Sydney, 18 January 2011

Rio Tinto produced record volumes of iron ore in the October-December quarter and for 2010 as a whole to meet surging Chinese demand and cash-in on soaring prices, but coal output was disrupted by Australian floods.

The world's second-biggest iron ore producer after Brazil's Vale SA said on Tuesday that fourth-quarter output in its key business rose 6 percent compared with a year earlier and increased 9 percent in 2010 as a whole.

The production report underlined expectations that Rio's local rival BHP Billiton , the world's third-biggest producer of iron ore, will also report record output in a quarterly update on Thursday.

Graphic on Rio output:

http://graphics.thomsonreuters.com/11/01/AU_RIOPRD0111.html

Spot iron prices are trading at their highest level since April 2010. After sliding between April and July, they have risen steadily, providing global miners a strong incentive to boost output, especially to meet the 1 billion tonnes a year of iron ore demand from fast-growing China.

Rio derives more than half of its EBITDA, or earnings before interest, tax, depreciation and amortisation, from its iron ore businesses. The figures were in line with the production guidance Rio provided during the quarter, when it announced $5.5 billion in new capital projects, and were unlikely to lead analysts to revise their profit forecasts for the company's 2010 results due on Feb. 10.

NO COAL SURPRISES

Analysts also saw little new in Rio's report on its coal output to suggest any revisions to the profit outlook. Devasting floods in Australia shut in most of the coal mines in Queensland, the state that produces 90 percent of the country's coking coal exports, which in turn account for two-thirds of world trade.

While Rio's Australian hard coking coal output was up by a fifth in 2010, it slid from the third to the fourth quarter and is likely to drop further as the full impact of the Queensland floods is felt.

Rio's Australian thermal coal production was down 9 percent overall for the year, mainly due to wet weather in the Hunter Valley coal region in New South Wales, it said. However, analysts suggest the Australian floods could have a greater impact on BHP's bottom line. Royal Bank of Scotland estimates that Queensland coal mining will account for 5 percent of Rio's and 9 percent of BHP's net profit after tax. "This highlights that BHP is more exposed to the negative impact of the floods," RBS said. Credit Suisse forecasts Rio will boost net profit after tax threefold in 2010 to $14.87 billion.

Barring major cyclones to hit the Pilbara iron ore belt in Western Australia, Rio's production is likely to remain strong this year, analysts said. However, if coal mines take time to resume output following the Australian floods, leaving steelmakers short of the material, iron ore demand could suffer as well.

"If coking coal supply really comes off, then steelmakers won't buy any more iron ore so iron ore prices would drop," said Scott Laprise, steel analyst at CLSA in Beijing. Currently, about 60 percent of Queensland's coal mines are operating under restrictions and 25 percent are yet to resume operations following the floods.

GENERAL NEWS

Rio said force majeure at four of its Queensland coal mines remained in place. It was unable to gauge the full impact of the floods or how long force majeure would stay in place, it said. "All the Queensland coal mines are operational but are still constrained in some way by weather impacts, including the impact on third party infrastructure," the company said.

BREAKDOWN OF REPORT

In a breakdown of the figures, Rio said its global iron ore operations produced a record 65 million tonnes, 50 million tonnes of which is attributable to the company after subtracting partners' share. Last year's output was also a record, at 239 million tonnes, 185 million tonnes of which goes to Rio.

Rio has earmarked $1.2 billion to increase production capacity in Australia's Pilbara region to 283 million tonnes a year by the fourth quarter of 2013. Rio's shares ended 1 percent higher at A$86.80 each, slightly outpacing gains in the wider market. But shares in smaller iron ore miner Fortescue Metals Group jumped 8 percent after reporting on Tuesday that output rose 9 percent in the quarter over a year earlier and outlining expansion plans.

Rio, the world's biggest aluminium producer, also reported that output of the metal in the fourth quarter was broadly steady at 962,000 tonnes compared with a year earlier. In other details, Rio said:

* Mined and refined copper output in the fourth quarter fell 9 percent and 6 percent respectively compared with a year earlier, while 2010 output fell 16 percent and 5 percent, in line with previous guidance.

* Production of mined copper from the world's biggest mine, Escondida in Chile, rose to 786,800 tonnes in 2010 from 774,400 in 2009, but dropped to 194,600 tonnes in the fourth quarter from 233,000 a year earlier.

* Escondida copper cathode output fell to 300,000 tonnes in 2010 against 327,000 in 2009; fourth quarter output was 82,000 tonnes versus 80,000 a year earlier.

* Rio holds a 30 percent interest in Escondida. BHP Billiton owns 57.5 percent and a consortium of Japanese firms and the International Finance Corp hold the remainder.

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