Aluminium unit weighs down on Rio Tinto

RIO Tinto continues to rack up quarterly production records at its flagship Australian iron ore operations but has declared it will log a second-half loss at its struggling aluminium unit.

The billions of dollars Rio has been investing in expanding its iron ore mines, railways and ports in Western Australia's Pilbara region led to yesterday's announcement that its third straight quarterly production record just beat analysts' forecasts.

While Rio's low-cost iron ore mines continue to rake in high margins at current prices, its aluminium smelters are a different story.

The supply-heavy but demand-weak aluminium market is taking its toll on Rio, which confirmed it had cut 462,000 tonnes a year of annual production capacity.

Rio downgraded October guidance of a break-even second half to a small underlying loss for the assets it mostly acquired in the disastrous $US39 billion cash takeover of Alcan in 2007.

"Underlying earnings for the group's aluminium operations are expected to be slightly worse than break-even, due to difficult market conditions and the impact of various one-off costs," Rio said.

The one-offs include $40 million of extra closure costs at its Lynemouth smelter in Britain.

The loss means 2011 underlying profit for Rio Tinto Alcan, including Australian and New Zealand operations Rio says it is trying to sell or float as Pacific Aluminium, will be less than $379m.

Rio chief executive Tom Albanese restricted his comments on the result to the increased production from Rio's Australian operations after a wet first half.

"Production has bounced back from the severe weather conditions experienced in the first half, which had the biggest impact on Australian iron ore, coal and uranium," Mr Albanese said.

Rio's shares ended 81c higher at $65.70, which was roughly where they were trading before the fourth-quarter production results were announced in the afternoon.

Fourth-quarter iron ore production of 65 million tonnes lifted full-year production to 245 million tonnes, in line with guidance of more than 240 million tonnes.

Analysts had been predicting about 242 million tonnes for the full year.

Fourth-quarter production from Rio's Pilbara mines was 61.7 million tonnes, up from 59.9 million tonnes the previous quarter.

Mined fourth-quarter copper production of 137,000 tonnes was below expectations of 140,000 tonnes. Full-year production of 519,700 tonnes just missed guidance of 522,000 tonnes.

Diamond production of 2.96 million carats missed expectations of about 5 million carats because of maintenance shut downs at the Argyle diamond mine in Western Australia's Kimberley region.

Coking-coal production from the Benga mine in Mozambique, was delayed from the start of this year to the end of the first quarter.

"Logistical constraints and upgrade work on the Sena railway line have contributed to revisions to the original timeline," Rio said.

Provisional copper pricing would mean a $US50m ($47.99m) drop in second-half underlying earnings, while a change to the accounting for mine closure and environmental provisions would take a further $US70m from underlying earnings, the company said. Analysts are expecting Rio to deliver 2011 earnings of about $US15.7bn.