By Jamie Freed
Rio Tinto has revealed fourth-quarter iron ore production in line with its lowered expectations, but has warned it will have to write off some of its aluminium inventories and exploration work.
In a quarterly report released this afternoon, Rio said iron ore shipments fell 25% during the fourth quarter compared with the previous quarter due to a collapse in demand from the Chinese market.
Rio shares lost $3.31, or 8.2%, to close at $37.30.
Rio produced 175 million tonnes of the steelmaking material last year and shipped 171 million tonnes to customers, in line with its November guidance of sales between 170 million to 175 million tonnes compared with an earlier forecast of 190 million to 195 million tonnes.
Rio's coal division performed more strongly than some analysts had forecasted, with hard coking coal shipments falling only 1% in the fourth quarter compared with the previous quarter.
The company has since announced it will slash production by 15% at its Kestrel mine in Queensland.
Rio said it had curtailed about 5% of its aluminium production during the fourth quarter, from its higher-cost smelters. In comparison, rival Alcoa has announced plans to cut 18% of its aluminium production.
Rio warned of the possibility of further production cuts in its quarterly report.
Rio added that fourth quarter earnings in its aluminium division would be "negatively impacted'' by the sharp price decline during the quarter, and inventories would be written down to reflect realisable values at year end.
Rio said it had spent $US1.135 billion before tax on exploration and evaluation of projects last year up from $US570 million in 2007 but added $US176 million of the spending would be written off.
It said evaluation work on many projects, particularly its Simandou iron ore project in Guinea, La Granja copper project in Peru and Resolution copper project in the US had been scaled back due to current economic conditions.
"I don't think the quarterly production report was too dissimilar to expectations, but the bigger issue will be the writeoffs for inventory adjustment,'' UBS analyst Glyn Lawcock told Reuters. "The writeoffs will clearly mean that the market will probably bring down its earnings estimates.''
Rio said the decline in production, which was prompted by a drop in Chinese demand, resulted in a rise in unit costs and a general tightening of margins.
The company is planning to axe about 14,000 jobs worldwide and reduce capital expenditure by up to $US5 billion ($7.6 billion) this calendar year to help conserve cash flow and reduce debt amid the tough economic environment.
"We are taking firm action in response to the global economic downturn and, given the resilience of Rio Tinto's low cost assets, expect to remain well positioned when recovery comes,'' Rio chief executive Tom Albanese said in a statement.
The company has warned that fourth quarter earnings for Rio Tinto Alcan would be negatively impacted by the sharp decline in the aluminium price, and that copper provisional pricing would impact underlying earnings by $US360 million in the second half of 2008.
Aluminium output during the quarter climbed 21% higher to just over 1 million tonnes, despite a strong performance from the company's Canadian smelters outweighed by production cutbacks in Europe and New Zealand.
Rio said it had curtailed about 5% of its smelting capacity and would continue to assess production rates in light of the current market weakness.
Anglesey Aluminium Metal, a joint venture between Rio Tinto Alcan and Kaiser Aluminium, said on Thursday it would end smelting operations at the end of September after its power contract expires.