October 15, 2018 / 10:51 PM / in a month

UPDATE 2-Rio Tinto says Q3 iron ore production falls, Oyu Tolgoi start delayed

* Iron ore output down 5 pct

* Flagship Oyu Tolgoi start delayed

* Analysts estimate output could start in Q3 2021

* Q3 Copper output up 32 pct (Adds details on Oyu Tolgoi production and cash flow)

By Arathy S Nair

Oct 16 (Reuters) - Global miner Rio Tinto Ltd said its third-quarter iron ore shipments fell about 5 percent, after four quarters of growth, and first production from Oyu Tolgoi, its giant copper and gold project in Mongolia, would be delayed.

Anglo-Australian Rio attributed the reduction in iron ore production to planned maintenance and safety pauses following a fatality, and said the start of underground development at Oyu Tolgoi would be revised due to a delay in the completion of a shaft, and ground conditions.

In August, a truck operator was fatally injured at Rio’s Paraburdoo Iron Ore mine in Western Australia.

Shipments from its Australian mines fell to 81.9 million tonnes in the third quarter compared with 85.8 million in the same period a year ago, the miner said.

UBS had estimated quarterly Pilbara iron ore shipments of 82.5 million tonnes.

The weak quarter follows a brisk first half, when all of the big four iron ore miners bolstered shipments to China which seeks higher grades to comply with stricter environmental rules.

China buys just over half of Australia’s commodity exports.

OYU TOLGOI

Oyu Tolgoi, located in the South Gobi region near landlocked Mongolia’s southern border with China, is scheduled to complete a $5.3 billion underground expansion for first production around 2020, creating one of the world’s biggest copper suppliers.

Rio said the capital costs for the project remain in line with the overall budget, but said shaft-sinking challenges were “ultimately expected to result in a revised ramp-up schedule”.

Analysts at Brokerage BMO Capital Markets, which rates Rio Tinto “outperform”, estimate first sustainable production would be delayed by six months to the third quarter of 2021.

They said this would hit the mine’s free cash flow by about $1 billion between now and 2024 of which about $340 million is attributable to Rio.

Rio, which competes with BHP and Brazil’s Vale SA in the seaborne-traded iron ore market, maintained its target to ship at the upper end of the guidance range of 330 to 340 million tonnes for 2018.

The company said on Oct. 11 that it expected raw materials costs for its aluminium division to be about $400 million higher versus a year ago for 2018 and that costs should stay elevated into next year.

Higher thermal coal prices are likely to have an additional negative impact of $100 million in 2018 for its Pacific Aluminium smelters, it added.

Rio Tinto, which has contracts with sanctions-hit aluminium maker UC Rusal, is monitoring the impact of the U.S. sanctions but has not declared force majeure to date, it said.

In an effort to maintain production capacity to feed China’s giant steel industry Rio said on Oct. 1 that the miner and its Japanese joint venture partners will spend about $1.55 billion at two iron ore projects in Western Australia.

In other metals, Rio’s copper output jumped 32 percent to 159,700 tonnes in the quarter thanks to robust production from its Kennecott Utah Copper business.

London-listed shares of the company were down 0.4 percent at 3722 pence while Australia-shares closed up 1.6 percent at A$78.70. (Reporting by Aditya Soni and Arathy S Nair in Bengaluru; Editing by Alexandra Hudson)

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