In the face of plunging commodity prices, Rio Tinto Limited (ASX: RIO), delivered a solid third quarter report for shareholders, according to CEO Sam Walsh.
"We continue to deliver efficient production, rigorous cost control and sound allocation of capital," Mr Walsh said. "Our cash generated from operations will enable us to deliver strong returns to shareholders through the cycle and our balance sheet will be further strengthened by recent divestment activity."
Here are five things every investor needs to know about Rio's third-quarter report:
- Iron ore shipments rose 12% over the prior quarter. Pleasingly, 22% of sales in the first nine months of the financial year were priced with reference to the prior quarter's average. Production is being bolstered by productivity gains and ramp-up of existing operations.
- Bauxite production rose 6% over the prior quarter.
- Mined copper fell 14%, despite higher grades leading to a 48% production increase at Rio's Oyu Tolgoi gold and copper operation in Mongolia.
- Aluminium production was mostly flat at 830 million tonnes, and full-year guidance remains unchanged.
- Full year iron ore production guidance remains unchanged at a whopping 340 million tonnes. Thanks to the successful completion of key infrastructure in the Pilbara region, Rio has added around 40 million tonnes of production at an extremely low capital intensity of $9 per tonne.
Foolish takeaway
As I alluded to here, the resources sector is in a "challenging economic environment" – as Mr Walsh put it in the miner's third-quarter report.
Indeed, China is slowing from an unprecedented commodities boom. And while the demand for raw materials from Asia is still very strong, albeit slowing, producers such as Rio, BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) are ramping up production levels to keep their revenues intact.
Unfortunately, as producers push more product into the market downward pricing pressure increases – further eroding profit margins. Although this 'race to the bottom' won't bring an end to low-cost producers like Rio, BHP and Brazil's Vale; I wouldn't want to hold any resources stocks in my portfolio at this time.
