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Mining
Australia’s Rio Tinto (ASX:RIO) and its biggest competitor for the title of the world’s top iron ore exporter, Brazil’s Vale, have both fallen short of expectations in the first quarter as mine issues and setbacks mount.
Rio produced 71.7Mt, down 6% on the first quarter of 2021, and well below analysts’ expectations, with shipments of 71.5Mt 8% lower than the same period in 2021.
That leaves the Pilbara major way behind early doors on its guidance of 320-335Mt for 2022, with delays to the ramp up of Gudai-Darri and commissioning failures at its Robe Valley wet plant-marred production levels.
The delays were in part blamed on resource shortages and supply chain quality issues like steel fabrication linked to the Covid-19 pandemic.
The 43Mtpa Gudai-Darri mine was due for completion in late 2021, but is now on track for commissioning in the second quarter. Rio says its product mix and production volumes will increase through the second half of the year as the project ramps up.
Issues with the pace of the ramp up at Gudai-Darri have forced Rio to sell a larger mix of its SP10 fines product, up 157% year on year to 7.5Mt in the March quarter.
Its flagship Pilbara Blend product sales were down 16% YoY for lump and 24% YoY for fines to 10.8Mt and 21.7Mt, respectively.
““Production in the first quarter was challenging as expected, re-emphasising a need to lift our operational performance,” Rio managing director Jakob Stausholm said.
“We launched seven more deployments of the Rio Tinto Safe Production System, building on the achievements from the previous rollouts. As we ramp up Gudai-Darri, our iron ore business will have greater production capacity and be better placed to produce additional tonnes of Pilbara Blend in the second half.”
RBC Europe analyst Tyler Broda said while cost guidance and production guidance are unchanged, the poor results raise the risk of downgrades later in the year.
Earnings are likely to remain strong due to high iron ore prices, which were fetching ~US$150/t yesterday for 62% fines.
Rio’s side hustles in copper, mineral sands and iron ore pellets remained solid in the first quarter.
Its mined copper production was up 4% to 125,000t, largely on stronger recoveries and grades at its Kennecott mill despite lower production at Oyu Tolgoi and Escondida, while titanium dioxide slag was down 2% to 273,000t but up 20% quarter on quarter.
The Iron Ore Company of Canada produced 2.4Mt of iron ore pellets and concentrate, up 3% YoY, while Rio’s bauxite division was steady at 13.6Mt, though its aluminium production slipped 8% to 736,000t.
Rio has maintained guidance across all of its divisions.
It also began underground mining at Oyu Tolgoi in the March quarter where workforce levels have improved as a major Covid outbreak in Mongolia has settled, with workforce levels increasing from 55% of planned requirements in January to between 70-90%, with the additional restrictions expected to add $195 million in costs.
“We made notable progress during the quarter with the commencement of underground mining at Oyu Tolgoi following a comprehensive agreement reached with the Government of Mongolia, completed the acquisition of the Rincon lithium project in Argentina, and signed a framework agreement at the Simandou iron ore project in Guinea. These projects are all aligned with our strategy of growing in materials essential to a decarbonising world,” Stausholm said.
Rio was not the only iron ore miner to post timid production results, with flood-stricken Vale falling short of expectations in an early blow to its production guidance.
Vale produced just 63.9Mt of fines and 6.9Mt of pellets, 8% and 22% below consensus respectively.
Perhaps more worryingly for the broader market was the gap between Vale’s production and sales, which dipped 18% to 53.6Mt for fines and 17% to 7.01Mt for pellets.
“Interestingly, VALE not pushing on its inventories in the quarter suggests that c. 12Mt more iron ore than we had anticipated remains available in China, which potentially indicates that apparent demand was not as strong as expected in the period and also means that this material will still be there available for sale,” Broda said.
“With port shipments having recovered in March, and VALE reiterating its 320-335Mt guidance for the year, we expect supply tension, at least from Brazil, to fade in the coming months.”
It comes after reports emerged of big drops in home starts and property sales in China in March amid Covid outbreaks in the Middle Kingdom.
Dalian futures were down 1.3% to US$141.08/t this morning.
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