Rio Tinto releases fourth quarter production results

17 January 2017

Rio Tinto chief executive J-S Jacques said "We have delivered a strong operational performance in 2016, underpinned by our drive for efficiency and maximising cash flow. Our disciplined approach remains in place in 2017, with the continued focus on productivity, cost reduction and commercial excellence. This will ensure that we continue to deliver value for our shareholders." 

All figures in this report are unaudited. 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 2015 have been excluded from Rio Tinto share of production data but assets sold in 2016 remain in comparisons.

IRON ORE

Rio Tinto share of production (million tonnes)

Pilbara operations

Pilbara operations produced 329.5 million tonnes (Rio Tinto share 270.7 million tonnes) in 2016, six per cent higher than in 2015. Fourth quarter production of 85.5 million tonnes (Rio Tinto share 70.9 million tonnes) was four per cent higher than the same quarter of 2015. The strong production performance in 2016 is attributable to the ramp-up of expanded mines, operational productivity improvements and minimal disruption from weather events.

Pilbara sales

​Sales of 327.6 million tonnes (Rio Tinto share 268.9 million tonnes) in 2016 were three per cent higher than 2015, attributable to the newly expanded infrastructure and minimal disruption from weather events. Fourth quarter sales of 87.7 million tonnes (Rio Tinto share 72.4 million tonnes) were one per cent higher than the same quarter of 2015.

Sales in the quarter exceeded production by 2.2 million tonnes, primarily drawing down on inventories built at the ports in the third quarter due to maintenance.

Approximately 20 per cent of sales in 2016 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. 

Approximately 62 per cent of 2016 sales were made on a cost and freight (CFR) basis, with the remainder sold free on board (FOB).

Achieved average pricing in 2016 was $49.30 per wet metric tonne on an FOB basis (equivalent to $53.60 per dry metric tonne).

Pilbara projects

The second phase of the Nammuldi Incremental Tonnes (NIT) project was delivered in October, six weeks ahead of schedule, with an annual mine capacity of ten million tonnes. The Silvergrass project incrementally increases the Nammuldi operation by a further ten million tonnes a year, delivering high grade, low phosphorus ore into the Pilbara Blend. First ore is expected in the second half of 2017.

The AutoHaul® project will continue to progress during 2017 with extensive running of trains in automated mode, but with a driver remaining on board until all safety and reliability systems are thoroughly demonstrated.

2017 guidance

Rio Tinto's Pilbara shipments in 2017 are expected to be between 330 and 340 million tonnes (100 per cent basis), subject to weather conditions.

ALUMINIUM

Rio Tinto share of production ('000 tonnes)

Bauxite

Bauxite production of 47.7 million tonnes during 2016 was nine per cent higher than 2015. Annual production records were achieved at Weipa (up six per cent), benefiting from increased plant throughput, as well as at Gove (up 21 per cent) through system improvements.

The strong production performance and healthy demand from China enabled the Group to ship 29.3 million tonnes to third parties in 2016, ten per cent higher than 2015, whilst fourth quarter shipments were 12 per cent higher than the corresponding quarter in 2015.

Amrun

The Amrun project is advancing to schedule in both engineering and construction. All major contracts have been committed as planned. Site establishment continues with the construction accommodation village operational to 470 beds. The 40 kilometre main access road was completed in December 2016, with the river terminals expected to be operational in the first quarter of 2017.

Alumina

Alumina production for 2016 increased five per cent compared with 2015, primarily due to operational improvements driving record production at the Yarwun refinery (up 11 per cent). The Jonquière and Alumar refineries also achieved record annual production.

Aluminium

Aluminium production was ten per cent higher in 2016, due largely to Kitimat, which produced at nameplate capacity for a third consecutive quarter. Record annual production was achieved at ten smelters, whilst quarterly production records at seven smelters resulted in a seven per cent increase in production compared with the corresponding period in 2015.

On 23 November 2016, Rio Tinto announced it had reached an agreement to sell its assets at Lochaber, Scotland to SIMEC for consideration totalling $410 million. The sale was finalised on 16 December 2016, with final proceeds to be received not later than 28 February 2017.

2017 guidance

Rio Tinto's share of production in 2017 is expected to be 48 to 50 million tonnes of bauxite, 8.0 to 8.2 million tonnes of alumina and 3.5 to 3.7 million tonnes of aluminium.

