Rio Tinto Limited releases impressive Q4 result

Could Rio Tinto Limited (ASX: RIO) be the turnaround story of 2014? It’s certainly looking likely.

Delivering the company’s fourth quarter operational review this morning, CEO Sam Walsh said: “These are excellent fourth quarter operational results, demonstrating continued delivery on our commitments.” It’s fair to say shareholders have had a tough ride in recent years. However, today’s news gives a new shine to the iron ore heavyweight. Higher production and lower spending were the goals set by senior management, including Mr Walsh, in early 2013. Here are some highlights from today’s results.

  • Pilbara operations exceeded iron ore production forecasts by 2 million tonnes
  • The ramp-up to 290 Mt/a is on track to be completed by the end of the first half of 2014
  • Production at the miners huge Oyu Tolgoi gold and copper project is at full capacity
  • Record annual production and shipments for bauxite
  • Production of semi-soft and thermal coal improved significantly for the full year
  • $2 billion of operating cash cost improvements were achieved (relative to 2012)
  • Capex reduced by over $1 billion (exceeding the target of $750 million)
  • $3.5 billion of non-core assets were divested

The 290 Mt/a expansion is four months ahead of schedule and $400 million under budget, to be ready by the fourth quarter of 2013. Expansion of the port, rail and power infrastructure to 360 Mt/a is currently underway and due for completion by the end of the first half of 2015. A series of low-cost brownfield expansions will bring on additional tonnes, with a production of 330 million tonnes expected in 2015.

The numbers

In 2013, global iron ore production rose to 266 million tonnes (209 million tonnes is Rio’s share). This is a new annual record, up 5% on the prior corresponding period (pcp). Pilbara iron ore set a new quarterly record of 66.5 million tonnes.

Overall, mined copper was up 15% in 2013. Production at Kennecott Utah Copper was up 29% on the pcp, thanks to a quick recovery after the pit wall slide last year. Production of copper and gold at Oyu Tolgoi in Mongolia, was approximately 33,000 tonnes of copper and 73,000 ounces of gold in concentrate. Bauxite was up 10% overall, with Rio Tinto Alcan setting a new quarterly record, 7% higher than the pcp.

In the energy division, semi-soft and thermal coal production increased significantly during the year compared with 2012, with four mines achieving annual records – Hunter Valley Operations, Mount Thorley Warkworth, Bengalla and Clermont. Uranium production suffered because of leach tank failures at both Energy Resources of Australia Limited’s (ASX: ERA) Ranger Mine and Rössing in Namibia. After failing to sell its diamond business last year, production – largely led by Argyle mine – grew significantly in 2013 compared to the pcp, up 34%.

Foolish takeaway

Rio Tinto’s report will no doubt give shareholders renewed optimism moving forward. The most important earner for the miner is iron ore and ramping up production is a no brainer for a company which can produce and ship high quality ore for less than US$50 per tonne. Rio’s reliance on iron ore makes it a riskier investment than BHP Billiton Limited (ASX: BHP), which is a more diversified miner. However, if iron ore prices stay high, Rio shareholders should be handsomely rewarded in coming years.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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