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Production Rose 10%, While Shipments Increased 20%
SYDNEY— Rio Tinto RIO.LN -0.83% produced record volumes of iron ore in the first half of 2014, after expanding several vast mines in the Australian Outback even as prices of the steelmaking ingredient tumbled.
The results demonstrate how Rio Tinto is deepening its reliance on a commodity used in things as diverse as cars and apartment blocks for profit, despite concerns among some investors that global mining companies are adding new supply too quickly. Several fund managers recently cut their holdings of mining shares, including Rio Tinto’s stock, amid worries about a looming supply glut of iron ore that could take years to clear.
Meanwhile, Fortescue Metals Group Ltd. said Wednesday that it expects to ship as much as 29% more iron ore to buyers in countries such as China over the coming year after completing an expansion of its Australian operations.
Fortescue, the world’s No. 4 iron-ore mining company, has grown over the past decade from a tiny explorer, competing against resource titans such as Rio Tinto and BHP Billiton. BHP.AU -0.42% It recently reached a long-targeted annual output rate of 155 million tons after building new mines in the resource-rich Pilbara region of Western Australia state.
Rio Tinto said Wednesday that it produced 139.5 million metric tons of iron ore in the first half, up 10% from a year earlier. Its shipments rose 20% to 142.4 million tons.
“Our iron-ore expansion continues to deliver high-margin growth reinforcing our position as a low-cost producer,” Rio Tinto Chief Executive Sam Walsh said in a stock-exchange filing.
Rio Tinto is betting that Chinese iron-ore demand will remain strong, helped in part by government spending on projects that need large amounts of steel, such as subways and airports. China imported 457 million tons of iron ore in the first six months of the year, up 19% from a year earlier, according to recent customs data. China buys three in every five tons of iron ore shipped by global mining companies.
In the remote Pilbara region of Western Australia, Rio Tinto has invested billions of dollars to expand mines capable of feeding this demand. The company in June hit a target of being able to produce 290 million tons in the Pilbara on an annual basis, and plans to spend a further US$2 billion to increase output by more than 20% within three years.
Other global mining companies, including Anglo American AAL.LN -0.29% PLC and BHP, are increasing production from South Africa to Australia, either by opening new mines or squeezing more from existing pits.
BHP Chief Executive Andrew Mackenzie said in an interview Wednesday that Australia should go as far as possible toward accommodating China, the resource-rich nation’s biggest trading partner.
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