Rio Tinto had a June quarter to forget.
The company had to battle wet autumnal weather which hit its Pilbara iron ore mines, cutting production and exports; lowered bauxite output at its huge mines on the western side of Cape York in north Queensland; encountered growing labour shortages in the Pilbara; the collapse of a mining area at its Kennecott copper mine in the US and violence at its Richards Bay mineral sands operations which saw an executive murdered and the operations halted.
The poor quarter means that unless Rio Tinto can find a way to boost iron ore production over the next two quarters, it looks like disappointing investors who had been hoping for a small gain in output and sales or the year to December.
There’s a chance Rio’s production for 2021 will not exceed 2020’s.
Of course, the financial impact of any shortfall will be more than made up by iron ore prices remaining well over $US200 a tonne, but it looks increasingly like the world’s biggest iron ore exporter is marking time.
The shortfall from Rio helped keep global iron ore prices a little firmer for the quarter.
Similarly the company warned that copper production will also be at the low end of guidance for the year, but record world prices in the June quarter will have more than made up for a 11% shortfall in production for the half (and 13% for the June quarter).
In its June quarter and half year production reports released on Friday, Rio warned that it expects “iron ore shipments to be at the low end of the guidance range which remains subject to COVID-19 disruptions, tie-in and ramp up of brownfield replacement mines and management of cultural heritage.”
Seeing guidance for 2021 is a range of 325 million to 340 million tonnes, a result at the “low end” of guidance could see the company hard pressed to beat 2020’s 331 million tonnes of output.
The shortfall – if it happens – will be because of a poor second quarter performance, thanks to the wet autumn in the Pilbara.
Rio said its June quarter shipments of 76.3 million tonnes (100% basis) were 12% lower than the second quarter of 2020 with some additional drawdown of inventories.
“Ongoing COVID-19 restrictions and a tight labour market have further impacted our ability to access experienced contractors and particular skill-sets.” the company complained.
Production for the quarter fell 9% to 75.9 million tonnes from the June quarter of 2020 “due to above average rainfall in the West Pilbara, shutdowns to enable replacement mines to be tied in, processing plant availability, and cultural heritage management.”
For the six months to June production fell 5% to 152.3 million tonnes and sales dropped 3% to 154.7 million tonnes.
While the company can recover from the weather-related problems in coming quarters, the Covid restrictions and labour shortages will continue to trouble the miner (and BHP and Fortescue as well).
Rio said its mined copper production of 115,500 tonnes in the quarter fell 13% from the second quarter of 2020, “with lower recoveries and throughput at Escondida as a result of the prolonged impact of COVID-19, and a planned relocation of the in-pit crusher at Kennecott in April.”
“On 31 May, an anticipated slope failure occurred in the south east wall of the Bingham Canyon pit at Kennecott. There were no injuries or damage to equipment as the slide was accurately predicted by our geotechnical experts. Mining in the affected area restarted progressively in June. No ore has been sterilised and we expect to recover the material from the slide which is largely copper bearing ore,” Rio said
The fall saw mined copper production for the half year to June fall 11% to 236,100 tonnes.
And there will be little chance of recovering that lost tonnage in coming months as Rio warned that “Mining rates (at Kennecott) will however be slower due to the size distribution of the material, and therefore some high-grade production scheduled for late 2021 will be deferred to 2022.”
Rio had forecast mined copper production for 2021 of 500,000 to 550,000 tonnes. The end of year figure is now forecast to be at the low end of that range which could put it under the 528,000 tonnes produced in 2020.
Bauxite production is also forecast to be at the low end of the forecast range of 56 to 59 million tonnes, meaning little improvement in 2020’s 56 million tonnes.
First half output of 27.3 million tonnes was down 3% from the figure for the first half of 2020. June quarter production fell 6% to 13.7 million tonnes because of the wet weather in north Queensland.
Rio said its full year titanium dioxide slag production guidance has been withdrawn after violence and the murder of a Rio employee near Port Richards in South Africa (where violence has worsened) forced the company to halt operations and declare force majeure.
