Rio Tinto Results: Jesus, we could actually make guidance this year

Peter Wright’s billionaire children ink deal with Rio Tinto to back development of 40Mtpa iron ore mega mine
Rio maintains plans to hit the lower end of its 320-335Mt iron ore guidance for 2022
Copper guidance falls amid wait to revamp Kennecott smelter

The descendants of Lang Hancock’s business partner Peter Wright are set to get much, much richer, forming a new agreement with the world’s largest seaborne iron ore miner Rio Tinto (ASX:RIO) to develop the 40Mtpa Rhodes Ridge mine near Newman by the end of the decade.

The Wrights, who have been embroiled in legal disputes with Lang’s daughter Gina Rinehart – and each other – for the past eternity, own Wright Prospecting, which generates hundreds of millions in passive income every year in the form of a small royalty over Rio’s major iron ore tenements.

(Or at least Peter’s daughter Angela Bennett and the progeny of late son Michael Wright do. Third sibling Julian was left on the outer.)

To give a sense of the elephantine pace at which these dynasties shift, they won a claim early last decade against Rinehart to maintain a 50% stake in Rhodes Ridge.

It’s an important deposit for Rio, which is engineering a long overdue refresh of its iron ore assets, and wants to ramp up its iron ore business to 360Mtpa long term. Last month it approved the development of the 25Mtpa Western Range replacement mine with China’s largest steelmaker Baowu at a cost of around $3 billion.

The modernisation of the JV agreement, stretching 50 years back to 1972, opens the pathway for Rio to develop the mine in the next eight years with its port, rail and power infrastructure, including new renewable energy assets Rio intends to roll out ‘up north’.

Order of Magnitude

An ‘order of magnitude’ study is the first port of call. The real prize here is the high quality of the untouched Rhodes Ridge’s resource base.

At 5.8Mt with an average grade of 62.3%, it will boost Rio’s overall grade and support the rollout of its flagship product, the ~62% Fe plus Pilbara Blend Fines mix for years to come. More resource drilling is under way, with the broader project area containing 6.7Bt at 61.6% Fe.

“Rhodes Ridge contains one of the biggest and best undeveloped iron ore deposits on the planet with proximate access to existing infrastructure,” Rio’s iron ore chief Simon Trott said.

“We are very excited we have been able to strengthen our relationship with Wright Prospecting and have a pathway to bring this high quality resource to market.

“With its significant resource base, the Rhodes Ridge project has the potential to underpin production of the Pilbara Blend in the decades ahead.”

Trott said Rio, which has had to up its ESG act since the Juukan Gorge tragedy in 2020, is committed to working closely with the Nyiyaparli and Ngarlawangga People to protect sites of significant cultural, environmental and biodiversity value, something echoed by the Wright interests.

“We are delighted to have reached this important milestone for the Rhodes Ridge project. We look forward to partnering with Rio Tinto to develop this asset with a world-leading focus on climate, biodiversity and heritage,” a Wright spokespersons said.

We’re all delighted for them too.

We’re making guidance?

This all came out alongside Rio’s September production report, which incredibly said Rio remains on track to hit the lower end of its 320-335Mt guidance range at its Pilbara iron ore mines.

The company has made a habit of missing or cutting guidance before it gets to that point in recent years, though its output would be little changed from 2021 at this point given 2022’s number didn’t dazzle in its ambition.

Rio has delivered 234.3Mt so far in 2022, around 1% down on a year earlier, with its September quarter shipments of 82.9Mt also down 1% on the same period in 2021, but 4% higher than the second quarter in 2022.

Having shipped an average of 78.1Mt a quarter this year it will need to go at a rate of 85.7Mt in the December quarter, though Rio has been known to enjoy a sprint finish.

Production on a 100% basis was 1% higher than the third quarter of 2021 at 84.3Mt, despite unplanned outages on the Yandicoogina and Gudai-Darri rail lines, the latter of which saw a train derailment during the quarter.

It’s not all good and or neutral news though. Rio’s refined copper guidance has been shaved from 230-290,000t to 190-220,000t, with the company warning the Kennecott smelter and refinery’s performance will be spotty until a major rebuild in the second quarter of next year, the first in nine years at the operation.

Cost guidance has been revised from 130-150 US cents to 150-170 US cents per pound, though iron ore costs of US$19.5-21/t are unchanged.

Rio has produced 158,000t of refined copper and 390,000t of mined copper (guidance 500-575,000t) to date.

Guidance remains unchanged for its bauxite, alumina, aluminium, diamond, titanium, boric oxide and high grade iron ore (IOC) divisions.

Rio has not changed guidance for its alumina and aluminium divisions, but output year to date is 6% and 7% lower respectively at 5.6Mt and 2.23Mt, and 5% and 2% lower on the corresponding quarter in 2021 to 1.84Mt and 759,000t.