Rio’s Grasberg mine cuts copper production outlook
RIO Tinto expects historically high levels of copper supply disruptions to keep the market tight in the coming years.
“We firmly believe we will continue to see higher levels of disruption going forward than we have seen in the past,” chief executive for copper Bret Clayton said.
Mr Clayton’s statement came in response to a question on the impact of a recent incident at the Grasberg mine in Indonesia, operated by Freeport-McMoran Copper and Gold Inc and 40 per cent owned by Rio Tinto (ASX: RIO).
On Wednesday, Freeport cut its copper production outlook for 2008 by about 67,000 tonnes after a small-scale failure at the mine.
Mr Clayton said such disruptions are becoming more common and resulted from technical issues as mines move deeper into the earth.
He said stakeholder and community engagement issues, such as labour negotiations, had also constrained supply.
“We’ve seen much higher levels of disruption from 4 to 6 per cent compared to the historical average of 2 to 4 per cent,” he said.
“And we think this is going to continue to impact on the supply response in what is a very tight market.”
The Grasberg failure will reduce Rio Tinto’s copper group earnings slightly this year.
“It’s tens of millions (of dollars) not hundreds of millions. It’s not huge,” Mr Clayton added said.
He also noted companies were finding it increasingly difficult to bring new production on line. As a result, Rio Tinto anticipates that by 2012 current copper stock levels will be about the same in days of supply as today.
One of Rio’s major development projects is the Oyu Tolgoi copper and gold mine in Mongolia.
Rio and its partner Ivanhoe Mines are in negotiations with the government on an investment agreement that will allow the companies to mine a rich metal deposit.
Mr Clayton said he is scheduled to meet with Mongolia’s new Prime Minister Sanjaagiin Bayar on Monday and he hopes to encourage him “to work toward something through the end of the year”.
“We are ready to move and they have indicated this is a critical aspect of their economy and their government,” he said.
BHP Billiton (ASX: BHP), engaged in a $US160 billion hostile bid for Rio Tinto, has said delays in gaining government permission for the Oyu Tolgoi project undermines Rio’s claims of long-term growth.
Copper for delivery in three months on the London Metal Exchange was trading at $6,862 a tonne on Thursday, down 23 per cent from its record high on July 2.
Copper has fallen along with the rest of the commodity sector since July, pressured by the dollar’s reversal against the euro, a pessimistic outlook on global economic growth and rising copper inventories.
SOURCE: The Australian Business
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