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Global miner Rio Tinto is on track to hit its 2011 iron ore production target after posting on Thursday a 12-per-cent rise in second-quarter output on the year, but its Australian coal operations were still recovering from floods.

Flooding and cyclone damage to mining operations contributed to the biggest slump in 20 years in Australia's GDP in the first quarter. The economy relies on coal as its single largest export earner and has been bracing for a fall of 5 per cent in shipments.

Rio lowered its hard-coking coal output guidance for full-year 2011 to 8 million tonnes from 9.3 million tonnes previously due to the continued impact of damage from severe rains in the first quarter.

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The Australian Bureau of Agricultural and Resources and Sciences forecast total Australian coking coal exports of 150 million tonnes in 2011.

"Operations [coal] largely recovered from the severe weather impacts earlier this year, although some port and rail constraints remained," Rio Tinto chief executive officer Tom Albanese said in a statement accompanying quarterly production data.

Rio Tinto said its hard-coking coal production in Australia was 9 per cent higher than the first quarter but was down 26 per cent on the second quarter of 2010 due to the rains.

Rival BHP Billiton, which mines more coal in Australia than Rio Tinto, is also expected to show a slow recovery from the floods when it reports quarterly production on July 20.

Albanese flagged the potential effect on future earnings of "worsening adverse exchange rates and some input cost pressures," after a second quarter characterized by strong prices for most metals and minerals.

Rio's Australian thermal coal production was less affected by damage from the floods, and at 4.8 million tonnes was 18 per cent higher than the first quarter and 5 per cent up on the second quarter of 2010.

Analysts had expected Rio Tinto to show flat or slightly higher output of coking and thermal coal on the previous quarter as mine pits begin drying out and rail lines slowly return to normal.

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Analysts expect Rio Tinto to show a record profit of around $19-billion (U.S.) this year on the back of hefty demand for industrial commodities in Asia, but said it was not immune to rising costs linked to expensive oil and construction materials.

"It [rising costs] is something that all companies in this space have been pointing to – you saw it with Alcoa – and I think it will be a theme across all the majors," said Tim Dudley, an analyst at Collins Stewart in London.

Sydney-based UBS mining analyst Glyn Lawcock said there were some adjustments to production on the downside, but not enough to change his buy recommendation on the stock.

"They've lowered their coal guidance, they've lowered their alumina guidance and they've gone from iron ore production of 244 million tonnes to 'in excess of 240 million,' so it depends on how the back half now goes for iron ore," Mr. Lawcock said.

Rio Tinto, like most commodities producers, denominates sales in U.S. dollars, meaning a weak greenback erodes profit margins.

Every 10-cent move in the value of the Australian dollar versus the U.S. dollar – up 5.3 cents so far this year – adds or subtracts roughly 3.7 per cent from full-year earnings.

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Rio Tinto, the world's second-biggest producer of iron ore after Vale of Brazil, said iron ore production of 49 million tonnes attributable to the company was up 12 per cent on the second quarter of 2010 and up 17 per cent on the first quarter of 2011. Still, first-half iron ore shipments of 110 million tonnes were 6 million tonnes lower than 2010's first half, following several cyclones, widespread flooding and a subsequent train derailment in the first quarter of 2011 in Western Australia.

Rio Tinto operates some of its iron ore mines on its own and some in joint ventures.

Mined copper output was down 24 per cent on the second quarter of 2010, primarily reflecting lower grades at its 30-per-cent owned Escondida mine and wholly owned Kennecott Utah Copper division.

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