Rio Tinto plc (LON:RIO) has cut its 2017 guidance for copper production after first quarter operations were hit by a 43-day strike at a mine in Chile.
The group expects mined copper production of between 500,000 to 550,000 tonnes for the full year, compared to a previous estimate of 525,000 to 665,000. It still, however, expects refined copper production of 185,000 to 225,000 tonnes.
First quarter mined copper production fell 37% on the year and on the quarter to 84,200 tonnes due to industrial action at the Escondida mine over pay and reduced output at the Grasberg operation in Indonesia.
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New mining regulations in Indonesia introduced in January on exports of unrefined metals, including copper concentrates, hurt production at Grasberg - operated by Freeport-McMoRan Inc.
Rio is entitled to the cash flow associated with 40% of the material mined at Grasberg through a joint venture agreement with Freeport.
The company said the new regulations obstruct Freeport’s right to continue to export concentrate without restriction, which may have a significant impact on Rio’s share of production in 2017.
“In the absence of an export permit, Freeport has had to reduce production to around 40 per cent to match domestic smelting capacity,” Rio said.
“This has resulted in near-term actions to reduce its workforce, significantly reduce costs and reduce and/or suspend capital expenditure on its underground development projects and new smelter.”
Cyclones in Australia hurt iron ore shipments...
Shipments of iron ore from its operations in Australia’s western Pilbara were also affected by cyclones and heavy rain in the first quarter. Rio reported flat year-on-year shipments of iron ore from Pilbara but a 13% drop on the prior quarter as poor weather affected sections of its rail network and hurt ship loading.
However, Rio left its full year production estimate on Pilbara at 330mln to 340mln tonnes.
In other commodities, Rio said aluminium production in the first quarter rose 2% on the year but fell 3% on the previous quarter to 889,000 tonnes.
Coking coal output dropped 20% year-on-year and 28% quarter-on-quarter to 1.59mln tonnes. Thermal coal production grew 4% on the year but dipped 1% on the quarter to 5.18mln tonnes.
CEO says Rio is managing costs...
“Despite challenging weather conditions at our West Australian and Queensland operations, we delivered solid production in the first quarter of 2017,” said chief executive Jean-Sébastien Jacques.
He added: “We maintain our disciplined approach to capital management and maximising cash flow, with a focus on managing costs and enhancing productivity across the business. These actions support the delivery of strong cash returns to shareholders in the short, medium and long term."
Rio said strikes at Escondida, the world’s biggest copper mine, finished on 24 March and the current labour agreement has been extended for 18 months. The miner expects operations will ramp-up to normal production levels by July.
BHP Billiton, which owns Escondida with Rio, also cut its full year guidance on copper production in January after a drop in first half output due to the strikes at the mine.
Rio and BHP should catch up on output at Escondida, says Liberum
Liberum analyst, Ben Davis, said: "Rio Tinto should be able to catch up, as will BHP, bringing further pressure on the iron ore price as the year progresses. Similarly coking coal guidance has been maintained, despite the damage caused by Cyclone Debbie to the rail network, and spot prices should fall back down to earth when shipments resume."
The broker reiterated a 'sell' rating, saying the copper guidance was lowered more than expected.
Shares in Rio fell 0.10% to 3,027p in morning trading.