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

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.

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