Rio Tinto produces 253,000,000 tonnes of iron ore in 2012

<p>The report card is in – Rio Tinto’s fourth quarter production numbers are in line with what the market was expecting. 2012 was a record […]</p>

The report card is in – Rio Tinto’s fourth quarter production numbers are in line with what the market was expecting. 2012 was a record in terms of global iron ore shipments and production. Pilbara iron ore production of 239m tonnes set another record and was 4% higher than the prior corresponding period. Keep in mind this was during a period of Chinese slowdown, European sovereign debt concerns and persistently higher unemployment in the United States. Add the debt ceiling stalemate, presidential elections in the US and France with leadership transition in China to the mix too.

With that in mind, the numbers from Rio are nice and solid, but the market was expecting a little upward surprise and it didn’t necessarily get it. Following the release, Rio Tinto shares were fairly unchanged with around half an hour trading in Sydney at the time of writing.

Iron ore is key to Rio Tinto’s earnings composition, it represents the vast majority. Market consensus earnings are for 2012 earnings of around US$9.81bn which seems achievable on these numbers. Estimates for 2013 earnings are at around US$10.84bn which is also within sight given a current spot iron ore price above US$150 per tonne and guidance from Rio that it intends to have reached an annualised rate of production near 290 million tonnes by the end of the year. Targets are for this to grow to 340 million tonnes by 2014 and 360m by 2015. These are huge increments and will see accompanying earnings upgrades if the iron ore price remains near current levels.

 

There are disappointments in these numbers too. Hard coking coal volumes are soft due to production issues, copper is improving but from a poor base and after significant investment in Escondida. Aluminium from Rio Tinto Alcan and Pacific Aluminium assets were down 9% and 11% respectively, but Alumina and Bauxite production gains will offset. Overall, Rio Tinto is trading on a price to earnings ratio of around 12.8x which isn’t cheap but not expensive either if at next month’s result presentation is can show conservatism in its capital expenditure and an ability to contain operating costs so the benefits of new production all flow through to the bottom line.

 

 

 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.