Rio (RIO) Says Iron Ore, Coal Production Down in 1Q

Not unexpectedly, Rio Tinto (NYSE:RIO) announced coal and iron ore production in the first quarter fell as a result of the heavy rains which hampered mining in Australia. Also affected was uranium output.

Production of iron ore fell from 50.1 million tons the prior quarter to 41.9 million metric tons. Hard coking-coal production dropped to 1.6 million tons, a 29 percent decline.

Full year earnings for Rio and major competitor BHP Billiton (NYSE:BHP) are expected to come under some pressure from the slowdown.

Evens so, Rio estimates it'll produce about 191 million tons of iron ore in 2011, up from the 184 million tons produced in 2010.

Paul Galloway, a Sanford C. Bernstein Ltd. analyst, wrote today in a note to clients, “Given this relatively robust full year production guidance, we view the substantial miss in iron ore production as a largely one-off occurrence and would expect to see improvement in the short-term. The overall impact on full-year 2011 earnings estimates in the market may be smaller than might initially be expected.”

Chief Executive Officer Tom Albanese said concerning production, “Our Australian coal, iron ore, uranium and alumina operations were affected by the extreme weather in the first quarter. Most are recovering and are benefiting from continued strong prices.”

Rio was trading in New York at $71.22, falling $0.91, or 1.26 percent, as of 2:15 PM EDT.

Rio Tinto (NYSE:RIO) Shrugs Off China's Higher Interest Rate Announcement

The announcement from the Deputy Governor of the People’s Bank of China that they'll probably raise interest rates soon in order to continue their battle against rising inflation didn't have much impact on Rio Tinto (NYSE:RIO), which announced they're going to continue to expand spending through 2011 to $11 billion, close to three times what they're spending in 2010.

The story of China is sometimes misunderstood or overreacted to, as even though they may cut back on spending and tighten their spending, it's a matter of degree, and they're still going to grow strongly, although probably not at the pace they have been.

Demand for some raw materials may fall, but China also likes to stockpile as well, so it's hard to tell the depth of the decline in imports they make in relationship to commodities.

Rio knows that China will continue to buy over time, and whatever steps they take in the short term does nothing to change the demand for commodities over the long term which is far from being exhausted.

Rio Tinto CEO Tom Albanese sees there being more volatility in the short to mid-term. He said, “The long-term picture remains very positive for our businesses, but there remain a number of risks in the mid-to- near term, and for us this points to continued volatility.”

Of the approximate $11 billion budget projected for 2011, about 40 percent of that will be set aside for the iron ore sector.

Citigroup (NYSE:C) Sees Possible $10 Billion Share Buyback by Rio (NYSE:RIO)

Citigroup (NYSE:C) said they believe Rio Tinto (NYSE:RIO) could launch a $10 billion share buyback sometime in 2011 while maintaining their capex project for its mine projects.

“We expect Rio to move into a net cash position in 2011. This will allow the company to look at growing through M&A or returning cash to shareholders through buybacks,” Citigroup wrote in a note.

After the takeover of Alcan in 2007, Rio Chief Executive Officer Tom Albanese has worked on paying down the debt from the deal and profits increased as metal prices, along with coal and iron ore, went up.

Citigroup estimates net cash for Rio Tinto to be $9.4 billion in 2011, and increasing to $23.9 billion in 2012. Capex is expected to reach $9 billion in 2011.

Rio said their focus is on investing in areas that will add growth to the company.