained strong in all markets during 2006.”

Iron ore prices will rise 9.5 percent to a record in 2007, for a fifth consecutive year of gains. Rio’s annual production rose 7 percent to 132.8 million tons. Iron ore was Rio’s second- largest profit contributor to first-half earnings after copper, which reached a record high price in London last year.

“The declines come from the extended maintenance and that’s not surprising when they’re running equipment a lot harder,” said Rob Clifford, an analyst at ABN Amro Holding NV, in Melbourne. “All this points to a market that’s still struggling to meet demand.”

Chinese Demand

China’s iron ore imports rose 19 percent last year to a record, the Beijing-based customs office said Jan. 11. China overtook Japan as the largest iron ore-buyer in 2003, as the world’s fastest-growing major economy makes more steel to meet rising demand for houses, cares and home appliances.

Rio’s output of mined copper was little changed at 209,800 metric tons compared with 210,700 tons a year ago, as lower grades at the Grasberg, Indonesia, mine offset gains at its Kennecott mine in the U.S., it said.

The company owns 30 percent of Chile’s Escondida, the world’s largest copper mine, and 40 percent of the Grasberg mine in Indonesia, which is operated by Freeport-McMoRan Copper & Gold Inc. Grasberg is the world’s second-largest copper mine.

Refined copper output fell 37 percent to 54,000 tons due to a scheduled maintenance shutdown at its Kennecott Utah Copper smelter.

Production of alumina, used to make aluminum metal, rose 6 percent to 795,000 tons in the fourth quarter from a year ago.

Output of coking coal fell 4 percent to 1.5 million tons in the fourth quarter. Benchmark annual prices of hard coking coal, used in steelmaking, will fall 16 percent from April 1.

Production of thermal coal, used in power stations, at Rio’s U.S. mines rose 13 percent to a record 32.8 million tons in the fourth quarter after it expanded several mines.

Production of diamonds rose 26 percent to 9.6 million carats in the fourth quarter from a year ago.

Rio Tinto is expected to report record full-year net income of $7.76 billion for the year ended Dec. 31, according to the mean estimate of 13 analysts surveyed by Thomson Financial. Rio’s 2005 net income was $5.2 billion.

Numis reduced its earnings-per-share forecast for the company for last year by 1.9 percent to 565 cents. It retained an “Add” recommendation on Rio shares with a target of 3,006 pence.