COPPER & DIAMONDS

Rio Tinto share of production ('000 tonnes)

Rio Tinto Kennecott

Mined copper production in 2016 was significantly higher than 2015 as mining progressed through an area of higher grades. Whilst fourth quarter production was 25 per cent higher than the previous quarter, it was below expectations due to lower throughput following reduced pit access at Bingham Canyon.

The higher mined production in 2016 resulted in improved refined copper production of 156.5 thousand tonnes, up 36 per cent.

Kennecott continues to toll third party concentrate to optimise smelter utilisation, with 315 thousand tonnes received for processing in 2016. Tolled copper concentrate, which is smelted and returned to customers, is excluded from reported production figures.

Escondida

Mined copper production at Escondida in 2016 was 12 per cent below 2015 due to lower grades and slightly reduced mill throughput.  For the fourth quarter, improved mill throughput resulted in production being 11 per cent higher than the corresponding quarter in 2015. Refined copper production in the quarter was lower than the same period in 2015 due to lower oxide ore treated and lower grade material leached on the sulphide leach pad.

Oyu Tolgoi

Mined copper production for 2016 was in line with 2015, as the impact of lower grades was offset by higher throughput, a new record for the mill. Copper production in the fourth quarter was in line with the previous quarter, albeit 21 per cent lower than the corresponding quarter of 2015 as a result of lower grades and challenges with processing and recovering copper from high pyrite ore.

Oyu Tolgoi Underground Project

Contractor mobilisation has continued to ramp up during the fourth quarter, with over 2000 personnel mobilised, 87 per cent of whom are Mongolian nationals. Works on underground mine development, the accommodation camp, conveyor to surface decline, sinking of shaft #2 and shaft #5 and critical facilities continue to progress. Focus is on completing the underground crusher and de-watering system to enable increased lateral development rates.

Grasberg

Through a joint venture agreement with Freeport-McMoRan Inc. (Freeport), Rio Tinto is entitled to 40 per cent of material mined above an agreed threshold as a consequence of expansions and developments of the Grasberg facilities since 1998. Although 20 thousand tonnes of copper were notionally attributed to Rio Tinto for the nine months to September 2016 and reported in the third quarter operations review, productivity issues continued in the fourth quarter. This resulted in total 2016 copper production not exceeding the threshold and accordingly, Rio Tinto's share of joint venture production for 2016 was revised to zero.

Provisional pricing

At 31 December 2016, the Group had an estimated 235 million pounds of copper sales that were provisionally priced at 250 cents per pound. The final price of these sales will be determined during the first half of 2017. This compares with 252 million pounds of open shipments at 31 December 2015, provisionally priced at 217 cents per pound.

Diamonds

At Argyle, 2016 carat production was four per cent higher than 2015 following the ramp-up of the underground mine, with higher ore throughput partially offset by a lower recovered grade.

Likewise at Diavik, carats recovered in 2016 were four per cent higher than 2015 due to higher ore throughput offsetting lower grades.

2017 guidance

In 2017, Rio Tinto's share of mined copper production is expected to be between 525 and 665 thousand tonnes, with higher production at Escondida, and an expected share of joint venture production at Grasberg. Refined copper production is expected to be between 185 and 225 thousand tonnes.

Diamond production guidance for 2017 is 19 to 24 million carats.

ENERGY & MINERALS

Rio Tinto share of production

Coal

Hard coking coal production was four per cent higher in 2016 and fourth quarter volumes were 15 per cent higher than the same quarter of 2015 due to longwall and plant outperformance at Kestrel.

Semi-soft coking coal production was 12 per cent higher than 2015 and fourth quarter volumes were 22 per cent higher than the corresponding period of 2015 due to mine production sequencing at Hunter Valley Operations and Mt Thorley Warkworth.

Increased thermal coal production from Hail Creek, Kestrel and Mt Thorley Warkworth partially offset lower volumes, which resulted from the restructure of Coal & Allied and the divestment of Bengalla in early 2016, delivering full year production that was seven per cent lower than 2015. Fourth quarter thermal coal production was 18 per cent lower than the same quarter of 2015 due primarily to these ownership changes.

Coking coal prices achieved in the second half of 2016 averaged $152 per tonne on an FOB basis compared to $79 per tonne in the first half of 2016. Average prices realised for thermal coal were $69 per tonne on an FOB basis in the second half of 2016 compared to $51 per tonne in the first half of 2016.

