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Inside Rio Tinto’s Copper Outlook

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Nov. 20 2020, Updated 2:32 p.m. ET

Rio’s copper and diamonds

While Rio Tinto (RIO) achieved higher earnings in its Iron Ore and Aluminum divisions (as we’ve discussed in the previous two parts of this series), its earnings in the Copper and Diamonds division took a hit in 1H17.

What’s even more interesting to note is that the earnings decline occurred despite the YoY (year-over-year) rise in copper prices in 1H17.

Rio reported a loss of $69 million in 1H17, compared with its loss of $56 million in 1H16. While the company achieved higher prices, cash cost reductions, and a final insurance settlement worth $101 million, in 1H17, the one-off impact of Rio’s Escondida mine strike and its deferred tax asset write-down both offset higher earnings.

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Production matters

Rio’s mined copper production in 1H17 was 21% lower YoY at 2.09 million tons, mainly due to the strike at its Escondida mine in 1Q17.

Rio has guided 185,000–225,000 tons in refined copper production. The expected production for mined copper is between 500,000–550,000 tons. The production guidance for diamonds remains between 19 million and 24 million carats.

Average realized prices higher

The average LME (London Metal Exchange) copper price rose 23% YoY to 262 per pounds in 1H17. The demand for rough diamonds was also robust during the period. Rio mentioned that the total impact of price changes in this division led to an earnings increase of $174 million on a YoY basis.

While copper prices rose during the first half of 2017, not all copper producers experienced a bounce in their stock prices. Freeport-McMoRan (FCX), for example, lost 8.9% in 1H17, underperforming Rio and copper peers (GNR) Glencore (GLNCY) and Southern Copper (SCCO).

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