QUOTE AND NEWS
Wall Street Journal  Nov 20  Comment 
A tumbling iron-ore price puts pressure on earnings at miners such as BHP Billiton and Rio Tinto. And the strength of the Australian dollar will only exacerbate that.
WA Business News  Nov 20  Comment 
Outgoing Commonwealth Scientific and Industrial Research Organisation chief executive Megan Clark will join mining giant Rio Tinto's board of directors.
newratings.com  Nov 19  Comment 
LONDON (dpa-AFX) - Mining company Rio Tinto plc (RTPPF.PK, RIO.L, RIO, RTNTF.PK) on Thursday said Megan Clark AC will join its board as a non-executive director with effect from November 20, 2014. Clark is the Chief Executive of Australia's...
WA Business News  Nov 18  Comment 
The Environmental Protection Authority has given conditional approval for Rio Tinto’s Koodaideri iron ore project in the Pilbara, but is cautious about the potential spread of asbestos that could result from where the mining giant proposes to...
The Australian  Nov 17  Comment 
ANZ, Qantas and Rio Tinto were among the major Australian companies to deepen their relationship with their Chinese partners.
newratings.com  Nov 17  Comment 
LONDON (dpa-AFX) - Mining company Rio Tinto plc (RTPPF.PK, RIO.L, RIO, RTNTF.PK) and Sinosteel Corp. on Monday signed a Heads of Agreement, with plans to take forward their discussion regarding the second extension to the Channar Mining iron ore...
WA Business News  Nov 17  Comment 
Mining giant Rio Tinto will hold talks with China's Sinosteel Corporation to extend a joint venture iron ore project in the Pilbara.
The Australian  Nov 13  Comment 
RIO Tinto boss Sam Walsh has urged G20 leaders to embrace reform to drive prosperity, saying that criticising growth is a “luxury”.




RELATED WIKI ARTICLES
 

Rio Tinto Group (plc on the nyse,lse, limited on the asx) ASX:RIO NYSE:RIO LON:RIO is a UK based mining company (corporate offices also in Australia) engaged in mineral exploration, development and production. As a multinational corporation it operates on every continent with a central focus on Canada and Australia (including Europe that region accounts for 90% of assets). Though the company's size has grown substantially, organic growth played only a minor role (Rio Tinto's 120 acquisitions (about half are stakes) in the twenty years leading up to 2010 includes numerous mega deals each adding as much as 50% to assets/market value). Aluminum smelting, diamond, iron ore, uranium, coal and copper mining are central to the company's business (make up most of revenue).

Rio Tinto is made up of a number of smaller subsidiaries each focused on one of fourteen different product types. Being highly diversified reduces risk as it makes shifting focus from product type to another easier to do when/if a large scale shift in a specific commodity price, customer interest or market behavior occurs. It is also optimistic when it comes to future metal demand; In February 2011 senior exec of the diamond division, Harry Kenyon boldly stated that demand for such products as iron ore, copper and aluminum will double in the near future, possibly by 2026.[1] If that does happen Rio Tinto would be in an enviable position considering it has consolidated a large resource base and has shown commitment (even when the financial crisis made it extremely vulnerable it successfully held on to all key assets).

Assets include a number of large, high capacity smelting facilities many of them in Quebec (managed by Rio Tinto Alcan). Rio Tinto was also a leader in the supply and production of tobacco, beauty & pharmaceutical packaging as well as medical flexibles but that changed in 2009/2010 when it divested a lot of that business; the sale of Alcan Packaging Food Americas, Alcan Packaging global Pharmaceuticals, global Tobacco, Food Europe and Food Asia divisions, Vickery, Maules Creek, Alcan Beauty Packaging and Alcan Medical Flexibles gave it US$3.6 billion in additional cash flow needed get through the financial crisis and keep other projects going. Since 2008 the company has sold US$10 billion worth of assets.[2]

Chinalco (China's aluminum company) owns 9.3% of Rio Tinto. A US$19.5 billion 2010 deal which was scrapped would have raised that to 18.5%.[3] Largest domestic and international competitor BHP Billiton (US$ 52.798 billion in revenue in 2010 compared to US$41.825 billion for Rio Tinto) combined their iron ore operations in Western Australia (to be completed in the second half of 2010); the deal saves the companies US$10 billion in costs. The joint venture deal comes just after BHP attempted a hostile takeover of Rio Tinto during the economic crisis which was followed by an attempt by Chinalco of China to buy up to 19% of Rio Tinto.[4]

