Rio warns of further cuts as global slump hits iron ore

Jan. 15 (SYDNEY) (AFP) — Anglo-Australian mining giant Rio Tinto warned of further cutbacks on Thursday, announcing an 18 percent slump in fourth-quarter global iron ore output on the back of slowing global demand.
"Production for the quarter was in line with expectations," chief executive Tom Albanese said in a statement to the Australian Stock Exchange.
"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."
The fourth-quarter iron ore production of 31.8 million tonnes -- down 18 percent on the same period the previous year -- followed a scaling back of Rio's key western Australia operations, announced in November.
Rio has shelved a number of projects in the past week, including a gold and copper mining project and diamond mine in Australia and the expansion of its Corumba iron ore mine in Brazil.
The moves are part of a commitment to reduce net debt by 10 billion US dollars by more than halving net capital expenditure, reducing operating costs and selling off assets.
The company on Thursday also flagged further announcements in coming weeks, ahead of the release of preliminary annual results on February 12.
Rio estimated total annual exploration and evaluation expenditure at 1.14 billion US dollars before tax, including 176 million dollars in write-offs.
It said tough conditions had forced the scaling back of evaluation work at many growth projects, including the Simandou iron ore project in Guinea, the La Granja copper project in Peru and the Resolution copper project in the United States.
Refined copper production grew three percent in the fourth quarter compared with the same period in 2007, despite output from Chile's Escondida mine slumping 36 percent due to electrical issues and a significant decline in ore grade.
Falling copper prices were expected to erode underlying earnings by about 360 million US dollars in the second half of 2008, Rio said. A slide in aluminium prices was also anticipated to hit earnings and result in a significant writedown of inventories, it said.
Fourth quarter aluminium production rose 21 percent year on year, a sharp increase spurred largely by Rio's acquisition of Alcan in October.
However, Rio said strong performance at its Canadian smelters had been outweighed by production cutbacks in Europe and New Zealand, forcing it to cut its smelting capacity by about five percent. In light of current market weakness Rio said further cuts could follow.
Rio announced Thursday it would close its Anglesey aluminium smelter in Wales at the end of September.
Anglesey Aluminium Metal, 51 percent owned by Rio, depended on the local Wylfa nuclear plant for power, and would not be viable once the existing supply contract expired, Rio told the Australian Stock Exchange.
Hard-coking coal production for the fourth quarter jumped 40 percent on fourth-quarter 2007 figures, other Australian coal production climbed 21 percent and US coal was up two percent. Uranium production also grew 20 percent in the quarter, due to higher grades.
JPMorgan Analyst David George told Dow Jones Newswires the report was slightly disappointing, with weak copper output and higher unit costs outweighing better than expected coal production and iron ore in line with guidance.