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The Miner Says It Is Maintaining Guidance Despite an Equipment Breakdown, Wet Weather
MELBOURNE, Australia—Rio Tinto RIO.LN +2.73% PLC achieved record output of iron ore in the first half of the year despite an equipment breakdown and unseasonably wet weather.
Helping its outlook further, the world’s second-largest producer of iron ore after Brazil’s Vale SA VALE5.BR +1.02% said it is recovering from a landslide at a major copper mine in the U.S. faster than anticipated.
Rio Tinto held to its output guidance for the year and said the expansion of operations in the remote Pilbara region of Western Australia to 290 million metric tons a year is on track to start this quarter.
However, the boost to its bottom line from higher volumes will be muted by a volatile price for iron ore, which accounts for around 80% of Rio Tinto’s earnings. The average spot price for the steelmaking commodity fell 2.8% in the first six months of this year compared with a year earlier.
“Our iron-ore operations continue their impressive performance,” said Sam Walsh, who took over as chief executive in January and has stepped up efforts to drive down costs.
Weaker mineral prices and uncertainty over demand in key markets such as China have forced mining companies to put the brakes on aggressive spending plans and refocus on cost-cutting over the past year.
In an effort to bolster its balance sheet and cut net debt that had swollen to almost $19.3 billion last year, Rio Tinto aims to strip more than $5 billion in costs out of the business by the end of next year and has plans to sell smaller or underperforming businesses.
The London-based company in late 2011 bundled together higher-cost aluminum assets in Australia and New Zealand that it intends to exit. More recently it has sought buyers for assets that include a copper-and-gold mine in Australia, coal operations in Australia and Mozambique and a controlling interest in iron-ore assets in Canada.
However, finding buyers has so far proved tough as China’s economy cools. In June, Rio Tinto scrapped plans to sell its diamonds unit, valued at $1.3 billion, and also ruled out listing it on a stock exchange.
Rio Tinto’s board has yet to approve plans to spend around five billion Australian dollars (US$4.55 billion) to increase its output capacity in the Pilbara region to 360 million tons a year, a target the company previously said it expected to reach by mid-2015.
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