Rio Tinto digging up more iron ore despite slumping prices

Rio Tinto digging up more iron ore despite slumping prices

Rio, which is Australia's biggest iron ore exporter, has been a massive driver of expansions, adding millions of tonnes of seaborne supply to the market in the last year.

Rio Tinto (LON:RIO), the world’s second largest iron ore miner, is targeting a 18% output increase from its Australian mines this year, adding to a mounting global glut that has driven down prices of the commodity to their lowest level since 2009.

The company, the first of the large mining groups to report its annual output this year, logged Tuesday an 11% rise in full-year production of iron ore to 295.4 million metric tons, slightly ahead of its target of 295 million tons.

The miner, which is Australia's biggest iron ore exporter, also managed to beat its own sales guidance of 300 million tons, but its quarterly effort fell short of UBS forecasts of 83.9 million tons, according to The Australian. Its quarterly production of 79.1 million tons also fell short of expectations set by UBS and Deutsche Bank by roughly 1 million ton.

Rio has been a massive driver of expansions, adding millions of tonnes of seaborne supply to the market in the last year in a bet that China will need more of the commodity, even as its economy slows.

This strategy has come with a cost. Not only it has squeezed smaller rivals from Canada to China, but it also has cause a historic slump in prices. The commodity remains around 50% below its position at the same time last year as investors fret about an oversupply that has been driven by surging production as demand growth stalls.

But chief executive Sam Walsh shrugs off the impact of growing supplies. He restated the company it is poised to start handing more money back to its investors.

Rio Tinto digging up more iron ore despite slumping prices

Dozens of marginal producers shut down last year but another 175 million tonnes will have to be displaced to neutralize 2015 output growth, which unlike copper is de-risked. (Source: MVS Research)

“In a challenging market Rio Tinto remains focused on operating and commercial excellence to leverage our low-cost position and maximise value for shareholders,” he said in today’s statement.

Rio’s copper output over the year went up by 4%, but its production of most of its other major commodities fell, underlining the company’s reliance on iron ore, which in recent years has provided close to 95% of earnings.