* Rio Tinto to hit 290 mln T/yr capacity rate by end of Q3
* Eyeing ways to increase output to 360 mln tonnes
* Q2 iron ore output, including JVs, up 7 pct to 66 mln T
* Copper loss from Bingham Canyon landslide less than
* Rio Tinto shares climb in London, Sydney
By James Regan
SYDNEY, July 16 Rio Tinto is pushing
ahead with plans to boost iron ore output over the next 18
months, as it counts on demand from Chinese steel mills holding
up, but the miner is assessing if it can meet the target using
existing mines to control costs.
The plans show global miners such as Rio Tinto and
rival BHP Billiton, while focused on costs, feel the
risks to the iron ore operations from a slowing Chinese economy
are manageable and that their low operating costs will keep the
business profitable even in a downturn.
Rio Tinto said on Tuesday infrastructure work was "currently
underway" to expand its iron ore production capability to 360
million tonnes a year by the end of 2014, estimated by analysts
to carry a $5 billion price tag.
The extra iron ore, could come from either new mines, or
from extra tonnes out of existing mines, Rio said in its
second-quarter production report. It had previously been
expected to look only at digging new mines to reach that output
Like all miners, Rio Tinto is under pressure to reduce
spending as prices of commodities cool and the so-called 'mining
boom' fades. The company has earmarked up to $5 billion in cost
savings over the next two years.
"With the way markets for mining are going, Rio Tinto will
be looking at working the assets it already has up and running
much harder," said Gavin Wendt, an analyst for MineLife in
Sydney. "Why take on the added costs of digging new mines in
Rio Tinto posted its first ever net loss in 2012 of almost
$3 billion after writing down the value of aluminium and coal
assets by $14 billion.
BHP and Fortescue Metals Group are also
pushing ahead with plans to boost iron ore output in Australia.
Rio Tinto and BHP are among the most efficient iron ore
producers in the world. At prices of around $120 a tonne, each
enjoys a margin of around $70 per tonne.
Spot iron ore prices this week edged up to
two-month highs, backed by Chinese steel mills replenishing
inventories, although the pace of restocking may have slowed,
suggesting a two-week rally may soon end.
Rio Tinto, the world no. 2 producer of the steelmaking raw
material, said it was proceeding with expansion work in
Australia to lift annual operating capacity to 290 million
tonnes by the end of September.
Production guidance for calendar 2013 was unchanged at 265
million tonnes, taking into account additional ore from the
expansion in the fourth quarter.
The Anglo-Australian miner's optimism comes even though
China's economy cooled further in the second quarter, leading to
June iron ore imports by the world's top user dropping 9.1
percent to a four-month low.
A Reuters poll this month pointed to a shaky Chinese economy
and greater global supplies of iron ore pushing down spot prices
in the second half of 2013, driving the annual average to its
lowest since 2009.
RAINS IMPACT QUARTER
Taking into account joint ventures, Rio Tinto's iron ore
output rose 7 percent to 66 million tonnes in the three months
to the end of June versus a year ago.
Shipments, however, rose just 1 percent over the period to
61 million tonnes due to a temporary breakdown of a conveyor
system at a loading dock, and unseasonable rains slowed
Heavy rains drenched large tracts of Australia's iron
ore-rich Pilbara region in June, with some parts experiencing
the wettest June in more than 70 years, according to weather
RBC Capital Markets termed the quarterly figures "sound" and
slightly ahead of consensus.
Rio's shares rose in Sydney and in London on Tuesday, with
Britain's FTSE 100 nudging higher on easing concerns about the
mining sector on the back of the production data and outlook.
Iron ore generates about two-thirds of Rio Tinto's revenue.
Copper is the next biggest revenue generator.
BHP Billiton is also expected to post a slowdown in
quarterly iron ore production gains on Wednesday due to the
rains, offset to some degree by its own expansion work.
Rio Tinto also said a faster-than-expected recovery was
underway at its Bingham Canyon copper mine in the United States
after a landslide, with projected full-year mined and refined
copper yields improving by 25,000 tonnes over previous