Rio Tinto's profits from Grasberg copper mine to fall on declining output
Rio Tinto's profits from Grasberg copper mine to fall on declining output
Tan Hwee Ann, Bloomberg, Melbourne
Rio Tinto Group, the world's third- largest miner, may get almost no profits from its share of Freeport-McMoRan Copper & Gold Inc.'s Grasberg mine in 2007 as copper output at the mine declines, said Macquarie Bank Ltd.
Rio's share of profits from copper production at Grasberg, the world's second-biggest copper mine, may fall to US$8 million in 2007, compared with an expected $155 million this year, Macquarie analysts Ben Lyons, Brendan Harris and Sam Catalano said in a note today. London-based Rio's copper chief executive Tom Albanese gave a briefing to analysts yesterday.
Rio owns 40 percent of the Grasberg mine in Indonesia, and only gets profits from the mine when output exceeds a certain amount. Freeport is mining at a lower grade section of the mine, which will reduce production, said Macquarie, Australia largest investment bank. Demand for copper has surged globally led by China, driving prices to a record this year.
"This guidance came as no surprise to Macquarie," the report said. "It may induce modest earnings downgrades across the market."
Freeport, based in Louisiana, on Nov. 29 said its fourth- quarter production from the Grasberg mine will fall short of targets due to lower-grade ores.
China has delivered 140,000 tons of copper to cover short positions, or bets that prices will fall, and has another 240,000 tons to deliver, Macquarie also said in the report. The copper delivered has been stockpiled since the early 1990s and was of "Soviet and Kazakh origin," the bank said. These figures weren't supplied by Rio, company spokesman Ian Head said in an interview.
China likely has a bigger stockpile of copper than the estimated 200,000 to 300,000 tons, Merrill Lynch & Co.'s analyst Vicky Binns said in a note yesterday, citing Albanese. Though it likely doesn't have 1.3 million tons of copper stockpiled as claimed by others, said Merrill, citing Rio.
The State Reserve Bureau in China may have 1.3 million tons of copper inventories, Citigroup Inc., the biggest U.S. financial services company, said in a Dec. 4 report. The bureau is selling copper to cover wrong-bets by a government trader Liu Qibing, according to traders.