Rio Tinto’s 4Q15 Production Numbers Are Strong: What about 2016?
(Continued from Prior Part)
Coal volumes
Along with iron ore and manganese, metallurgical coal is a key input in steel production. A sustained rise or fall in coal shipments is a significant indicator that affects the stock value of coal producers (KOL) such as BHP Billiton (BHP)(BBL), Rio Tinto (RIO), Peabody Energy (BTU), Alliance Resource Partners (ARLP), Arch Coal (ACI), and Cloud Peak Energy (CLD). Rio Tinto forms 1.7% of the SPDR S&P Natural Resources ETF (GNR).
Coal production
RIO’s hard coking coal production rose 11% YoY (year-over-year) to 7.9 million tons in 2015 due to improved production rates at Kestrel. The Kestrel mine continues to ramp up to its nameplate capacity of ~6 million tons.
Semi-soft coking coal production was also 14% higher YoY in 2015 and 9% higher YoY in 4Q15, owing to production sequencing at Rio’s Hunter Valley operations.
Additionally, thermal coal production showed almost flat growth over 2014 to come at 18.6 million tons. Earlier during the year, Rio also announced that it had reached a binding agreement for the sale of its interest in the Bengalla joint venture to New Hope Corporation Limited for $606 million.
Coal guidance in line
- Rio Tinto expects its share of production to come in at 16 million–17 million tons of thermal coal, 3.3 million–3.9 million tons of semi-soft coking coal, and 7 million–8 million tons of hard coking coal.
- This guidance implies an 11% fall for thermal coal, a 1.3% fall for semi-soft coking coal, and a 5% fall for hard coking coal. The fall in thermal coal production is due to the sale of the Bengalla joint venture.
In 2015, many coal companies filed for bankruptcies, and any more are on the verge of filing for bankruptcy due to weak fundamentals in the coal market and burgeoning debt levels. Only the most efficient and lean producers would be able to make it through the current rout in this space.
For more on coal and coal producers, visit Market Realist’s coal page.
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