Iron Ore Company of Canada (IOC)

IOC pellet production of 9.8 million tonnes (Rio Tinto share 5.8 million tonnes) in 2016 was five per cent higher than 2015, while concentrate production of 8.4 million tonnes (Rio Tinto share 4.9 million tonnes) was in line with 2015 production.

The three per cent improvement in total production also resulted in a two per cent improvement in sales to 18.3 million tonnes (Rio Tinto share 10.8 million tonnes) in 2016.

Borates

Borates production in 2016 was six per cent higher than in 2015, driven by higher market demand.

Rio Tinto Iron and Titanium (RTIT)

Titanium dioxide slag production was four per cent lower in 2016 as RTIT continues to optimise production to align to demand and draw down remaining inventories. Fourth quarter volumes were 35 per cent higher than the same quarter of 2015, in line with improving sales. Two of nine furnaces at Rio Tinto Fer et Titane and one of four furnaces at Richards Bay Minerals are currently idled, reflecting lower demand for high grade feedstocks.

Salt

Salt production in 2016 was six per cent lower than in 2015 as a result of lower market demand.

Uranium

Energy Resources of Australia continues to process existing stockpiles. 2016 production was 17 per cent higher than 2015 due to higher mill throughput and recoveries.

Production at Rössing was 49 per cent higher than 2015, due to higher throughput and grades.

2017 guidance

In 2017, Rio Tinto's share of production is expected to be 7.8 to 8.4 million tonnes of hard coking coal, 3.3 to 3.9 million tonnes of semi-soft coking coal, 17 to 18 million tonnes of thermal coal, 11.4 to 12.4 million tonnes of iron ore pellets and concentrates, 1.1 to 1.2 million tonnes of titanium dioxide slag, 0.5 million tonnes of boric oxide equivalent production, and 6.5 to 7.5 million pounds of uranium.

EXPLORATION AND EVALUATION

Pre-tax and pre-divestment expenditure on exploration and evaluation charged to the profit and loss account in 2016 was $497 million (of which $119 million was spent in the fourth quarter), compared with $576 million in 2015. Approximately 41 per cent of 2016 expenditure was incurred by central exploration, 25 per cent by Copper & Diamonds, 25 per cent by Energy & Minerals and the remainder by Iron Ore and Aluminium.

On 28 October 2016, Rio Tinto and Chinalco signed a non-binding agreement to sell Rio Tinto's entire stake in the Simandou project in Guinea to Chinalco.

There were no significant divestments of central exploration properties in 2016.

Exploration highlights

Rio Tinto has a strong portfolio of projects with activity in 14 countries across some eight commodities. Exploration activities were discontinued in China, India and Mexico during this quarter. The bulk of the exploration spend in this quarter was focused on copper targets in Australia, Botswana, Chile, Kazakhstan, Namibia, Peru, Serbia, United States and Zambia.  Mine-lease exploration continued at a number of Rio Tinto managed businesses including Pilbara Iron, Rio Tinto Coal Australia, Richards Bay Minerals, Oyu Tolgoi, Kennecott and Weipa.

A summary of activity for the quarter is as follows:

Forward-looking statements

This announcement may include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding Rio Tinto's production forecast or guidance, financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Rio Tinto's products and reserve and resource positions), are forward-looking statements. The words "intend", "aim", "project", "anticipate", "estimate", "plan", "believes", "expects", "may", "should", "will", "target", "set to", "assumes" or similar expressions, commonly identify such forward looking statements.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual production, performance or results of Rio Tinto to be materially different from any future production, performance or results expressed or implied by such forward-looking statements. Such forward-looking statements could be influenced by such risk factors as identified in Rio Tinto's most recent Annual Report and Accounts in Australia and the United Kingdom and the most recent Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the "SEC") or Form 6-Ks furnished to, or filed with, the SEC. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this announcement. Rio Tinto expressly disclaims any obligation or undertaking (except as required by applicable law, the UK Listing Rules, the Disclosure and Transparency Rules of the Financial Conduct Authority and the Listing Rules of the Australian Securities Exchange) to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Rio Tinto's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Nothing in this announcement should be interpreted to mean that future earnings per share of Rio Tinto plc or Rio Tinto Limited will necessarily match or exceed its historical published earnings per share. 

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