Rio Tinto: Pass the Umbrella Please

Poor weather conditions in Australia and challenges in operations elsewhere cast a shadow on Rio Tinto's first-quarter results, but the clouds might have a silver lining

Mark Taylor 18 April, 2011 | 2:13PM
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The "weather put option" paid to any notion of a strong production start to fiscal 2011 for Rio Tinto (RIO). The implication for BHP's (BLT) output is also obvious. All major commodity groups suffered sharp volume declines versus the December quarter, the previous corresponding quarter, and even versus our tempered expectations. Australia's flooding rains were no secret, but the breadth and magnitude of the impact was a surprise. Compared to the December quarter, iron ore fell 16%, coking coal by 29%, other Australian coal by 21%, alumina by 8% and uranium by 56%.

Iron ore capacity in the Pilbara may have increased to 225 million metric tons annually, but during the first quarter of 2011, operations were disrupted by three tropical cyclones and widespread flooding. Severe monsoonal rains in Queensland saw declaration of force majeure at four coal mines since the end of 2010. It was in place until late February at three mines, and remains in place at the Hail Creek coking coal mine. Alumina production fell with the rain at Weipa and Gove, and there was only one month's production from uranium miner ERA to manage excess water in the tailings dam. Argyle diamond output also fell.

And there was no relief provided by offshore operations. Canadian iron ore reported lower truck availability and a crusher breakdown. Lower copper grades at Escondida in Chile, Grasberg in Indonesia, and at Kennecott, Utah, drove group mined production down 24%. Rossing uranium in Namibia experienced lower grades and extraction rates, as did Diavik diamonds in Canada. So much for diversification!

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Rio Tinto PLC4,830.50 GBX-0.57Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.

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