This was not the production update Rio Tinto (ASX:RIO) investors were after.

Rio saw iron ore shipments up by 9% quarter on quarter and 2% year on year to 83.4Mt in September, but it will still miss its guidance, blaming delays caused by a tight labour market in WA.

The company expects to produce 320-325Mt of iron ore in 2021, below the lower end of its 325-340Mt range following minor delays to its new Gudai-Darri and Robe Valley mines “due to the tight labour market in Western Australia”.

But it is not only Pilbara iron ore where Rio has taken out the red pen, knocking down full year guidance at its Iron Ore Company of Canada operations to 9.5-10.5Mt from 10.5-12Mt and reducing copper guidance from 210,000-250,000t to 190,000-210,000t after an incident at its Kennecott smelter in September.

Covid-19 impacts have also plagued Rio at the multi-billion dollar extension of the Oyu Tolgoi copper project in Mongolia, where the company is facing increasing diplomatic pressure from its partner the Mongolian Government over delays and cost blowouts.

Rio said site accommodation and manning levels were between 25 and 50% due to Covid restrictions in the Asian nation, estimating Covid-19 had given a US$140 million whack to the operations up to the end of September. It said today production will be no sooner than January 2023, back from a previous deadline of October 2022.

Bauxite guidance was also reduced, whole alumina and aluminium guidance remained unchanged.

Rio CEO Jakub Stausholm, who took the helm of the miner last year after JS Jacques was rolled following the Juukan Gorge debacle, was understated in his response to the results, churlishly describing it as “an opportunity to raise our performance”.

“The third quarter has demonstrated the resilience of our people in dealing with ongoing COVID-19 challenges. It has been another difficult quarter operationally and despite improving versus the prior quarter, we recognise the opportunity to raise our performance. We have consequently modestly adjusted our guidance,” Stausholm said.

“We are progressing against our four pillars and striving to make Rio Tinto even stronger, notably to become the best operator. This will ensure we continue to deliver attractive returns to shareholders, invest in sustaining and growing our portfolio, and make a broader contribution to society, particularly in relation to the drive to net-zero carbon emissions.”

Rio announced plans yesterday to study the use of biomass as a commercial feedstock for steelmaking to replace coking coal after success in lab testing.

Iron ore prices rose to a bit under US$126/t last night, according to Fastmarkets MB, with premiums for higher grade iron ore products remaining significant amid strong steel prices.


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