In the first quarter of 2011 (January 2011 to March) floods in Australia had a significant impact on world supplies; Coal production from Queensland, Australia was reduced by more than 15 million metric tonnes (the floods covered an area the size of Germany and France).[5] Exports from Queensland were 15% higher in 2010 than 2009 up to 183.1 million tonnes ended June 2010)[6]

Operations

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*total ebitda for 2010 was US$25.978 billion 81.5% more than in 2009 (US$14.312 billion)

Rio Tinto is a major player in the aluminum, gold, diamond, bauxite, coal and copper industries. With regards to primary aluminum, it leads all companies in annual production (is second for total aluminum),[7] it is also the second biggest producer of iron-ore (in Canada it has a 58% stake in Iron Ore Mines of Canada, the country's biggest iron-ore company (alumium pellets).[8] In Chile and Indonesia it owns 30% and 40% of the 2 biggest copper mines in the world (total company coal and copper production ranks fifth)[9] It is also the largest producer of uranium and controls/has a near controlling stake of major precious metal containing properties (biggest shareholder of Ivanhoe Mines which owns 66% of the world's biggest gold-copper polymetal deposit (81.3 billion pounds of copper, 46.4 million ounces of gold)[10]

For the fiscal year ended December 2010 American thermal coal production (was one of the company's most important coal source in previous years) showed a lot of weakness; production, down 49.04% to 42.3 million tons represents a much smaller fraction of the company's total (thermal coal Australia was only 22% as much as US thermal coal in 2009, for 2010 it was nearly 50% as much).[9]

2010 FY production by metal/mineral

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In 2010 Rio Tinto plc established a new company record for iron ore production (239 million tonnes), hard coking coal production was 20% higher on the year (thermal coal in Australia up 2.6% to 5.14 million tonnes) while bauxite increased 6% (though it was down to 8.557 million tonnes in the 4th quarter). Among the key contributors to revenue, production of aluminum (down 0.3% to 3.79 million tonnes), uranium (down 2.5% to 3.276 million pounds) and diamonds (down 1.3% to 13.843 million cents) experienced either steady or falling output rates.[11]

Production by region and country

51.8% of 2010 uranium production came from Australia (down from mil 55.6% in 2009), the rest from Rossing, Namibia. Total uranium production in 2010 was 11.377 million pounds. Talc comes from Australia, Europe and North America. All iron ore, the largest source of cash flow and revenue by a significant margin comes from Canada and Australia.

  • Canada - Mines for aluminum (Quebec, British Columbia), iron-ore (Labrador), titanium and diamonds (NWT). Canadian aluminum facilities include smelters which process alumina mined in Canada. Its 60-70% share of the diamond mine in NWT amounted to 3.9 million carats in the 2010 fiscal year. [12] Rio Tinto has over 13,000 employers at 35 sites across Canada.
  • United States - Copper, nickel, gold, copper molybdenum & silver (Utah). Thermal, semi soft and hard coking coal, thermal coal production was 42.3 million tonnes in 2010 down 49% from 2009 (83.0 million). California is a major source of borates. The USA is the only source of gold, copper, molybdenum and silver and has traditionally been the largest source of coal (thermal coal).
  • Iceland - Aluminum (ISAL smelter)
  • South America - There are copper and nickel mines in Chile and Peru. Argentina produces borates (only source for the company outside of the United States).
  • Africa - Namibia (energy, uranium), Madagascar (miscellaneous minerals), Cameroon (aluminum smelting), Zimbabwe (diamonds mines and aluminum), South Africa (titanium). Zimbabwe produced 138,484 carats of diamond for Rio Tinto in 2010.
  • Oman, Southwest Asia - Aluminum smelting
  • Europe - miscellaneous minerals such as talc.
  • India - Diamonds as well as iron-ore
  • Mongolia - Copper-nickel
  • Indonesia - Aluminum and copper-nickel
  • Australia - Aluminum in NE Australia (3 regions, 2 have smelters the other is just mining operations), uranium, salt (Western Australia), copper-nickel in SE Australia, and in the NW iron-ore, diamonds and energy. Thermal and hard coal, talc.[13] In 2010 Australia was the source of 3.8 million tons of aluminum, 9.4 million tons of alumina and 660,000 tons of mined copper.[9]

Western Australia was the source of 9.804 million carats of diamond in 2010 which represents 70.83% of the company's total production.[12] Australia is the source of 51% of uranium production.

