June 20, 2019 / 1:51 AM / a month ago

Mining giant Rio Tinto cuts key iron ore supply forecast again, shares hit

MELBOURNE (Reuters) - Mining giant Rio Tinto Ltd on Thursday lowered its guidance on volumes of iron ore it expects to ship from the key Pilbara producing region in Australia for the third time since April, citing operational problems.

The announcement, together with news late on Wednesday that Brazilian miner Vale SA will imminently restart production at a big mine in Brazil, pushed Rio’s Australian shares 5% lower in early trade, in line with 4.7% losses in London. The broader Australian market opened flat.

Fire damage and cyclones which briefly closed Rio’s export terminal in the iron-rich state of Western Australian had already prompted it to warn that the upper limit of annual shipments could fall as much as 2%.

But it now puts the upper limit as much as 5.7% under its original forecast, giving a window for shipments of between 320 million tonnes and 330 million tonnes, with a greater proportion of that would being lower grade, lower margin product.

“This downgrade could undermine confidence in Rio’s reputation,” RBC Capital Markets’ mining analyst Paul Hissey wrote in a note to clients, although he added that the lost volumes could be offset by prices that rose to record levels on Wednesday.

“We retain our cautious investment view on Rio considering our view of a stretched valuation and downward projections in iron ore price,” Hissey said.

Rio gave no details of the “mine operational challenges” in its announcement, but it reported fires at Pilbara facilities in January and April, while two cyclones closed export ports in March.

The challenges were driving production of “a higher proportion of certain lower grade products, partly to protect the quality of our flagship Pilbara blend,” the company said, flagging higher sales of lower-grade ore in 2019. Iron ore is a raw ingredient for steel.

Reporting by Noor Zainab Hussain in Bengaluru; Additional reporting by Tom Westbrook in SYDNEY and Melanie Burton in MELBOURNE; Editing by Bernard Orr and Joseph Radford

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