Rio Tinto Disappoints On Q3 Production, Sets Positive Tone About Organic Growth

The leading global miner Rio Tinto RIO has missed analysts' estimates, scoring weaker-than-expected third-quarter production across the board. Despite this short-term weakness, the company's $6.7b acquisition of Arcadium Lithium is unlikely to meet criticism, given the long-term potential and cyclicality of that market.

Rio Tinto increased Pilbara's production by 1%, reaching 84.1 million tons of iron ore, as productivity gains helped offset ore depletion. However, Goldman Sachs' analysts expected 86.2.

The firm has maintained its full-year shipping guidance between 323 and 338 million tons, but cash cost units could rise with forecasts in the upper range of $21.75 to $23.50 per ton, citing inflationary pressures.

"We continue to strengthen our operations, with the roll-out of the Safe Production System delivering consistent production at our Pilbara iron ore business," said CEO Jakob Stausholm,

Copper production took a slight hit, with mined copper down by 1% to 168,000 tons in Q3. This decline was largely due to the highwall movement at the Kennecott mine in Utah, which restricted access to the main ore face and required the use of lower-grade stockpile ore.

Rio Tinto expects this disruption to impact mined copper production by approximately 50,000 tons in 2024. The company has revised its mine plan to address this challenge, but the highwall movement could affect output through 2025 and 2026.

On the bright side, the company is making progress regarding organic growth. The first lithium production from the Rincon plant in Argentina is expected in the coming months.

Meanwhile, in Guinea, the Simfer iron ore mine is on track to begin operations next year. It will have a capacity of 60 million tons per year, of which Rio Tinto will contribute 27 million tons share.

Additionally, copper production ramp-up continues at the Oyu Tolgoi underground mine in Mongolia, where higher copper grades are expected to boost output.

Stausholm also highlighted the company's continued focus on expansion into critical and battery metals.

"The acquisition of Arcadium Lithium brings a world-class lithium business alongside our leading aluminum and copper operations," he noted. "This is aligned with our strategy and increases our exposure to a high-growth, attractive market."

Despite its 90% premium to share price, the Arcadium acquisition is deemed a solid move given the company's scope of operations, assets potential, and a significant plunge in lithium prices. It is expected to close in mid-2025, propelling Rio Tinto to a top global lithium producer.

Price Action: Rio Tinto's shares are trading 0.27% lower to $66.29 in the premarket session at the last check on Wednesday.

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