Coronavirus a threat to construction: Rio Tinto chief

Major construction projects in mining and elsewhere could be delayed if the coronavirus is not halted, Rio’s chief says.

Jean-Sebastien Jacques, chief executive officer of Rio Tinto Ltd in London on Wednesday night. Photographer: Simon Dawson/Bloomberg.

Major construction projects in mining and elsewhere across the nation could be delayed if the spread of the coronavirus is not halted, according to Rio Tinto boss Jean-Sebastien Jacques.

Rio has $US4.2bn ($6.4bn) worth of construction under way in the Pilbara, including a new mine and railway line at Koodaideri and expansion work at its Tom Price operations, as well as a massive underground expansion of its Oyu Tolgoi mine in Mongolia, not far from the Chinese border.

Mr Jacques said Rio’s “iron ore books are full” and there had been little impact on shipments to customers to date, but Rio was expecting to see some short-term impact across its own supply, and potentially in the provision of services from China.

The coronavirus crisis has elevated concerns about the global interdependence of supply chains given China’s place as the world’s industrial powerhouse, and Mr Jacques said the mining giant was keeping a close watch on the impact of the virus on Rio’s Chinese-based suppliers for potential flowthrough effects on Rio’s construction work.

“There could be an impact on all projects across industry, because a lot of fabrication is coming from China,” he said. “We know some suppliers across the supply chain have already declared force majeure. But we don't have a view at this point in time.

“We could see an impact — but the impact will be across all the industry, and not just the mining industry here.”

Rio chief commercial officer Simon Trott said the company was making preparations for ­potential disruptions, saying Rio had reached out to more than 200 of its customers and suppliers in the past week to gauge the likely impact of the disease.

“Supply chains are now far more interlinked than they have been previously, and as some of those effects flow through — particularly on some of the labour-heavy sectors, steel fabrication and the like — we’re going to see some of that express itself through the supply chain,” Mr Trott said.

“We’re working closely in the market, but also each of our businesses, to make sure we identify alternate suppliers and that we identify those impacted in advance and to seek to mitigate where we can.”

With much of Oyu Tolgoi’s food and day-to-day supplies also coming across the border from China, Mr Jacques said Rio was also keeping a close watch on the situation to ensure its Mongolian employees were kept safe and healthy.

Rio declared $US3.82 final dividend on the strength of 2019’s strong iron ore price, handing back another $US3.7bn to shareholders, after booking an $US8bn net profit despite a troubled operational history in 2019. Analyst consensus had tipped Rio’s full-year dividend at $US4.52 a share, on the back of an expected underlying earnings of $US10.4bn.

Rio booked underlying earnings before interest, tax, depreciation and amortisation of $US21.2bn and underlying earnings of $US10.3bn. Of that, 85 per cent, or $US9.3bn of the $US11.3bn delivered by its operations, was contributed by its dominant iron ore division.

Rio’s copper and diamond group delivered underlying earnings of $US554m, outdone by its aluminium operations in a tough market, which booked $US599m in underlying earnings. The energy and minerals group — which includes its titanium and borates businesses, as well as its Canadian iron ore operations — recorded $US611m in underlying earnings for the year.

“In 2019 we generated $US21bn of EBITDA, with a strong margin of 47 per cent, resulting in an industry-leading return on capital employed of 24 per cent,” Mr Jacques said.

“Our underlying business generated over $US62bn over a four-year period. Eighty per cent, or $US50bn of this, came from cash from operations. On the back of this, we paid $US36bn since 2016. That is equivalent to over 67 per cent of our market capitalisation at the beginning of 2016.”

Mr Jacques also announced Rio’s latest round of carbon emission targets, saying it would reduce its carbon intensity at its managed and non-managed operations by 30 per cent by 2030, and is targeting a 15 per cent reduction in absolute terms by the same date.

Although Rio said the targets would apply to both its scope 1 and 2 emissions — those directly emitted as part of its operations, and those released by core parts of its supply chain such as power generation — it is still yet to follow BHP’s lead and commit to setting targets for scope 3 emissions released by its customers using Rio products