Rio Tinto Regulatory News (RIO)

Rio Tinto releases strong second quarter production results

16 July 2015

Rio Tinto chief executive Sam Walsh said "We have maintained our emphasis on efficiency and protecting returns, which is reflected in this solid production performance. We have also delivered three significant achievements within our growth portfolio. In aluminium, our Kitimat smelter is now producing metal from its expanded facilities, bringing 80 per cent of our smelting capacity into the first cost quartile. In copper, the Oyu Tolgoi underground project is moving forward following the signing of the Underground Mine Development and Financing Plan. In iron ore, we have completed the key elements of our Pilbara infrastructure expansion. Our combination of world-class assets, financial strength, and operating and commercial excellence provides a sound base to continue to generate sustainable returns for our shareholders."

All currency figures in this report are US dollars, and comments refer to Rio Tinto's share of production, unless otherwise stated. To allow production numbers to be compared on a like-for-like basis, production from asset divestments completed in 2014 have been excluded from Rio Tinto share of production data but assets sold in 2015 remain in comparisons.

IRON ORE

Rio Tinto share of production (million tonnes)

Pilbara operations

Production and shipments in the first half increased compared to last year despite unseasonal weather in the Pilbara throughout the first half, including Tropical Cyclones Olwyn and Quang. Around seven million tonnes of shipping capacity was lost directly at the ports due to uncharacteristically severe weather. Heavy inland rains reduced truck utilisation, resulting in lost production at the mines and impacting the ability to rail planned tonnes.

First half production of 146.3 million tonnes (Rio Tinto share 118.6 million tonnes) was ten per cent higher than the same period of 2014 following the successful ramp up to 290 Mt/a in May 2014. Second quarter production of 75.2 million tonnes (Rio Tinto share 61.3 million tonnes) was nine per cent higher than the second quarter of 2014 and was six per cent above the first quarter of 2015.

Pilbara sales

First half sales of 146.5 million tonnes (Rio Tinto share 118.3 million tonnes) were eight per cent higher than the same period of 2014. Quarterly sales of 77.2 million tonnes (Rio Tinto share 62.9 million tonnes) were eight per cent higher than the second quarter last year and 11 per cent higher quarter on quarter.

Approximately 25 per cent of sales in the first half were priced with reference to the prior quarter's average index lagged by one month. The remainder was sold either on current quarter average, current month average or on the spot market.

Pilbara projects

The key elements of the infrastructure expansion are complete. The focus is now to ramp up the new equipment to full capacity and generate maximum value from the integrated system. This includes improvements from debottlenecking and productivity enhancements supported by a range of low cost brownfield developments.  Around 40 Mt/a of very low-cost brownfield expansions, principally at West Angelas, Nammuldi and Brockman mines, were completed in the half, with an average mine production capital intensity of around $9 per tonne.

Steady progress is being made in the testing and verification of AutoHaul, with over 170 journeys covering 25,000 kilometres completed by the end of June 2015.

Iron Ore Company of Canada (IOC)

IOC delivered its best first half of production with 8.0 million tonnes of concentrate and pellets (Rio Tinto share 4.7 million tonnes), a 14 per cent increase over the first half of 2014. This improvement was driven by increased asset reliability and performance. Second quarter concentrate and pellet production was 4.5 million tonnes (Rio Tinto share 2.6 million tonnes), a 24 per cent increase over the prior quarter.

The improvement in production boosted first half sales by 16 per cent over last year's levels, to 7.4 million tonnes (Rio Tinto share 4.3 million tonnes). Second quarter sales were particularly strong, with concentrate sales of 1.9 million tonnes and pellet shipments of 2.3 million tonnes.

2015 guidance

Due to the weather disruption in the first half of the year, anticipated shipments were reduced by around seven million tonnes. Accordingly, Rio Tinto now expects 2015 global shipments of 340 million tonnes (100 per cent basis) from its operations in Australia and Canada.

ALUMINIUM

Rio Tinto share of production ('000 tonnes)

Bauxite

Bauxite production was five per cent higher than the first half of 2014 and set a new first half record. This was primarily due to a very strong performance at Weipa and the continued ramp up of production at Gove towards eight million tonnes per annum. Gove finished the second quarter with a monthly performance equivalent to a 7.7 million tonne run-rate, well on track to reach an eight million tonne run-rate by the fourth quarter of 2015.

