Rio downgrades iron ore guidance

Mining giant Rio Tinto has been hit by a range of major operational challenges caused by skilled labour shortages, Aboriginal heritage management, and heavy rain.

The global miner said Pilbara iron ore production fell 9 per cent to 75.9 million tonnes in the June quarter of 2021.

In the same period, shipments fell 12 per cent to 76.3mt.

Rio said its annual iron ore shipments for 2021 would be at the low end of its guidance range, of between 325mt and 340mt.

It added this remains subject to the tie-in and ramp up of its ‘brownfield’ replacement mines, ongoing cultural heritage management and weather conditions.

By comparison, it shipped 331mt in 2020 but still aspires to reach its system capacity of 360mt.

As well as cutting production guidance, Rio has increased its costs guidance for the iron ore business.

Outside of WA, its mined copper and bauxite production is also expected to be at the low end of its guidance range.

In a research note, investment bank UBS said the quarterly report was "even weaker than we expected".

Commenting on its Pilbara operations, Rio said ongoing COVID-19 restrictions and a tight labour market had impacted its ability to access experienced contractors and particular skill sets.

It highlighted shortages relating to structural, mechanical, electrical and instrumentation disciplines.

At its Gudai-Darri project, labour shortages have affected both steel fabrication and site construction activities.

“First ore in the crusher is expected in 2021, although commissioning is later than originally planned,” Rio said.

The project is expected to ramp up in early 2022.

At its West Angelas project, load commissioning is expected later in the year following delays related to heritage management.

First ore at its Robe Valley (Mesa B, C, H) and Western Turner Syncline Phase 2 projects is still expected in 2021, consistent with previous guidance.

However, shutdowns to enable the Robe Valley and Western Turner replacement mines to be tied-in to existing infrastructure, along with reduced processing plant availability, particularly at Yandicoogina, cut first-half production by about 4mt.

Rio said the execution of shutdowns was impacted by labour shortages.

Sustained wet weather in the Pilbara cut first-half production by around 3mt.

A third factor adversely affecting production was Aboriginal heritage management, which Rio is prioritising at its daily site operations as it seeks to address reputational issues from the Juukan Gorge destruction.

This factor cut 2021 production by around 2mt as mine plans have been amended, and buffers and exclusion zones have been incorporated to protect areas of high cultural significance.

Blast management plans have been developed to create smaller, higher controlled blasts to minimise vibration and protect heritage sites.

This affected 11 per cent of blasts in the first half and has affected mining productivity and materials handling.

“[T]his will remain a risk factor, however we are adapting mine practices and improving productivity,” Rio said.

Rio acknowledged the full impact of the proposed reform of the Aboriginal Heritage Act remained unknown.

Meanwhile, Rio has pushed back the targeted production at its Winu copper project in the Pilbara for a second time, to 2025.

It was originally targeting 2023.

Rio said it was continuing to engage with the traditional owners and planned to begin discussions on the initial scope and mine design.

It is also consulting with WA’s Environmental Protection Authority.

Rio said the delay was partly due to COVID-19 constraints.

One positive for Rio is the continued strength of the iron ore price, with the benchmark price around historic highs at $US218 per tonne.

“The iron ore price has remained resilient on a surge in demand while supply has struggled to keep pace,” Rio said.

“China’s steel demand is up 5 per cent year on year in the first half, with the construction and automotive sectors performing strongly.

“Consumption was also robust across the rest of the world, with demand recovering +15 per cent in 2021 versus 2020.

“The major iron ore producers’ supply continues to lag expectations, while high cost supply balances the overall market.”

Rio’s share price dipped slightly today by 65 cents to $130.49.