SYDNEY (Reuters) - Global miner Rio Tinto (RIO.L)(RIO.AX) aims to boost iron ore output by 15 percent this year after production in 2012 climbed to 253 million tonnes, beating its own guidance, as resurgent Chinese demand drives a price recovery.
Rio Tinto, the world’s second-biggest producer behind Brazil’s Vale VALE5.SA, has stuck to an aggressive expansion plan in iron ore even after the market was rattled for much of last year by worries over top buyer China.
“Markets remain volatile, but our business continues to perform well,” Rio Tinto Chief Executive Tom Albanese said in the company’s fourth-quarter production report.
Rio had set a target of 250 million tonnes in 2012 after producing 245 million tonnes in 2011.
The company, which derives more than two-thirds of its revenue from iron ore, resisted trimming back its expansion plans despite a prolonged weak period in the sector last year, confident its rich ores and low cost operations would provide adequate profit margins throughout the cycle.
At the same time, Albanese has said the firm would show little tolerance for underperforming businesses. Rio Tinto has already isolated its highest-cost aluminium division under Pacific Aluminium in hopes of a whole or partial sale.
It has spelled out plans to reduce costs by $5 billion (3.1 billion pounds) by the end of 2014 and also cut exploration spending by $1 billion.
“Across the group we are taking action to roll back unsustainable cost increases. This further enhances our resilience and competitive edge as we enter 2013,” Albanese said.
Iron ore prices have soared more than 80 percent since September’s low point as Chinese steel mills -- the single biggest buyers of seaborne-traded ore -- returned to the market on signs of a recovery in the Chinese economy.
Benchmark prices .IO61-CNI=SI hit a 15-month high of $158.50 a tonne last week, as China’s iron ore imports topped 70 million tonnes for the first time in December helped by a resurgent economy and a cold snap that cut local production.
Iron ore prices have started to retract, however, suggesting a peak in the recent cycle, though analysts are not expecting a return to sub-$100 a tonne levels that could threaten production from more marginal producers.
Rio Tinto stands to benefit the most from a healthy ore market, given its sub-$30 per tonne average production costs and heavy weighting to the sector versus its other business units.
A $10 per tonne rise in the iron ore price can increase Rio’s full-year earnings by more than 10 percent.
UBS is forecasting a drop in Rio’s earnings before interest and tax to $13 billion in 2012 from $15.3 billion in 2011 after iron ore prices came under pressure for most of last year.
In the last month, iron ore has rebounded by about a third, although a further rally will hinge on whether Chinese demand out paces the rise in global supply this year.
Rio is targeting an annual production rate of 290 million tonnes by the end of 2013 before lifting output to 360 million tonnes in 2015 pending board approval. The tonnage also includes output from the company’s iron ore mines in Canada.
It said it had most board approvals in place for the next phase of its expansion work to take output to 360 million tonnes. That would mean Rio could surpass Vale as the world’s biggest producer.
Vale’s production was 322.6 million tonnes in 2011 and it will report 2012 production next month.
Australian rivals in iron ore BHP Billiton and Fortescue Metals Group (FMG.AX) report fiscal 2013 December-quarter figures on January 23 and January 24, respectively.
BHP aims to boost output to an annual rate of 220 million tonnes by fiscal 2014.
In aluminium, Rio Tinto said it produced 10 percent less primary metal in 2012 versus 2011 due to a labour dispute.
It also said it would decide later this month whether to mothball the Gove alumina refinery in Australia due to high operating costs.
Critical to a decision to continue operating the refinery is switching to gas from higher cost fuel oil, it said.
Rio Tinto’s 30 percent share of mined copper production at the giant Escondida mine in Chile rose 38 percent in 2012, owing to richer ores ore grades and processing work.
Rio also said its hard coking coal production in Australia fell 11 percent in 2012. This was due to drop offs during maintenance at its Hail Creek Mine and a plant shutdown at its Kestrel Mine as part of a mine expansion project.
Rio Tinto’s Australian shares closed little changed at A$65.90 on Tuesday, in step with the wider market .
Editing by Ed Davies