Investors savage Rio Tinto

INFRASTRUCTURE problems hampering Rio Tinto iron ore and coal divisions have resulted in a mixed quarter for the world's third-largest miner. Iron ore output remained high, but Rio was hurt by train derailments in the Pilbara region of Western Australia and rail and port congestion in Queensland and NSW. Rio Tinto was forced to bring forward planned maintenance of its Pilbara railway after two derailments in August. Rio, which is looking to increase annual iron ore output to 320 million tonnes, said increased shipments in the third quarter had put the rail infrastructure under strain. On the east coast of Australia, hard coking coal production was "severely" affected by continuing port bottlenecks in Queensland while infrastructure "limitations" continued to hamper its NSW operations. ABN Amro analyst Warren Edney said Rio Tinto had lost "a bit of momentum" dealing with the infrastructure issues. "The queue management systems at Dalrymple Bay and Newcastle are having a constraining impact on their ability to export," Mr Edney said. "Iron ore is a similar sort of thing, port constraint issues with derailments. They had a big lift last quarter in iron ore production and it hasn't been maintained because they have lost some shipments because of derailments and maintenance." Rio Tinto produced 36.39 million tonnes of iron ore in the three months ended September 30, a 2 per cent increase on the same quarter in 2006. However, production was 2 per cent lower than the June quarter, when Rio Tinto delivered record iron ore output. Rio Tinto said its margins in the Pilbara were still under pressure due to rising costs for contractors and other mining input. The coal division suffered a 10 per cent decrease in hard coking coal output in the third quarter from a year ago, and a 24 per cent drop in thermal and semi-soft coking coal. Rio Tinto said an investment program by the owners and operators of the coal ports at Newcastle in NSW and Dalrymple Bay in Queensland was set to increase capacity in the second half of next year and into 2009. Investors savaged the company and its subsidiary Coal & Allied yesterday, with Rio Tinto losing $3.50 or 3 per cent to $110 and Coal & Allied off $4 or 5 per cent to $74. Production across the rest of Rio Tinto's portfolio was mixed. Aluminium was flat, with output of 216,200 tonnes, compared with the same quarter last year. Alumina production dipped 17 per cent, reflecting the sale of Rio Tinto's stake in the Italy-based Eurallumina refinery in October last year. But that may turn around in coming quarters after Rio Tinto completes its $US38.1 billion ($A43.01 billion) takeover of Canadian aluminium producer Alcan. The copper division delivered a 30 per cent increase in refined copper to 98,700 tonnes. Meanwhile, mined copper dipped by 6 per cent to 172,500 tonnes. Diamond production from the Argyle mine in WA was 42 per cent lower than last year at 4.865 million carats, due to continued low feed grades at mining locations. Earlier this year, Rio Tinto warned that the cost of a planned expansion of the Argyle mine would blow out to $US1.5 billion, from $US910 million. Rio Tinto's uranium output rose by 5 per cent during the quarter to 3.105 million pounds. Its uranium interests include a stake in the Rossing mine in Namibia and a stake in Energy Resources of Australia.