Rio Tinto update on production of iron ore
Performance;
The Iron Ore group's underlying earnings of AUD 8,107 million in 2014 were 18% down on 2013. However, record sales volumes in the Pilbara contributed to AUD 1.3 billion of additional earnings in 2014. This, together with cost savings initiatives, a weaker Australian dollar and the absence of AUD 128 million one-off iron ore royalty payable following a court decision in 2013 partly offset the impact of a lower iron ore price, down 30% on average YoY reducing earnings by AUD 3.8 billion.
Pre tax cash cost improvements in the Iron Ore group have now delivered AUD 710 million of savings in 2014 and 2013 compared with the 2012 base. This is reflected in the continued reduction in Pilbara cash unit costs to AUD 19.5 per tonne in 2014, having been AUD 20.4 per tonne in the first half and AUD 18.7 per tonne in the second half of 2014. Based on a US dollar exchange rate of 78 Australian cents and current fuel prices of 67 Australian cents per litre (net of fuel tax credits), fourth quarter 2014 unit cash costs in the Pilbara would have been AUD 17 per tonne.
Gross sales revenues for Pilbara operations of AUD 21,482 million include freight costs of AUD 1,312 million (2013: USD 927 million).
Net cash generated from operating activities of AUD 10,274 million benefited from AUD 354 million release of working capital following the drawdown of around 8 million tonnes of iron ore inventories and delivery of broader working capital improvement initiatives. The 38% decline in capital expenditure reflects the completion of the port and rail element of the 290 Mt per annum Pilbara expansion in 2013 and near completion of the 290 Mt per annum mine expansions.
Markets;
Record sales of 302.6 million tonnes (Rio Tinto share 239.9 million tonnes) in 2014 were 17% higher than in 2013. Pilbara sales in 2014 exceeded production by around eight million tonnes largely due to the drawdown of stockpiled iron ore inventory built at Pilbara mine sites in previous years to facilitate an accelerated ramp up of the expanded port and rail facilities to 290 Mt per annum.
Approximately 25% of Pilbara sales in 2014 were priced with reference to the prior quarter's average index lagged by one month. The remainder were priced either on the current quarter average, current month average or on the spot market. Around 55% of 2014 Pilbara sales were made on a cost and freight basis, with the remainder sold free on board. Achieved average pricing in 2014 was AUD 84.3 per wet metric tonne on an FOB basis, or AUD 91.6 per dry metric tonne.
Operations
Global production of 295.4 million tonnes (Rio Tinto share 233.6 million tonnes) was an 11% increase year on year. This new annual record was driven by the early completion of the 290 Mt per annum expansion project in the first half and increased mine production. Almost 90% of the additional 30 million tonnes produced in 2014 has gone directly into the premium Pilbara Blend, the industry reference for the 62% Fe market.
At Iron Ore Company of Canada, 2014 pellet production was two per cent higher than in 2013 due to operational efficiency improvements achieved at the pellet plant. The prioritisation of pellet production during the year partially accounts for the 11% lower saleable concentrate production in 2014 against 2013, with the remaining reduction driven by the unusually cold winter experienced in North America in the first quarter and ore quality issues experienced in the fourth quarter.
New projects and growth options;
On 13 May 2014, Rio Tinto announced that its Pilbara iron ore system of mines, rail and ports had reached a run rate of 290 Mt per annum two months ahead of schedule. Infrastructure for the 360 Mt per annum expansion is around 80% complete, with all major rail, marine and wharf works in place. Completion of this infrastructure remains on track for delivery by the end of the first half of 2015.
As previously announced, approximately 40 Mt per annum of brownfield expansions are underway to feed the expanded infrastructure capacity at an average mine production capital intensity of around AUD 9 per tonne. As a result, production from the Pilbara is expected to be 330 million tonnes (100% basis) in 2015.
The investment decision on the development of the Silvergrass mine, with a capital cost of approximately AUD 1 billion, is not required in 2015. In May 2014, the full incremental capacity of the second phase of the Concentrator Expansion Project at IOC was delivered with the commissioning of the additional ball mill.
2015 shipping and production guidance;
Rio Tinto expects 2015 global shipments to be approaching 350 million tonnes (100 per cent basis) from its operations in Australia and Canada. Pilbara mines will balance brownfield production with further inventory draw down throughout the year. Shipments and production are each subject to weather conditions and other factors.
Source - Strategic Research Institute