Diamonds

diamond production
thou carats
[14]
2010 2009 1H'10 2H'10 1H'11[15] 3Q'11[16]
Argyle9,80410,5915,1364,6683.2362,302
Diavik3,9003,3391,9051,9961,8901,106
Murrowa13997677212572
Total13,84314,0267,1076,7355,2303,534

Rio Tinto owns a controlling stake in three diamond mines, Argyle, Australia (the largest, 100%), Diavik, NWT, Canada (about 2.5X less of a contributor as compared to Argyle, 60%) and Murrowa in South Central Zimbabwe; Murrowa is completely owned by Murowa Diamonds Private Limited, a 78% owned subsidiary of Rio Tinto. Murrowa has been part of Rio Tinto since 2004, Diavik since 2003 and Argyle since 1983 (Between 1983 and 2010 Argyle production averaged over 30 million carats or 1/5th of global dimaond production, total produced was 670M carats worth over US$ 6 billion).[17] Rio's share of Diavik is through Rio Tinto plc's (London-based) 100% owned subsidiary Diavik Diamond Mines Inc. which owns 60%, the other 40% is held by Toronto-based Harry Winston Diamond Corp. Diavik production could climb much higher in the near future, it has a mine life of 16-22 years but only started operating in 2003/2004 and is expected to yield around 110 million carats. Over the first nine months of 2011 diamond production was 8.766 million carats down 18% (though production was steady in the third quarter).

In 2010 Diamond production fell slightly 1.305% or by about 183,000 carats on account of lower grade ore processed at Argyle (though 57% more ore was processed production at Argyle fell 7.43% or 787,000 carats).[14] Outside of Argyle production increased 17.55% or 603,000 carats. By comparison, BHP Billiton produced 3.05 million carats in 2010 (down 5.31% on the year); all of BHP's production comes from its 80% interest in Canada's EKATI dimaond mine (NWT) which is only 20 km from the Diavik dimaond mine. Rio Tinto diamond output has declined significantly over the past few years, 2010 production was about half 2007 production (13.8M compared to 26.0M).

There's also the Bunder diamond project in India which earned Rio a social awareness award in June 2011.

1st half 2011 - Output was 5.23 million carats (2.5m in the 1st quarter, 2.73m in the 2nd qtr). It's 60% ownership of the Diavik mine in Canada gave it 1.89 million carats in the first half, steady with 2010 half (more ore processed enabled it to access high grades from the A418 pit). As of the 3rd quarter 2011 Rio expects to produce 13 million carats in total during the 2011 fiscal year, down 6% from 2010.[16]

Iron Ore

Rio Tinto is the world's second largest producer of iron ore[18] The company's biggest project is Simandou, a SE Guinea iron ore deposit, one of the world's biggest is set to become the biggest iron ore development in Africa. The venture has proved risky for Rio, in 2008 the local government surprised it with a new order, transferring control of a major part to another company BSG Resources. More recently, in January 2011 the new president of Guinea said he would review all agreements made with companies and that contracts and pacts already signed can be changed at his discretion. Nearby in the Ivory Coast another leader suspended coffee and cocoa exports affecting business at Cargill.[19]

Major sources of Iron Ore are the USA, Canada and Australia. Recent commitments by Rio Tinto to Canadian operations (US$277 million expansion commitment to properties managed by subsidiary, Iron Ore Mines of Canada (Labrador)). Thermal coal production in the USA was halved in 2010 (down from 83.0 million tons to 42.3) while floods affected production in Australia.[9] Australia was the source of 179 million tons of coal in 2010

Gold

Rising gold prices have attracted Rio's attention in recent years; Rio Tinto's interest in Ivanhoe Mines began in 2006 and has since invested US$ 1.73 million into it which has already paid off considering the 40.5% interest it currently has (January 2011) gives it 26.73% of the US$16 billion dollar Oyu Tolgoi deposit (that by itself is worth US$4.28 billion), if Ivanhoe's market value is considered at $16 billion then the 40.5% interest is worth over US$6 billion).[20]

Rio Tinto's proven gold reserves are comparable to Goldcorp's, the world second biggest gold mining company by market capitalization.[21]

Business and Financials

Capital expenditure, on track for US$6 billion in 2010 is expected to be 50% higher in 2011. For the first half of 2010 a little over 20% of sales went to China (down from the year before but still higher than 2008); business outside of Asia (includes Australia) accounted for about half of all revenue.[22]

