Rio Tinto (RIO) Set for Gains After Impressive Q4 Production Report

Michael Teague  |

UK-based mining giant Rio Tinto Group (RIO) can expect a few extra bulls in its corner heading into the day’s trading session, after Wednesday’s late release of impressive fourth-quarter production data seemed to offer further confirmation of the company’s successful recovery in 2013.

The world’s second largest mining company struggled during the first half of the year as a result of rising uncertainty in the global economy. Many analysts have predicted substantial declines in the price of Rio’s bread-and-butter metal, iron ore, over the next two years, a very real consequence in the event that Chinese growth slows, even if only modestly.

CEO Sam Walsh took the helm of the $98 billion dollar operation nearly one year ago, however, and got to work on putting the company back on track, and Q4 data outlines his turnaround blueprint more or less accurately. Irone ore shipments and mined copper were up 8 and 5 percent for the quarter respectively, while iron ore output for the full year of 2013 rose 5 percent, with mined copper up an impressive 15 percent.

While more effort and investment was being diverted to the most profitable of the company’s products, Rio also cut exploration spending by half to $948 million, and reduced cash costs by some $2 billion on the year, helping it pay down a hefty, potentially dangerous balance sheet.

Like other major miners, a huge chunk of Rio’s profits come from China, and especially from that country’s voracious consumption of iron ore through its many construction projects. And, like its peers, it devoted a great deal of the aughts to upping iron ore and copper production in a time when supply shortages were a common occurrence.

Now, with the possibility of lower prices, and less Chinese consumption, Rio is essentially adopting the same strategy as it did during the salad days of not so long ago, but is doing so because its dependence on China simply leaves it with no other choice

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