These strong performances from Weipa and Gove delivered second quarter production five per cent higher than the same quarter of 2014 and enabled a seven per cent improvement in third party sales quarter on quarter.

Alumina

Alumina production was up by five per cent compared with the first half of 2014 (excluding production from the Gove refinery which was curtailed in May 2014), reflecting improved productivity at Queensland Alumina and Yarwun.

Aluminium

First half and second quarter aluminium production was in line with the same periods of 2014, despite lower production from Kitimat as it prepared for commissioning of the modernised smelter which poured first hot metal during the quarter. Kitimat will ramp up towards nameplate capacity of 420 thousand tonnes (a 48 per cent increase over previous nameplate capacity), which is expected to be completed in early 2016.

2015 guidance

Rio Tinto's expected share of production remains unchanged at 43 million tonnes of bauxite, eight million tonnes of alumina and 3.3 million tonnes of aluminium.

COPPER & COAL

Rio Tinto share of production ('000 tonnes)

Kennecott Utah Copper

Mined copper production for the first half was significantly lower than the same period of 2014 due to the current focus on de-weighting and de-watering the east wall of Bingham Canyon which is expected to continue in the second half.

Lower mine production, partly mitigated by a drawdown of inventory, resulted in first half refined production being significantly lower than in the same period of 2014. To optimise smelter utilisation Kennecott continues to toll third party concentrate, with 166 thousand tonnes of concentrate received and smelted in the first half. This is excluded from reported production figures.

Escondida

Mined copper production at Escondida in the first half was 22 per cent higher than the same period of 2014, primarily due to higher grades and throughput. The second half is expected to be impacted by a decline in grades and water availability.

Oyu Tolgoi

First half mined copper production was 44 per cent higher than the first half of 2014, and higher quarter on quarter, attributable to higher grades and throughput.

Mining has started moving to areas of higher grade ore in the open pit. Copper production in the second half of 2015 is expected to be higher than the first half.

Oyu Tolgoi Underground Development Project

On 18 May 2015, the Government of Mongolia, Turquoise Hill Resources and Rio Tinto signed the Underground Mine Development and Financing Plan which provides a pathway forward in addressing shareholder matters to restart underground development. Next steps include approval of the underground feasibility study and project financing, as well as securing all necessary permits for operating the underground mine.

Grasberg

Through a joint venture agreement with Freeport-McMoRan (FCX), Rio Tinto is entitled to 40% of additional material mined as a consequence of expansions and developments of the Grasberg facilities since 1998. Rio Tinto does not expect 2015 production to exceed the metal attributable to Freeport-McMoRan Inc. (Freeport) and, accordingly, expects its share of joint venture production to be zero during the year. Freeport is due to announce its second quarter and first half results on 23 July 2015.

Provisional pricing

At 30 June 2015, the Group had an estimated 333 million pounds of copper sales that were provisionally priced at US 268 cents per pound. The final price of these sales will be determined during the second half of 2015. This compared with 331 million pounds of open shipments at 31 December 2014, provisionally priced at US 288 cents per pound.

Coal

Hard coking coal production was 13 per cent higher than the first half of 2014 as a result of improved production rates at Kestrel which continues to ramp up towards nameplate long-wall capacity of around six million tonnes.

Semi-soft coking coal production was five per cent higher than the first half of 2014 reflecting mine production sequencing at the Hunter Valley Operations. Thermal coal production was in line with the first half of 2014 with increased tonnage at Hail Creek through a processing plant by-product stream and a strong operational performance which was offset by the impacts of wet weather in the Hunter Valley.

2015 guidance

In 2015, as previously announced, Rio Tinto expects its share of mined copper production to be between 500 and 535 thousand tonnes, and refined copper production to be between 190 and 220 thousand tonnes.

For coal, Rio Tinto's share of production is expected to be 18 to 19 million tonnes of thermal coal, 3.0 to 3.4 million tonnes of semi-soft coking coal and 7.1 to 8.1 million tonnes of hard coking coal.

DIAMONDS & MINERALS

Rio Tinto share of production

Diamonds

Carats produced at Argyle were 37 per cent higher than the corresponding quarter in 2014 and 34 per cent higher than the first half of 2014 due to the continued ramp up of production from the underground mine.

