Rio is continuing to splash the cash on growth. Pic: Getty Images
Monsters of Rock: Rio’s copper and lithium dreams transcend short term wobbles
Mining
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- Rio Tinto accelerates copper and lithium production in bet on energy transition
- RBC forecasts lower copper on Trump uncertainty, but long term outlook of higher prices remains intact
- Iluka gets Canberra’s blessing for rare earths plant
Monsters of Rock drills deeper into the ASX’s large cap mining stocks with mining scribe Josh Chiat
The top miners in the world continue to look to copper for growth, with Rio Tinto’s (ASX:RIO) announcement of plans to grow output 40% to 2030 putting the red metal at the centre of its next phase of expansion.
Iron ore is far and away Rio’s top earner, and the upside remains with Pilbara expansions and renewals and its US$6bn investment in the Simandou mine in Guinea poised to deliver first ore in 2025.
Guidance was set at the miner’s strategy day this week of 323-338Mt, equal to 2024, though analysts estimate it will grow output incrementally to the top end of that range, with Simandou only expected to deliver nominal volumes.
But copper growth will be strong as the Oyu Tolgoi underground ramps up in Mongolia, with mined copper output to lift from 660-720,000t in 2024 to 780-850,000t in 2025.
Consensus bets have Rio lifting production of the red metal 21% YoY from 671,000t to 815,000t.
By 2030 that will hit around 1Mt – a 40% growth rate and a compound annual growth rate more than double the 3-4% copper equivalent production growth Rio is guiding for its portfolio.
Rio’s conviction in structuring its growth strategy around metals that will go into the energy transition remains, with the company planning to acquire Arcadium Lithium (ASX:LTM) for ~$10bn and guiding US$11bn of capital spending next year, its highest in over a decade – US$1.5bn above 2024 levels and US$1bn up on previous estimates.
“We looked at the market for each element, and we thought through the size of the prize to determine where we want to play. We ask ourselves, is this key to the energy transition? What is the industry size and structure? Does it have an attractive cost curve, and what are the barriers to entry?” Stausholm told analysts and investors at Rio’s investor day in London this week.
“Our portfolio meets these criteria. We are the world’s largest producer of iron ore and of bauxite. We are the Western world’s largest aluminum producer, and we have one of the fastest growing copper businesses.
“We are also leading producers of titanium dioxide, borates and other minerals. The size of the prize here is smaller, but we like our market positions.
“We identified that we are able to reap the benefits of the demand from the energy transition, and that we should continue to strengthen our position in all these materials.”
Lithium ‘attractive’
At the same time Rio remains bullish on lithium despite a major price crunch this year and oversupply situation led by increased production out of China and Zimbabwe, and slowing electric vehicle demand growth.
Stausholm says the current price environment, with chemicals around US$10,000/t and spodumene ~US$850/t, will help create a supply and demand gap, with Rio continuing to think the lithium market grows five times in size by 2035.
“Lithium is absolutely a cornerstone of the energy transition. The question is whether you can make a profitable business out of it,” he said.
“This is where we benefit from the current price environment, the capacity needed to meet future demand is not being built. So you will, over time, see a supply and demand gap.”
Rio will deliver its first lithium product from the Rincon DLE pilot project in Argentina next year, and the 3000tpa starter project could be expanded to 53,000tpa lithium carbonate equivalent over 40 years and as much as 60,000tpa, based off a maiden 1.54Mt lithium carbonate equivalent resource posted this week.
A final investment decision on the full-scale project is due before year’s end, with Rio’s total output with the Arcadium assets and Rincon potentially hitting 225,000tpa LCE by 2028 and 460,000tpa by 2033.
Arcadium currently has capacity of ~75,000tpa LCE across its Fenix and Olaroz brine projects in Argentina.
Copper wobbles
At the same time as Rio and other majors have laid out their enthusiasm for the growth of the copper market, slowing growth in the Chinese economy and the emergence of a new Trump presidency, which has sent the US dollar higher, has put the brakes on the red metal.
While it still commands what are historically strong prices of US$9083/t today, analysts have been scaling back more bullish forecasts after prices fell from record highs of over US$11,000/t earlier this year.
RBC is the latest to show some restraint.
US mining analyst cut its 2025 forecast from US$4.50/lb to US$4/lb, and its 2026 outlook from US$5/lb to US$4.50/lb.
It comes off the back of market concerns that Trump’s tariffs could curb Chinese growth, with exports having made up for weak domestic commodity demand in China in recent years.
“The copper market has turned cautious in recent months as China’s stimulus efforts have yet to have a noticeable impact and Trump’s election win brought fresh concerns around tariffs which may impact China and global growth. So it may take a few months before we see clarity and like in 2016 the copper price may be rangebound to start 2025,” RBC US mining analyst Sam Crittenden said.
But longer term, RBC continues to see tailwinds, with prices of US$5/lb forecast for 2027-2028.
“On the demand side, a combination of rate cuts and fiscal stimulus can drive higher global industrial production,” he said.
