Rio Tinto says the final agreements over Simandou development have been reached
Rio Tinto has pulled the trigger on the $US11.6bn development of its part of the giant Simandou iron ore project in Guinea, as its Pilbara iron ore operations suffered setbacks in the June quarter.
Rio Tinto has flagged weakening Chinese steel demand as a key factor in its market outlook as the giant Simandou iron ore project in Guinea received the final approvals needed to push construction into full swing.
Rio said on Tuesday the final government approvals in both China and the African nation have been received for Simandou, as the partners in the development push ahead with the construction of rail lines, port facilities and mines.
The announcement comes as Rio’s Pilbara iron ore output fell below analyst expectations on the back of a six-day rail outage, with the company also downgrading expectations for copper and alumina output for 2024.
Rio’s alumina output has been cut as the result of a gas pipeline explosion that has affected the company’s Gladstone operations in Queensland, with the company cutting 600,000 tonnes from its annual production guidance as a result, to 7 to 7.3 million tonnes.
The company also said it expected mined copper output to come in at the bottom end of its 660,000 to 720,000 tonne range due to ongoing geotechnical issues at its giant Kennecott mine in the US, which have forced the company to rejig its mine plan.
And iron ore output also disappointed, after a rail crash took its Pilbara rail network offline for six days during the quarter.
Rio shipped 158.3 million tonnes of iron ore in the first half of 2024 - an annualised rate of 316.6 million tonnes, well below the bottom end of its 323 to 338 million tonne export guidance.
The mining major said on Tuesday it expects to make up the gap in the second half of the year, however, leaving its annual cost and shipment guidance unchanged for the full year.
Production from Rio’s mines was also constrained by the rail accident, with output slowing after mine stockpiles reached their limits during the rail outage. Rio’s Pilbara mines produced 79.5 million tonnes during the period, down 2 per cent compared to the same period in 2023.
“Productivity gains offset ore depletion, however production and shipping in the quarter were impacted by a train collision in mid-May, which resulted in around six days of lost rail capacity and full stockpiles at some mines. Shipments of 80.3 million tonnes (Rio Tinto share 66.2 million tonnes) were 2 per cent higher than the second quarter of 2023, with the drawdown of port stocks,” the company said.
Rio flagged weakening steel demand in China in its quarterly market outlook, noting that Chinese crude steel output fell 5 per cent in April to May, compared with the previous year - with a 16 per cent increase in steel exports offset by a sharp 7 per cent fall in domestic demand.
“The government has provided additional measures for the property market to destock the large inventory overhang; however, housing activity remains weak,” the company said. “Disinflation pressures persist amidst muted domestic demand, while manufacturing faces risks of overcapacity in some sectors and increasing tariffs from external markets.”
The comments come as Rio said the way had been cleared for the development of Simandou, with 8500 workers now deployed to help build the mine covering its half of the giant deposit, and a spur line linking the mine to the rail corridor that will carry Simandou ore to the port.
“The focus for the second half of the year is bulk earthworks, construction of the stockyard and rail loop, installation of early ore crushers and mobilisation of primary crusher construction teams,” the company said.
Rio said on Tuesday its share of the development of mine, port and rail infrastructure will cost about $US6.2bn, in line with previous guidance, which will give Rio access to output of about 27 million tonnes of high grade iron ore each year when the project is fully ramped up.
In total Simandou will send about 120 million tonnes of iron ore into global markets, with shipments still due to begin in 2025.
Rio said it will spend about $US2.7bn on mine infrastructure, $US1.9bn on a 60 million tonne a year port facility and $US1.6bn on rail infrastructure.
Rio owns a 53 per cent share in the company that controls half of the giant deposit, along with Chinalco. The remaining stake is owned by a consortium including Singapore’s Winning group and other Chinese state-owned companies.
The government of Guinea holds a 15 per cent stake in both the infrastructure and mining areas.
Rio said its Pilbara derailment in May cost the company six days of lost time on its major rail network, pushing down total iron ore output and shipments for the June quarter.
Rio shares closed down 2.3 per cent to $117.12 on Tuesday.
