Rio Tinto’s Energy business, which includes its coal assets, as well as its uranium business, announced an underlying loss of US$ 53 million in the first half of the year. As a whole, the diversified miner suffered a 18% drop in underlying earnings to US$ 4.3 billion.
Low prices to blame
The company blamed lower prices and the absence of any gains on divestment of exploration properties for the Energy business’s loss. By the end of the six months to June 2013, thermal coal markets had dropped to there lowest since November 2008. Metallurgical coal prices also weakened substantially, dropping from a high of US$ 170/t in February to US$ 130/t in June. “Contributing to the weak price environment was strong supply growth from major seaborne producers and ongoing weakness in ex-China import demand,” the company said in its earnings statement.
The company also said that the Energy group would continue to review the optimal growth profile for all business units in light of market conditions for coal and uranium, the high-cost operating environment in Queensland and New South Wales, and infrastructure constraints in Mozambique. It is no secret that the company is looking to sell under-performing and high-cost assets and part of a campaign to boost shareholder value. The company has announced US$ 1.9 billion of divestments so far this year, as well as unsuccessful efforts to sell its diamond and Pacific Aluminium businesses.
Rio Tinto also said it would reduced in CAPEX spending by 20% this year compared to 2012. “The medium-term economic outlook remains volatile with a broader range of outcomes now possible. Chinese economic growth has decelerated so far this year and is unlikely to recover significantly in the second half, but we do not expect a hard landing”, said Rio Tinto’s CEO, Sam Walsh. “This global economic volatility only serves to highlight the need to build a stronger and more resilient business.”
Hard coking coal production was down 11% in the first half of the year, following the planned shutdown of the Kestrel Peak coal handling preparation plant for upgrade works. A low wall failure at Hail Creek mine also contributed to the reduced volumes and resulted in a drop to full year metallurgical coal production guidance.
Offsetting this drop in hard coking coal production was a 36% rise in soft coking coal production, as operations in the Hunter Valley changed their production profile to take advantage of the stronger short-term market for alternative product to hard coking coal due to wet weather in Queensland.
Both Australian and Mozambican thermal coal production rose in first the half year. Australian thermal coal production increased by 21% compared with the same period last year. This was driven by a 72% half-on-half rise in production at Clermontmine, as well as increased production at sites in the Hunter Valley following brownfield expansions and ongoing work to improve the efficiency and productivity of operations, including performance of the load and haul fleets.
Production in Mozambique steadily increased throughout the first half due to advances in yield performance and operational reliability.
In 2013, Rio Tinto’s share of Australian hard coking, semi soft coking and thermal coal production is expected to be 8 million tonnes (a 0.5 million t reduction to previous guidance), 4 million t and 21 million t, respectively.
Written By Jonathan Rowland
Read the article online at: https://www.worldcoal.com/coal/08082013/rio_tinto_coal_business_announces_loss_as_coal_prices_slump_coal_news_304/