UPDATE 3-Rio output mixed; China growth, bid talk lift shares
(Rewrites with London share price move, source comments)
By James Regan and Eleanor Wason
SYDNEY/LONDON, April 16 (Reuters) - Bid target Rio Tinto (RIO.L) posted a mixed first-quarter production report, but its stock surged on talk that BHP Billiton (BLT.L) might raise its offer and on stronger-than-expected economic growth in China.
Shares in Rio, which has rejected a BHP offer of 3.4 shares for one, currently worth $162.5 billion, climbed 3.8 percent to a record 6,238 pence in London, as talk swept the market that BHP would sweeten its offer to 4 shares for one.
But one source familiar with the matter told Reuters that he was not aware that BHP was working on a revised offer.
BHP (BHP.AX) and Rio (RIO.AX) declined to comment.
Rio said in its first-quarter production report that it was racing to meet rising global commodities demand, brushing aside fears that a U.S. recession would damage the mining sector.
"Markets remain very strong and the prices of many of our products are at record highs, bearing out our view that the U.S. slowdown will have little effect on global metal and mineral supply and demand balances," Chief Executive Tom Albanese told reporters on a conference call.
Rio reported a 23 percent fall in refined copper output as it mined lower grade ore, but a surge in aluminium output after its $38 billion takeover of Alcan.
Iron ore production from key Australian mines fell about 6 percent due to cyclones that affected production, but overall iron output was up 16 percent.
Analysts said that while the quarter was mixed, the result had been flagged by Rio and was unlikely to have any impact on BHP's bid.
"There's nothing in the result to give BHP a better opportunity, it just looks more or less on track," said Constellation Capital analyst Peter Chilton.
"All these things are very short term. When you look at a company like Rio, there are always swings and roundabouts -- some bits are better and some bits aren't quite as good."
At 1125 GMT, Rio shares were up 3 percent at 6,185 pence, helped by news that economic growth in China -- the driving force of the recent boom in commodities prices -- was a stronger-than-expected 10.6 percent in the first quarter of this year, which in turn boosted metals prices.
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BHP Chief Executive Marius Kloppers has argued that a marriage with Rio would streamline mining operations, particularly in iron ore and copper, at a time of high demand for raw materials by putting together a smoother supply chain to customers.
"This is the first production report of the year and is unlikely to have an impact on the dynamics of the bid," said F.W Holst & Co analyst Rob Craigie.
For more on BHP/Rio, click [ID:nSYD110759]
Aluminium output soared nearly five-fold, taking into account a full quarter's contribution from the Alcan group of Canada, which Rio bought late last year.
Total uranium production from mines in Namibia and Australia was up 20 percent over the period.
The drop in first-quarter refined copper output to 390,000 tonnes came as copper entered the second quarter at record high prices of around $4.00 a pound, owing to strong demand in China.
Mined, or pre-refined copper, fell 6 percent in the first quarter, primarily reflecting less rich ores at Rio's Kennecott mine in the United States, Grasberg in Indonesia and Northparkes mine in Australia, it said.
Australian thermal and coking coal production was hurt by heavy rains, compounding logistical supply disruptions over the period, the company said.
Rio said it was continuing its efforts to persuade buyers of iron ore in Asia to pay above the 65-71 percent hike close rival Vale (VALE5.SA) of Brazil negotiated earlier this year for annual shipments as of April 1.
Rio and BHP are arguing they deserve a higher increase because freight costs from mines in Australia to Asia are only a third the cost of those from Brazil. (Additional reporting by Ben Wilson in Sydney; Mark Potter, Dan Lalor and Michael Taylor in London; Editing by Ian Geoghegan and Quentin Bryar)
