A robust third quarter sends FTSE 100 diversified miner Rio Tinto (RIO) up 2.6% to £31.63. Iron ore production has been particularly strong, yet there's a big set back with its vast Oyu Tolgoi copper mine in Mongolia. It cannot get paid for any of the copper concentrate derived from the rich deposit until Chinese officials say that Rio's customers can collect the product from a bonded warehouse.
Rio produced 30,602 tonnes of copper and 62,404 ounces of gold in concentrates from Oyu Tolgoi during the quarter. It expects sales to be 'aligned with production rates' by the end of the year. (Click on table below to enlarge).
Group copper production guidance has been revised upwards from 230,000 tonnes to 270,000 tonnes thanks to a good recovery from its Kennecott Utah project following an earlier landslide.
The business says it is on track to exceed its $750 million reduction in exploration and evaluation spend.
Liberum Capital says today's production numbers, increased copper guidance and discretionary cost savings should result in upgrades of circa $200 million, equal to a 2% uplift to net earnings.
The key challenge for any shareholder in Rio is to have a strong view on iron ore prices as this product dominates the miner's earnings. Iron ore prices have continued to stay higher for longer than expected – a trend we discussed in August – holding above $130 per tonne despite increasing supply from major producers.
Macquarie says there is now a reduced risk of near-term weakness and that the iron ore price could stay strong at least for the rest of the year. 'We find that the level of iron ore inventory held by the mills is lower than we had previously thought and that factoring in a seasonal restock implies iron ore prices still have the potential to push higher into the year end.' It forecasts iron ore to average $136 per tonne for 2013, dropping to $120 per tonne in 2014 and $110 per tonne in 2015. That's much higher than many market commentators had discussed six months ago.