Lower carats recovered in the first half at Diavik compared to last year reflect lower ore availability as mining progressed through an area of higher dilution in the first quarter and the absence of stockpiled ore which was processed in the first half of 2014. Second quarter carat production was 43 per cent higher than in the first quarter, reflecting higher grades.

On 26 June 2015, Rio Tinto announced the sale of its interest in the Murowa diamond mine in Zimbabwe.

Minerals

Borates production was slightly lower than in the first half of 2014 which included additional production in preparation for the commissioning of the modified direct dissolving of kernite (MDDK) plant.

Rio Tinto Iron and Titanium (RTIT)

Titanium dioxide slag production was 18 per cent lower than in the first half of 2014 as production continued to be optimised to align with market demand. Two out of nine furnaces are currently idled in Rio Tinto Fer et Titane (RTFT) in Quebec.

Salt

First half salt production was lower than the comparative period in 2014 as a result of weaker demand and management of inventory.

Uranium

Energy Resources of Australia (ERA) continues to process existing stockpiles. Quarter on quarter, uranium production was 20 per cent lower as a result of lower mill head grade and recovery.

First half production at Rössing was lower than the first half of 2014, largely as a result of lower grades and recoveries, partially offset by higher throughput. Second quarter production was higher following recovery from a fire in the final product recovery plant in the first quarter.

2015 guidance

In 2015, Rio Tinto's share of production is expected to be 1.2 million tonnes of titanium dioxide slag (previously 1.3 million tonnes), 0.5 million tonnes of boric oxide equivalent and 20 million carats of diamonds.

Rio Tinto's share of uranium production is expected to be approximately five million pounds (at the lower end of the previous guidance range of five to six million tonnes).

EXPLORATION AND EVALUATION

Pre-tax and pre-divestment expenditure on exploration and evaluation charged to the profit and loss account in the first half was $243 million (of which $117 million was spent in the second quarter), compared with $340 million in the same period of 2014.

Approximately 37 per cent of this expenditure was incurred by Copper & Coal, five per cent by Iron Ore, 22 per cent by Diamonds & Minerals and the balance by central exploration.

There were no significant divestments of central exploration properties in the quarter.

Activity in the quarter

Rio Tinto has a strong portfolio of exploration projects with activity in 18 countries across some eight commodities. The main focus of our exploration spend in the period was on copper targets in the United States, Mexico, Chile, Peru, Botswana, Namibia, Zambia, Kazakhstan and Russia. Mine-lease exploration continued at a number of Rio Tinto businesses including Pilbara Iron, Rio Tinto Coal Australia, Richards Bay, Oyu Tolgoi, Weipa and Kennecott Utah Copper.

A summary of activity for the period is as follows:

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(a) The curtailment of production at the Gove refinery was completed on 28 May 2014.

(b) Mine production figures for metals refer to the total quantity of metal produced in concentrates, leach liquor or doré bullion irrespective of whether these products are then refined onsite, except for the data for bauxite and iron ore which represent production of marketable quantities of ore plus concentrates and pellets.

(c) Rio Tinto has a 22.95% shareholding in the Sangaredi mine but benefits from 45.0% of production.

(d) Through a joint venture agreement with Freeport-McMoRan (FCX), Rio Tinto is entitled to 40% of additional material mined as a consequence of expansions and developments of the Grasberg facilities since 1998.

(e) Rio Tinto owns a 33.52% indirect interest in Oyu Tolgoi through its 50.79% interest in Turquoise Hill Resources Ltd.

(f) Rio Tinto sold its 77.8% interest in Murowa Diamonds with an effective date of 17 June 2015. Production data are shown up to that date.

(g) Includes 100% of production from Paraburdoo, Mt Tom Price, Marandoo, Yandicoogina, Brockman, Nammuldi and the Eastern Range mines. Whilst Rio Tinto owns 54% of the Eastern Range mine, under the terms of the joint venture agreement, Hamersley Iron manages the operation and is obliged to purchase all mine production from the joint venture and therefore all of the production is included in Rio Tinto's share of production.

(h) Quantities comprise 100% of Rio Tinto Fer et Titane and Rio Tinto's 74% interest in Richards Bay Minerals (RBM).

(i) ERA production reported is 'drummed' U3O8.