Rio Tinto's (LON:RIO) Pilbara Expansion Helps Bolster Iron Ore Output
Rio Tinto (LON:RIO) produced record volumes of iron ore in the first half of 2014 thanks in large to the expansion of its mines in the Pilbara region of Western Australia.
The UK miner increased iron ore production by 11 percent, producing 139.5 million tons in the fiscal first half despite weak prices of the metal. Rio Tinto’s shipments rose 20 percent to 142.4 million tons.
"Our iron ore expansion continues to deliver high-margin growth reinforcing our position as a low cost producer," Rio Tinto Chief Executive Sam Walsh said in a stock exchange filing.
“It has allowed us to increase shipments of our Pilbara Blend products, providing our customers with reliable, long-term supply of stable quality.”
Rio’s reliance on the commodity has caused concerns among investors. Iron ore prices have fallen from approximately $135 a ton last year to below $90 a ton last month, and many believe global mining companies are adding new supply too quickly
Miners are betting that Chinese iron ore demand will remain stout. In the first half of 2014 China imported 457 million tons of iron ore, up 19 percent from a year earlier.
BHP Billiton CEO Andrew Mackenzie believes Australia should accommodate China as much as possible, working towards the maximum degree of free trade with the nation’s biggest trading partner.
"I think it's a positive step unquestionably to more intimately tie Australia to the main market for resources going forward," said Mackenzie. "Increased ties between Australia and the rest of Asia can only be good for the health and vibrancy of this economy going forward. A country like Australia can offer them something they don't have, which is resources."
With more than 90 percent of its profits coming from iron ore, Rio Tinto believes its Pilbara mines will continue to advantageous even at lower prices, with high-cost mines in China most at risk of sustained downturn.
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