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Mining
Rio Tinto (ASX:RIO) has sounded the alarm on inflation, flagging that its iron ore cost will come in at the upper half of its US$21.75-23.50/t target in 2024 due to “inflation at the higher end of our expectations”.
It’s also flagged a review of its sales strategy that will be closely watched by market observers as it uses low grade iron ore to plug gaps, with its move to replace ageing mines with higher grade ore sources beholden to possible approval and heritage delays.
The iron ore giant’s share price fell 1.7% in morning trade as it also revealed forest fires had cut its guidance for the year at the high grade Iron Ore Company of Canada operations in Quebec from 9.8-11.5Mt to 9.1-9.6Mt for 2024.
After shipping 84.5Mt in the September quarter, its mainstay Pilbara iron ore business has shipped 242.9Mt for CY2024 so far, down 1% on this time last year.
Rio needs to deliver just 80.1Mt to hit the lower end of its 323-338Mt guidance, but 88.9Mt if it wants to match the five year high of 331.8Mt set in 2023.
Longer term it wants to life output to 345-360Mt, with the development of a string of replacement mines as well as the higher grade 40Mtpa Rhodes Ridge JV critical to meeting those plans this decade.
But there are already issues on the horizon, with Rio flagging that while funding approval has been delivered for replacement projects at the Hope Downs JV with Gina Rinehart’s Hancock Prospecting, approvals and heritage clearances on its Greater Nammuldi project remain “divergent from the original development schedule”, a phrase you can memorise for the next time you sleep in and rock up two hours late to work.
Until those projects are all developed, Rio will be pumping more of its lower quality SP10 blend into its product mix, rising from 17% in the June half to 19% of shipments in the third quarter.
“SP10 levels are expected to remain elevated until replacement projects are delivered,” Rio said.
“We are reviewing our future product strategy, having regard to customer requirements and available ore grades.”
That review has concerned analysts, with RBC’s Kaan Peker flagging a hit to medium-term forecasts.
“The key concern for us in today’s result is the “review” of the Pilbara’s future product strategy (which comes after numerous quarters of higher than anticipated SP10 volumes), this could see medium to longer-term realisation impacted,” Peker said.
Iron ore prices increased 1% over the quarter, though average prices fell 11% on the June quarter to US$99/dmt CFR China, with Rio noting high cost suppliers were pulling product from the market.
“In response to lower prices for most of the period, supply from higher cost suppliers declined compared to the previous quarter,” the company said.
“There were headwinds to iron ore demand in the major steel producing regions at the start of the quarter; however, Chinese demand improved in September following completion of maintenance at steel mills.
“Iron ore inventories at Chinese ports were flat, while China’s steel exports fell slightly during the quarter, but remained higher than a year ago.”
Rio, as well as its peers BHP (ASX:BHP) and .Fortescue (ASX:FMG), benefited late in the quarter from a Chinese economic rebound, largely due to improved sentiment following the announcement of stimulus measures and larger than hoped for US rate cuts.
But Rio has warned the Middle Kingdom’s economic recovery remains uneven.
“China’s economic recovery has been uneven, prompting more government support to sustain growth. Manufacturing and exports have outperformed, while the property market downturn continues, amidst concerns over local government debt and low consumer confidence,” the company wrote.
“As the economy transitions from the property sector to new growth areas, future commodity demand will turn more reliant on advanced manufacturing, including electric vehicles, and power infrastructure (generation, transmission and distribution, and storage).”
That shift in part explains its bullishness on lithium, with Rio remaining bullish on electric vehicle growth rates, underpinning its $10bn bid for Arcadium Lithium (ASX:LTM) last week.
Its Rincon brine pilot is 70% complete and due to produce first lithium carbonate this year out of Argentina.
Meanwhile, Rio remains on target across its copper, titanium dioxide slag, aluminium and bauxite ops, with copper output ip 8% YTD to 495,000t.
Escondida, where it holds a 30% of the majority BHP owned mine in Chile, saw output lift 15% as grades rose from 0.85% Cu to 1% Cu. It is the world’s biggest copper mine.
Ramp up at the higher grade Oyu Tolgoi underground in Mongolia also saw production there lift 19% YoY (though 5% down QoQ due to maintenance and bad weather), helping offset geotechnical issues that will curb output by 50,000t this year at the Kennecott mine in Utah.
Peker said the Kennecott issues, expected to extend into 2025 and 2026 would also weigh on Rio’s share price.
Bauxite production is 9% higher YTD to 43.2Mt, with aluminium output 1% up over the first nine months to 2.459Mt.
Rio’s disappointing quarterly came as Brazilian competitor Vale beat consensus, producing 91Mt of iron ore in the third quarter. At 72Mt, sales missed estimates by 2%, though 5.5Mt of inventories will be unwound in the December quarter.
RBC’s Marina Calero said it was a positive update after Vale outperformed its peers by 1% across the quarter. The investment bank has a bullish outperform rating and US$16/sh price target on Vale, with a sector perform rating and $125/sh PT on Rio.
If Rio was a disappointment, Evolution Mining (ASX:EVN) was anything but.
The Aussie gold and copper producer lifting over 5% in early trade after producing 193,554oz of gold and 19,059t of copper in the September quarter at an all in sustaining cost of just $1569/oz.
That underpinned a big lift in its cash pile, with operating mine cash flow of $429m representing a 61% operating margin of $2227/oz, and its bank balance up 20% from $403m to $484m.
Underperforming Canadian mine Red Lake was a highlight, delivering record cash flow on output of 37,319oz, while the expansion of its Mungari mill in WA is also reputedly slightly ahead of schedule and within budget, words you rarely here in construction projects these days.
EVN says the early results have put the company on track to deliver guidance of 710,000-780,000oz gold and 70,000-80,000t copper at $1475-1575/oz for FY25.
It also unfurled a string of positive exploration results from the Ernest Henry, Northparkes and Cowal mines, notably a hit of 27.3m at 1.55g/t gold and 1.29% copper from 177m at the Bert orebody at Ernest Henry in Queensland, just 100m down plunge from the current mineral resource immediately to the north of its open pit.
The company think this can be mined independently of the project’s large underground system.
Also in gold world, Catalyst Metals (ASX:CYL) produced 27,991oz and sole 29,920oz from its Plutonic mine in WA and smaller Henty mine in Tasmania as all in sustaining costs of $2413/oz.
Cash and bullion was up from $37m at June 30 to $58m at September 30 after operating cashflow of $27m was countered by $6m on growth capex and exploration.
$25m is being spent on drilling in FY25 at Plutonic, largely on in-mine exploration at the Plutonic, Plutonic East, K2 and Trident ore bodies, with $7m also to be spent on additional exploration targets.
By FY27, James Champion de Crespigny’s CYL plans to produce 180-220,000ozpa, largely thanks to a doubling of production at Plutonic via a $31m investment over the next two years in growth capital.
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