Rio Tinto plans to ramp up production after challenging year

The world’s biggest iron ore exporter Rio Tinto (ASX:RIO) suffered production falls across every division, but expects to deliver growth across every commodity in 2022 with its Pilbara iron ore empire to ship 320-335Mt this calendar year.

Rio was forced to downgrade its guidance from 325-345Mt to 320-325Mt during 2021 after wet weather in the early part of the year, redesigning mine plans to avoid Aboriginal heritage sites and delays ramping up its replacement mines including the new 43Mtpa Gudai-Darri development.

The mining giant delivered 321.6Mt in 2021 on production of 319.7Mt, down 3% and 4% respectively on its 2020 output after shipping 84.1t in the December quarter to hit its updated guidance.

That was 5% lower than December 2020 but 1% up on the prior September quarter.

If it hits the upper end of guidance in 2022, Rio — which has dreams of producing as much as 360Mtpa in the Pilbara — would increase its shipments by around 4.2%.

But Rio is still facing a battle to show it can deliver on promised improvements across its operations in the wake of both years of missed guidance and ESG concerns which came to light with the Juukan Gorge scandal in 2020.

Across the rest of its portfolio Rio saw bauxite sales fall 3% to 54.3Mt, aluminium production was off 1% on the year to 3.15Mt, lower grades and throughput at the Escondida mine in Chile meant its copper production dropped 7% to 494,000t and titanium dioxide slipped 9% to 1.014Mt after issues at its South African mineral sands project.

Its high grade iron ore pellet operation in Canada, the Iron Ore Company of Canada, increased output 15% on the September quarter to 2.5Mt in the December term, but fell 6% short of 2020 output at 9.7Mt.

Rio boss Jakob Stausholm said the miner is working hard to improve its operating performance, saying many operations had “prolonged Covid-19 disruptions”.

“In 2021 we continued to experience strong demand for our products while operating conditions remained challenging, including due to prolonged COVID-19 disruptions,” he said.

“Despite this, we progressed a number of our projects, including the Pilbara replacement mines, underlining the resilience of the business and the commitment and flexibility of our people, communities and host governments.

“We are seeing some initial positive results from the implementation of the Rio Tinto Safe Production System, which we will significantly ramp up in 2022, as we continue to work hard to improve our operational performance to become the best operator.”

Rio is projecting higher production in almost every commodity group in 2022, including bauxite sales of 54-57Mt, Alumina production of 8-8.4Mt, copper production of 500-575,000t, refined copper output of 230-290Mt (up from 202Mt), diamond production of 5-6 million carats (up from 3.8m), TiO2 slag of 1.1-1.4Mt and iron ore pellet production of 10-11Mt.

Iron ore price soars in 2021 but labour, Covid still a challenge

Rio’s average sale price for iron ore rose sharply on 2020 levels after benchmark 62% prices hit record levels in the first half of 2021.

Despite a sharp fall in iron ore prices as steel production in China tumbled through the second half of the year, Rio sold its ore at an average of US$132.3/wmt on an FOB basis or US$143.8/dmt, compared to the monthly Platts 62% FOB price of US$146.9/dmt.

That was way up on the US$91/wmt (US$98.9/dmt) reported in 2020, as Rio generated a record half year profit. Prices fell from record highs of $US237/t in May to just US$87/t late last year before recovering to current price levels of around US$125/t.

Chinese steel output lifted in December to its highest level since July.

As foreshadowed in Monsters of Rock yesterday, the first ore from Gudai-Darri was railed to port from its modular crushing and screening plant in December, but production from its main plant is not expected until the second quarter of 2022 with Covid and labour issues weighing on its delivery.

Rio said commissioning and ramp of new mines remained subject to its management of Aboriginal heritage issues, but did say rehabilitation of the Juukan Gorge site was on track and that it is working towards and agreement with the Puutu Kunti Kurrama and Pinikura leadership on its on-country approach.

Rio also warned its guidance remained subject to the emergence of new covid variants. It is facing a major shift on February 5 when WA’s hard border opens up, potentially alleviating skilled labour issues but bringing the prospect of production shutdowns from Covid outbreaks and isolation requirements.

“Our guidance assumes development of the pandemic does not lead to government-imposed restrictions and widespread protracted cases related to new highly contagious variants with high severity, which could result in a significant number of our production critical workforce and contractor base being unable to work due to illness and/or isolation requirements,” Rio said.

“This risk extends to prolonged interruption of service from a key partner or supplier which could lead to severely constrained operational activity of a key asset or project. This risk is exacerbated globally by tight labour markets and supply chain delays.”

Jadar start date back to 2027

Rio has pushed back the proposed start date for saleable production from its US$2.4 billion Jadar lithium mine in Serbia to no earlier than 2027 after protests in the country led to delays in the approval of its exploitation field licence.

The licence is a prerequisite to publish its environmental impact assessment and begin consultation on the development.

“Based on current estimates and subject to receiving all relevant approvals, permits and licences, first saleable production is expected to be no earlier than 2027 (previously 2026),” Rio said.

“The Feasibility Study and the EIA Studies are progressing. We fully understand the concerns amongst some Serbian stakeholders about environmental impacts and we will continue to engage to demonstrate the project has developed mitigation solutions in the project plan.”

On a more positive note for Rio, it has commenced drilling and sent out an EoI for construction and early development works on its long-delayed Simandou mine in Guinea, where an investment decision is expected this year.