Our biggest iron ore miner, Rio Tinto (ASX: RIO), yesterday declared it had set another record in Australian mining. In a special announcement to the market, Rio said a "major milestone for Australia's largest integrated mining project" had been reached.
Rio's Pilbara project includes 15 mines, four ports and the largest privately-owned heavy freight railway in Australia. It produces high quality ore for steelmaking in Asia and the rest of the world, at a very low cost.
Two months ahead of schedule and $400 million under budget, the miner said it managed to pull-off a huge annual run rate of 290 million tonnes a year from its Pilbara mining infrastructure. This, in addition to its record production for the first quarter of 2014, shows Rio's management are kicking goals.
Iron ore division CEO Andrew Harding said, "This a significant milestone which adds real value for our business and our shareholders by moving more iron ore through the Pilbara at low cost…We are now focused on the next phase of our expansion towards 360Mt/a."
Although Rio produces more iron ore than its number one Australian rival BHP Billiton (ASX: BHP) it is more dependent on the commodity. In 2013 the division produced over 90% of the groups underlying earnings.
In recent years, the superior quality and high production levels of the steel making ingredient allowed Rio to stay afloat despite writing-off billions of dollars in impairments from other divisions including Aluminium and Energy. However with the iron ore spot price falling rapidly (and tipped to go lower) the increased production could prove to be too little too late for Rio's stock price.
Although Rio won't go bust with an iron ore spot price of $US90 per tonne or below, it certainty won't help it pay down its existing $US18.1 billion of debt, return more funds to shareholders through dividends or prop up its earnings against continuous write-downs. As a result now probably isn't the time to buy Rio shares (or any pure-play iron ore miner for that matter), at least until we assess the impact of lower commodity prices in their interim reports, later this year.
