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What you need to know about Rio Tinto Limited’s (ASX:RIO) latest update

A decline in iron ore production in the September quarter has not stopped Rio Tinto Limited’s (ASX: RIO) share price from rising with the market, although it’s lagging behind its peer BHP Billiton Limited (ASX: BHP).

Rio Tinto is up 1.4% to $78.60 while BHP is rallying 2.2% to $34.08 in morning trade as the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index gained 0.7%.

The September production update from our largest iron ore producer is adding to the argument that BHP is a better bet as Rio Tinto reported a 5% drop in iron ore shipments to 81.9 million tonnes for the period when compared to the same time last year.

Production of the steel-making ingredient in the Pilbara also fell 3% to 82.5 million tonnes although copper was a real standout with a 32% increase to 159.7 million tonnes thanks to better ore grades at its Kennecott mine.

The drop in iron ore was blamed on delays due to safety concerns following a fatal accident and planned maintenance shutdowns.

The numbers for iron are likely to be below analyst expectations while copper is likely to have been a pleasant surprise although Rio Tinto’s revenues are driven predominantly by iron ore.

The saving grace is that management is still predicting iron ore to hit the top end of its 2018 guidance of 330 million and 340 million tonnes.

On the flipside, the latest result won’t address concerns about rising costs – particularly for its aluminium division.

Rio Tinto is warning that its aluminium business will take a $500 million earnings before interest, tax, depreciation and amortisation (EBITDA) hit with $400 million coming from rising raw materials costs and the balance due to high thermal coal prices as its smelters use coal.

Brokers may use the result as an excuse to push BHP and maybe even Fortescue Metals Group Limited (ASX: FMG) ahead of Rio Tinto.

This is, of course, dependent on BHP’s quarterly update, which is due out tomorrow.

I, too, have a small bias towards BHP as it is yet to announce how it plans to return around $15 billion to shareholders from the sale of its US shale assets.

I don’t think we will get more details tomorrow though. We may have to wait till the end of this year or early 2019 to see how management plans to hand back capital.

I remain overweight on the mining sector but this isn’t the only part of the market that’s tipped to outperform.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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