2011 first half - Profit up 35% to $7.8 billion, not bad but 2.9% below analyst expectations of $8.03 billion (& lower than the previous six months of $8.4b; however operating expense was $1 billion lower than the previous six months of $19.04b).[23] 6 months dividend was 54 cents a share up 20% from 45 cents in 1h10 but down 14.29% from 63 cents a share in 2h10. The positive results are largely attributable to higher commodity prices, without that Rio, like Anglo American probably would've had a difficult time improving earnings given higher costs (coming from labour unions, and production per ounce/pound for the various minerals). Revenue was $29.056b up 18.38% qoq but down 5.13% quarter to quarter. As of June 30, 2011 total assets were valued at US$122.335 billion up 8.48% from December 30, 2010 ($112.773b) and up a staggering 33.70% from June 30, 2010 ($91.499b). The bulk of the asset increase came from cash and cash equivalents which nearly tripled in value between June and December 2010 ($3.319b --> $9.948b) though current assets did fall slightly between Dec 2010 and June 2010 ($23.165b --> $20.903b) with $2.439b of that decrease coming from cash and short term investments ($10.469b to $8.030b). Iron ore earnings were up 44%, and now account for 78% of group earnings; profit from aluminum operations was 3.5% higher.[24]

2010 Fiscal Year - The 2010 fiscal year saw record earnings (on record iron ore production) and record cash flow (US$23.5 billion from operations US$4.6 billion from disposals). The strongest results came from the second half, revenue 25% higher in the last six months than the first six months. Commodity prices were extremely volatile during the course of the year however all were positively effected by a number of factors including weather disruptions affecting supply and demand from developing nations affecting supply and demand. Record cash flow allowed the company to lower net debt by US$14.6 billion (used 52% of total cash inflow to pay down debt). 16.4% of total cash flow was spent on capital (capex), US$1.8 billion on dividends. For the year, underlying earnings were US$13,987 (up from US$6,298 in 2009), operating cash flow US$23.530 billion (compared to US$13.834 billion in 2009), capital expenditure US$4.553 billion (down from US$5.356 billion), net debt US$5.284 billion (down from US$18.861 billion because excess cash flow allowed Rio Tinto to pay a big chunk of it), exchange diff/gains losses US$429 million, net earnings US$14.324 billion, underlying ebitda US$25.978 billion (up 81.5% from US$14,312 billion in 2009).

The company completed the sale of another US$4.2 billion worth of assets bringing the total since 2008 to US$11.0 billion. Of that, US$3 billion was raised from the packaging business with the other US$1.2 billion from 2 sources; 48% of Cloud Peak and 61% of Alcan Engineered Products (to be completed in 2011). Offer made involving Riversdale, a coking coal complex where production at the 65% owned Benga Stage 1 is expected to happen 2nd half of 2011 (there are 3 stages, Benga 1 is the smallest (estimated production 7 times smaller than Zambeze). Ordinary dividend went up 20% and changes in the exchange rates for Australian and Canadian dollars impacted earnings by $604 million and $194 million respectively.

Average commodity prices for 2010:copper $3.4/lb, aluminum 2,173/t, gold 1,222/oz, molybdenum $16.3 per pound[25]

2010 first half - Revenue totalled US$25.209 billion (50% from Asia, 50% from elsewhere) 9.7% higher than the corresponding period in 2009 (US$22.979 billion). Also helping the bottom line was operating expense, down US$1.77 billion (8.9%). A couple moves made by Ivanhoe Mines in order to boost financing forced Rio to direct even more cash flow to support its minority stake in the company [Ivanhoe currently (late 2010) receives revenue from a small amount of gold production (through a 50% share of Altynalmus Gold) and copper (ovuut tolgoi over a million tonnes of copper in 2010) but its main asset needs at least 2 billion dollars worth of financing in order to reach the important initial construction phase], just to maintain its interest at around 40.5% Rio Tinto had to buy millions of new shares from the company after it held a rights offering January 27, 2011, earlier in 2010 Ivanhoe Mines exercised a credit facility that also affected Rio Tinto. That and a some other investment choices caused 2010 minority interest expense to spike (up 68% to US$433 million in the first half of 2010). The 2010 first half period was great for net income, at US$5.845 billion it was the most profitable half in years.[26] For the half Rio paid US$2.475 billion in taxes (EBIT was US$8.814 billion 105% higher than 1hfy09 while net income was 80% higher).

