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.