“We forecast a similar increase in supply as new mines ramp up which could keep the market largely balanced in 2025. However, after that we don’t see much supply that has been sanctioned, and we forecast growing deficits from 2027 onwards which could lead to a period of substantially higher prices.”
Crittenden said higher incentive prices are needed to offset a weak supply pipeline.
“We believe the energy transition including renewable energy, EVs and the associated grid improvements can drive strong demand for copper while the data centre build-out could also add a new layer of demand,” he said.
“This growing demand is set against an ageing supply base without much new supply committed to come online post 2025, and it’s getting harder to build new mines due to rising costs and social issues.
“For this reason, we believe a period of higher prices is needed to spur investment in new copper mines and we maintain our estimate for 2027-2028 of $5.00/lb. This price could be conservative if demand accelerates, and the mining industry struggles to build new supply.”
Iluka nabs govt funding
The federal government ended months of speculation on Friday to salvage Australia’s first rare earths refinery, tipping another $400 million of loan funding from Export Finance Australia into Iluka Resources’ (ASX:ILU) Eneabba plant.
Slated to be producing rare earth oxides in 2027, the previous Coalition government delivered a $1.25 billion non-recourse loan for the mineral sands producer to utilise its monazite rich stockpiles to produce light and heavy rare earths neodymium, praseodymium, terbium and dysprosium onshore in early 2022.
But a 50% lift in capex from a max $1.2bn to $1.8bn blew a meteor-sized crater in the project budget, testing the resolve of Canberra and the Albanese government’s ‘Future Made in Australia’ project.
In the end Iluka has won out, with some concessions. It has to tip in an additional $214m in equity, cover half the cost of a $150m overrun facility and the preferential cash flow distribution has dropped from $81m per annum (up to a $900m cap) guaranteed to up to $81mpa.
It will be cut to $40mpa over the plant’s first four years if feed sources don’t stretch beyond Iluka’s own Eneabba stockpile.
The long-term outlook for the plant shows the impact of third party feed. Northern Minerals (ASX:NTU) heavy rare earths rich Browns Range project is a key feature of the scenario in which the life of the plant is extended to 35 years and production remains consistent at ~40,000tpa beyond the late 2030s.
Iluka’s Balranald and Wimmera mineral sands projects on the east coast will contribute, though much will depend on feasibility studies at Wimmera and NTU’s Browns Range, due over the next couple years.
That places a spotlight on attempts from the feds to sniff out whether Chinese actors are trying to gain control of the junior, with a mystery businessman almost snaring the votes to join the NTU board at last month’s AGM.
The aim is to break, or at least sidestep, China’s hold on rare earths supply, processing and pricing, by selling Australian materials to western consumers.
While China produces around 67% of all mined rare earths, it controls 88% of rare earth oxide processing and over 99% when it comes to heavy rare earths. But around 40% of permanent magnet purchases and 60% of customers of finished goods using rare earths are outside the Middle Kingdom.
Iluka MD Tom O’Leary said he was confident ILU can get contracts in place outside the existing Asian Metals Index, a benchmark he accused of being controlled by China.
“I think we’re in good shape in terms of developing that market,” he said on a conference call this morning. “If we were looking to supply rare earths into the market today, on a … delinked from AMI basis, I think it’d be a struggle.
“And the consequence of having to go with AMI is that the whole industry is losing money. So that’s the importance and the general acceptance, I think, in the industry, that we need to break away from an AMI linkage, and that’s what we’ve been focused on.”
CFO Adele Stratton said there were no questions demand was rising for rare earth metals, with Adamas Intelligence projecting NdPr demand will lift between 35,000-130,000t from 78,000tpa over the next decade.
“There may be questions around when, what’s the take up rate of electric vehicles or renewable energy, or all the other applications that are coming into this market,” she said in response to questions on whether low pricing would hurt the prospects of developing supply sources for Eneabba.
“But I don’t think there’s much question around whether that demand is coming. It’s just a question of timing.”
The ASX 300 Metals and Mining index rose 0.85% over the past week.
Which ASX 300 Resources stocks have impressed and depressed?
Making gains 🚀
De Grey Mining (ASX:DEG) (gold) +27.1%
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Develop Global (ASX:DVP) (copper/mining services) +13.7%
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Eating losses 😭
ioneer (ASX:INR) (lithium) -17.1%
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Vulcan Energy Resources (ASX:VUL) (lithium) -15.2%
Coronado Global Resources (ASX:CRN) (coal) -13.2%
De Grey Mining and Gold Road were up strongly after DEG revealed it had accepted a $5 billion takeover – all in shares – from Northern Star Resources (ASX:NST).
That would see Northern Star taking on the development of the world class Hemi gold mine in WA, while Gold Road has a 17.3% stake which could be monetised before or through the sale, making it one of the most cashed up mid-tiers on the ASX.
Lithium juniors were again sold off amid an ongoing price malaise.