Trends and Forces

Alcan acquisition bittersweet

Alcan - The US$39 billion takeover of Alcan in late 2007 was initially considered a major step forward for Rio Tinto as it gave it the distinction of being the biggest producer of Alumium in the world, however the move quickly became bittersweet. In 2009 decreasing commodity prices affected cash flow at a time when the company was most vulnerable (Alcan burdened Rio Tinto with a lot of debt) forcing it to sell several of Alcan's assets.[27] [28]

Rio Tinto starts using autonomous haul trucks

In early 2009 Komatsu's FrontRunner Autonomous Haulage System was activated for use at Rio Tinto's East Pilbara mine in Western Australia. The system, a fleet of super large haul trucks was activated December 2008 at the East Pilbara mine site. The haul trucks help the company by improving efficiency, potentially reducing employment costs and by filling in for a lack of man power (due to isolated and harsh mine locations).[29]

Chinalco Guinea joint venture expands access to Chinese market/tension with authorities in China

The Simandou iron ore project in Guinea (previously 95% owned by Rio Tinto) became a joint venture July 29, 2010 when Chalco (subsidiary of Chinalco) committed to providing US$1.35 billion in funding as well as construction, planning and management advice (including how best to market the mine's products in China). Chalco's 44.65% share of the mine won't become official until it invests at least $1.35 billion into development of the mine, when that happens Rio Tinto will still hold a majority interest (50.35%).[30] Chinalco (Aluminum Corporation of China) had previously agreed to US$19.5 billion worth of investment in Rio Tinto before later backing out after concerns were raised in Australia regarding Chinese influence over the country's mineral wealth and four Rio Tinto employees were detained in China after China accused them of stealing trade secrets and accepting bribes.[3]

Positive pressures influencing uranium production

Since the mid 1970's uranium demand has exceeded primary production. Along with a renewed interest in nuclear power by both utility companies (who are being forced to replace coal production with something cleaner) and consumers (many being more environmentally conscious and also aware of the potential for cost savings), depleted inventory stocks which have for the last 25 years made up for the lack of production are putting positive pressure on the price of uranium and as a result the interest in company's to develop uranium projects.[31]

References

  1. Demand for metals will double within 20 years, says Rio Tinto (2011-02-09).
  2. Rio Tinto completes Alcan Packaging divestment with closing of Alcan Beauty Packaging and Medical Flexibles transactions (2010-06-05).
  3. 3.0 3.1 Rio Tinto and Chinalco in Deal for Iron Project (2010-03-19).
  4. BHP, Rio Tinto Sign Joint Venture Deal (2009-12-07).
  5. Alpha Natural Resources Announces 2011 First Quarter Results (2011-05-03).
  6. Queensland Spurs U.S. Coal Exports to 15 Year High (2011-02-14).
  7. International Aluminum Institute
  8. Iron Ore of Canada invests $289 million to further expand Labrador production (2011-02-08).
  9. 9.0 9.1 9.2 9.3 Floods Hit Rio Tinto's Coal Production (2011-01-18).
  10. Rio Tinto Raises Ivanhoe Mines Stake to 35% as Loan Converts Into Shares (2010-09-13).
  11. Rio Tinto plc - Cedear
  12. 12.0 12.1 Rio Tinto Fourth Quarter 2010 operations review (2011-01-18).
  13. Rio Tinto 2010 First Half Report page 23 (2010).
  14. 14.0 14.1 Rio Tinto Diamond Production in FY2010 (January 18, 2011).
  15. Antwerp World Diamond Centre (July 14, 2011).
  16. 16.0 16.1 Rio Tinto's Diamond Production Flat in 3Q (October 16, 2011).
  17. Rio Tinto Diamonds. Retrieved on August 22, 2011.
  18. Top world producers of iron ore
  19. Simandou iron ore on new President's agenda (2011-01-27).
  20. Ivanhoe Sees Oyu Tolgoi Net Asset at $16 Bln (2010-08-04).
  21. Gold Companies:Reserves, Resource
  22. Rio Tinto 2010 First Half Report (2010).
  23. Miner Rio Tinto's H1 profit jumps 35 pct, expands buyback (August 4, 2011).
  24. Miner Rio Tinto's Profit Jumps 35 percent, expands buyback
  25. Rio Tinto 2010 Full Year Results Presentation (2011-02-10).
  26. Financial Statements for Rio Tinto plc (commercial source)
  27. Rio Tinto to sell Alcan Composites (2009-09-22).
  28. Rio Tinto Alcan announces expansion plans (2010-12-14).
  29. Rio Tinto activated Komatsu's autonomous haulage system in Australia (2008-12-25).
  30. Rio Tinto and Chinalco subsidiary Chalco sign binding agreement for Simandou iron ore project joint venture (2010-07-29).
  31. Uranium miners respond to supply deficit by increasing mine production (2010-09-08).
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