Rio downgrades guidance in ore, copper, bauxite after another poor quarter
Rio Tinto has warned global supply chain cracks, and China’s energy crisis, could undermine its commodities business.
Rio Tinto has warned that cracks in the global supply chain and the energy crisis afflicting China and Europe could undermine its commodities business, as the mining giant lurched to another poor operational performance in the September quarter.
Rio’s operational woes show no sign of easing, with the company downgrading expectations across a suite of commodities, and revealed yet another delay to the expansion of its Oyu Tolgoi copper project in Mongolia.
While Rio said it expected demand for key products to remain strong, as aluminium prices rise and the iron ore price stabilises after September’s steep plunge, the company warned Chinese economic growth was slowing, with “clear headwinds” ahead.
“Risks related to commodity supply and demand are heightened due to supply chain bottlenecks as well as material and energy shortages,” Rio said on Friday.
“Inflation rates have remained elevated due to prolonged pandemic disruptions interfering with industrial activity. An economic downturn on the back of monetary policy tightening remains a key risk to the outlook.
“China’s economic growth is slowing from above-trend levels and becoming more balanced. There are some clear headwinds from recent regulatory tightening and the transition may lead to some near-term volatility.”
The comments come after Rio reported another poor performance from its global mining operations, with the company again downgrading its iron ore shipment guidance, blaming labour shortages and WA’s skills crisis for the latest problems besetting its once-dominant iron ore division.
Rio shipped 83.4 million tonnes of iron ore in the September quarter, a substantial improvement on the 76.3 million tonnes in the June period.
But the company lowered its annual shipment guidance by 5 million tonnes, saying it now expects to ship 320 to 325 million tonnes of iron ore from the Pilbara, down from previous expectations of 325 to 340 million tonnes.
Rio blamed the skills crisis in WA for its latest woes in iron ore, saying it was facing “modest” delays to the completion of its Gudai-Darri iron ore mine, and replacement projects at existing mines “due to the tight labour market in Western Australia”.
But Pilbara iron ore is not the only one of Rio’s divisions facing problems, with the mining major lowering output expectations at its bauxite, copper, and Canadian iron ore operations – adding to the grim picture of Rio’s operational performance this year.
Production at its Pilbara operations fell 4 per cent compared to the same period in 2020, at 83.4 million tonnes “due to heritage management, brownfield mine replacement tie-ins and project completion delays”.
Rio still has plenty of work to do to reach even its downgraded shipment target, with year-to-date exports of 237.5 million tonnes, meaning it will need to load 82.5 million tonnes onto bulk carriers in the December quarter to meet its latest guidance.
Rio boss Jakob Stausholm conceded the September period had been another “difficult quarter operationally”.
“Despite improving versus the prior quarter, we recognise the opportunity to raise our performance. We have consequently modestly adjusted our guidance,” he said.
Rio also again shifted the goalposts on its troubled underground copper project in Mongolia, saying it now expected the first output from the multi-billion expansion in early 2023, from previous expectations of first production in October 2022.
And the mining major said it now expected copper output from its global portfolio to come in at the very bottom end of its 500,000 to 550,000 tonne previous guidance, slashing refined copper output expectations by 20,000 tonnes – from 210,000 to 250,000 tones to 190,000 to 210,000 tonnes.
Average copper costs are expected to rise as a result.
Bauxite shipments are also expected to come in lower than projections, with Rio stripping 2 million tonnes to the lower end of its guidance, now sitting at 54 to 55 million tonnes.
And its Canadian iron ore mines are now expected to ship a million tonnes less than previous guidance, at 9.5 to 10.5 million tonnes.
The latest downgrades come on top of a shocking June quarter performance from the company, when iron ore shipments plunged 12 per cent to 76.3 million tonnes compared to the same period in 2020. Its half year shipments were down 3 per cent to 154.1 million tonnes.
In its June quarter report the iron ore major lifted cost expectations to $US18 to $US18.50 a tonne, from earlier guidance of $US16.70 to $US17.70 a tonne, citing labour shortages, the need to tie in new mines to its port and rail system and the need to revise mine plans around Pilbara heritage sites.
Rio did not change its cost outlook for the full year in its September quarter production report, but warned it was still at risk and was “subject to price escalation of key input costs in particular freight and demurrage, diesel, labour and contractor rates and additional COVID-19 costs to support workforce vaccinations”.
Rio shares closed down 91c, or 0.9 per cent, on Friday at $99.60.
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