Can’t catch a break
It seems that Rio Tinto can’t catch a break. In the past 12 months, the company has had to accept significant impairments, deal with a falling iron ore price, and now it has lowered its full year copper production target by 19 per cent as a result of a significant wall slide at their Kennecott Utah Copper mine.
Rio Tinto broke the news on 11 April by announcing: “At 9.30 pm local time on 10 April 2013, Kennecott Utah Copper’s Bingham Canyon Mine experienced a slide along a geotechnical fault line of its north eastern wall. Movement on the north eastern wall had accelerated in recent weeks and pre-emptive measures were taken to relocate facilities and roads prior to the slide.”
The company has provided greater detail on this announcement in its Q1/2013 Operations Review that was released yesterday. It stated that:
“On 10 April 2013, the Kennecott Utah Copper mine experienced a slide along a geotechnical fault line of its north eastern wall. Waste movement associated with the Cornerstone extension has restarted but ore production remains suspended and timing to restart ore production remains under evaluation . . .
“The concentrator has been shut down while the smelter and refinery are currently operating at reduced levels . . .
“Based on an early assessment of information currently available, it is estimated that 2013 mined and refined copper production at Kennecott Utah Copper will be less than previously anticipated by approximately 125,000 tonnes and 100,000 tonnes, respectively.”
Digging deeper
By solely looking at the numbers, we can see that this event will have a considerable impact on the company, particularly when you consider that 48,200 tonnes were mined in the first quarter. However, at Montgomery Investment Management, we always like to go one step further than simply looking at the official statements provided by management. It always helps to go to the source of an announcement in order to fully understand the impact.
Take a look at the pictures of the wall slide that are being released by news sources. DesignBuildSource has just released an article detailing the event, in which they describe the wall collapse as “catastrophic”, and as leaving “two-thirds of the base of the mine buried”.
It was only in June 2012 that Rio indicated it would extend the life of the mine by a decade – from 2018 to 2029 – and would invest a further $660 million in its development. This sum will have to grow in order to clear the waste and repair the damaged equipment – not to mention the opportunity cost of lost production. This is a serious setback to the company, and its share price has fallen by 6 per cent since the news broke.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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