Rio Tinto struggles to meet iron ore guidelines after a difficult quarter

After heavy rains, labor shortages and new ways to solve cultural heritage issues hit shipments, Rio Tinto faces a battle to achieve year-round guidance for its flagship iron ore business.

In a quarterly update on Friday, the world’s largest iron ore producer stated that in the three months ending in June, its export volume of steelmaking raw materials was 76.3 million tons, a year-on-year decrease of 12%.

Chief Executive Jakob Stausholm said Rio Tinto’s business in Pilbara, Western Australia, faces “a number of challenges,” including a significant increase in rainfall and labor shortages related to the coronavirus, hindering its ability to incorporate alternative mines into its system.

In addition, Rio Tinto reduced its iron ore output by 2 million tons because it changed buffer zones and restricted areas to protect areas of “high cultural significance”.These changes follow last year Juukan Canyon scandal, When the ancient aboriginal rock refuge was destroyed by the expansion of Rio’s mines.

Therefore, the company expects iron ore shipments to be at the low end of its guidance range of 325 million to 340 million tons, and analysts say it is difficult to achieve this goal.

“We believe that a situation below the bottom of the range is more likely to be a very strong second half [of the year] After only 154 million tons of shipments in the first half of the year, the target range needs to be reached,” Jefferies analyst Christopher LaFemina said.

However, Rio Tinto’s comments will provide another support for iron ore prices, which have soared in the past year. Set a record More than US$230 per ton has brought huge windfalls for the company and competitors BHP Billiton Group, Vale and Fortescue Metals Group.

Analysts predict that Rio Tinto will announce a huge dividend of approximately US$8 billion when it announces its half-year results this month.

Iron ore is Rio Tinto’s main commodity and source of profits. In the past year, as Rio Tinto and its peers have been working hard to bring materials to the market, China’s strong demand and tepid supply growth have supported the market.

In Friday’s update, Rio Tinto also revealed that production costs at its Pilbara plant are higher. The production cost per ton of iron ore mined in Australia this year will be as high as US$18.50 per ton, higher than the previous forecast of US$16.70 to US$17.70. These figures do not include freight and royalties paid to the government.

“This change reflects the price increase in key input costs (diesel and labor), as well as the costs associated with mine heritage management,” Rio Tinto said.

At Rio Tinto’s Oyu Tolgoi, a lagging copper mine project located in the Gobi Desert, Mongolia, the miner said that development was affected by the epidemic and that an agreement with the government is still needed Number of outstanding issues Before the start of underground caverns.

Oyu Tolgoi is Rio’s most important growth project and will become one of the world’s largest copper mines during peak production periods.

Rio Tinto also provided an update on its South African sands business, which produces ilmenite, rutile and zircon-materials used for everything from paints, smartphones to sunscreens.

Rio Tinto closed the Richards Bay Mining Company last month and announced force majeure on the contract “Safety Status” Operations around KwaZulu-Natal, the hometown of former President Jacob Zuma. In May, Nico Swart, the general manager of RBM​​, was ambushed by gunmen and shot dead on his way to work.

With the reduction of all operations, Rio Tinto suspended production guidance, citing the “time risk surrounding the resumption of operations”.

“Considering all factors, this is clearly a challenging second quarter for Rio Tinto,” LaFemina said.

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