Rio Tinto (RIO), Fortescue Metals Group (FMG) and Woodside Petroleum (WPL) released solid third quarter production reports yesterday. All of which did nothing to upset the rising confidence in commodity stocks.
Rio Tinto reported a relatively weak (there wasn’t a big rise) quarter in its huge West Australian iron ore business, but management refused to concede it will miss its full year iron ore export target for 2016.
The company has trimmed its export guidance by around 5 million tonnes, saying that iron ore shipments from the Pilbara will be in a range between 325 million and 330 million tonnes for the year. The miner previously had guided for 330 million tonnes of shipments.
Rio shipped 80.9 million tonnes from the Pilbara in the September quarter, including the tonnes owned by joint venture partners like Sinosteel.
That represents an annualised rate of 323 million tonnes. Analysts had expected shipments of closer to 83 million tonnes in the three months to September. Production rose 2% to 82.9 million tonnes.
Rio said that 2017 "production guidance remains at between 330 and 340 million tonnes, subject to final productivity and capital expenditure plans.”
Rio blamed the slow quarter was blamed on rail and port maintenance.
But the company has lowered its full year target for “mined copper" for a second time this year, with the target now between 535,000 tonnes and 565,000 tonnes. Refined copper guidance remains unchanged.
While the grade decline problems at Chile’s Escondida mine have announced (BHP mentioned them in its report on Wednesday), analysts said the performance at Oyu Tolgoi in Mongolia had “disappointed”.
But while iron ore and copper were weak, Rio drove its now (smaller) coking coal business over the past three months to take advantage of soaring global prices.
Rio’s share of hard coking coal sales was higher than in any of the previous four quarters, and production was higher than expected too, putting the division on track to beat the top end of production guidance.
"Hard coking coal production for the first nine months was in line with the same period last year, while third quarter volumes were 17 per cent higher than the same quarter of 2015 primarily due to longwall outperformance at Kestrel compared with 2015.
"Semi-soft coking coal production for the first nine months was ten per cent higher than the same period last year and third quarter volumes were 15 per cent higher than the same quarter of 2015 due to mine production sequencing at Hunter Valley Operations and Mount Thorley Warkworth.
"Thermal coal production during the first nine months was three per cent lower than the corresponding period in 2015. Increased Hail Creek and Kestrel production during the year largely offset the Group’s decreased share of production at Coal & Allied following the restructure of Coal & Allied and the divestment of Bengalla in early 2016,” Rio said.
The company reported a solid performance in its bauxite, alumina and aluminium businesses and all will meet or possibly top guidance.
"Rio Tinto’s expected share of production is increased to 47 million tonnes for bauxite (previously 45 million tonnes), and remains otherwise unchanged at 7.8 million tonnes of alumina and 3.6 million tonnes of aluminium.
On Wednesday, BHP reported that iron ore production for the September 2016 quarter was unchanged at 58 million tonnes (Mt) on a BHP Billiton share basis, or 67 Mt on a 100%.
"Guidance for the 2017 financial year remains unchanged at between 228 and 237 Mt on a BHP Billiton share basis, or between 265 and 275 Mt on a 100 per cent basis, with volumes weighted to the last three quarters of the year,” the company said.
WA Iron ore production for the September quarter was flat as the ramp-up of additional capacity at Jimblebar offset lower volumes at Yandi. "The 24 month rail renewal and maintenance program, which will support the integrated supply chain’s long-term reliability, is progressing on schedule. Completion of rail renewal works near Newman underpinned a four per cent increase in volumes from the June 2016 quarter,” BHP said.
Rio shares rose 0.2% to $50.96.
Meanwhile Fortescue said it shipped 43.8 million tonnes of iron ore, up 1%, while its costs benefited from the stronger US dollar.
The company said its cash production costs improved to $US13.55 per wet metric tonne (wmt), down 5% compared to the June 2016 quarter and 20% over the September quarter of 2015.
During the quarter Fortescue said it repaid $US700 million of debt and reduced net debt to $US4.2 billion inclusive of $US1.8 billion cash and finance leases of $US500 million.
CEO, Nev Power, said “Key to our sustained performance has been the alignment of our marketing and operations strategies to optimise production, maximise efficiency and consistently deliver quality products. This has driven costs to US$13.55/wmt, the eleventh consecutive quarterly reduction, generating continued strong cash margins.”
“All of our operations delivered strong production results during the quarter and most importantly we also achieved a company wide improvement in safety performance of 36 per cent compared to a year ago.”
“An additional US$700 million of debt was repaid during the quarter reducing net debt to US$4.2 billion with net gearing of 33 per cent. Our focus remains firmly on continuing to innovate, improve productivity and efficiency for ongoing cost improvements, debt reduction and enhanced shareholder value.” Fortescue said it was maintaining its 2016-17 export guidance at 165 to 179 million tonnes.
FMG shares fell 1.9% to $5.05.
And Woodside Petroleum enjoyed record LNG production at the North West Shelf and Pluto projects which helped the company limit the decline in September quarter sales to 9%.
The company told the ASX yesterday that sales for the three months dipped to $US988 million, from $US1.09 billion in the same period last year, but climbed a strong 20% from the June quarter.
And this strong performance at Woodside’s producing LNG plants contributed to a slight upgrade in guidance for full-year output, to 92 million-95 million barrels of oil equivalent. The previous guidance was 90 million-95 million boe, which was increased in August.
In yesterday’s release. Chief executive Peter Coleman pointed to a move to secure additional funding, which extended the term of Woodside’s debt.
"As part of managing our debt obligations, we secured $US1.2 billion in funding at competitive rates," he said. "We have strong support from debt capital markets and gearing remains well within our target range of 10–30 per cent."
“We set a number of production records this quarter driven by excellent LNG capacity and reliability, which contributed to a 20 per cent quarter-on-quarter revenue increase,” Mr Coleman said.
The North West Shelf LNG plant, which will remain the nation’s biggest even after the recent investment boom is complete, ran at an annualised rate of 19 million tonnes per year (up from capacity of 17 million tonnes).
The nearby Pluto next door ran at a rate of 5.1 million tonnes per year (up from capacity of 4.3 million tonnes.)
Total production in the September quarter marginally slipped from a year ago to 25.2 million boe, but was 13.5% up from the June quarter when maintenance work at the North West Shelf and at an oil production ship crimped output.
Woodside shares rose 0.9% to $29.57 as world oil prices hit 15 month highs overnight.
