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Rio Tinto Maintained Copper Production Guidance for 2015

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Nov. 20 2020, Updated 3:38 p.m. ET

Copper and coal operations

Rio Tinto (RIO) had combined its coal and copper divisions to form a single division earlier in the year. Together they contributed to 20% of RIO’s underlying EBITDA for 1H15. Production volumes for copper and coal are very important drivers for RIO’s overall revenues. In this article, we’ll look at RIO’s copper production profile.

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Copper production declined

  • RIO has three main copper assets: Kennecott Utah, Escondida, and Oyu Tolgoi. Copper production at Kennecott for 1H15 came in at 44,000 tons, which is 66% lower than 1H14. The decline is mainly due to de-weighing and de-watering going at the site.
  • On the other hand, mined production at Escondida was 22% higher in 1H15 year-over-year (or YoY), due to higher grades and throughput.
  • Production at Oyu Tolgoi in Mongolia also increased by 44% YoY to 29,800 tons for 1H15. The company stated that now, since mining has started moving to areas of higher grade in the open pit, copper production in the second half should be higher than in the first half.

Production to decline further?

  • De-watering and de-weighing at Kennecott is expected to continue for the second half of the year, thus weighing on full-year production as well.
  • For Escondida too, the second half is expected to be impacted by the decline in grades and water availability.
  • Management mentioned that they signed the underground development plan for Oyu Tolgoi in May. This project could provide long-term production upside for the copper division.
  • RIO’s guidance for the copper division remains unchanged at 500,000–550,000 tons of mined copper and between 190,000–220,000 tons of refined copper.

RIO’s management reckoned that copper will be tough going forward, as there are not many projects coming online since orebodies are complex and deeper with lower cases. The approval cycle for the whole process also extended as a result. However, one positive fallout of this change could be that copper will move into short supply going forward.

Companies that produce copper, including BHP Billiton (BHP)(BBL), Freeport-McMoRan (FCX), Teck Resources (TCK), Southern Copper (SCCO), and Newmont Mining (NEM), are taking steps to increase production in order to lower costs. Lowering costs is vital in this price environment, where copper prices are hitting multi-year lows. Copper volumes are key for these companies’ copper segment revenues. FCX forms 3% of the SPDR S&P Metals and Mining ETF (XME).

For more on copper, visit Market Realist’s Copper page.

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