LA Private

Rio Tinto off and running for FY23

Rio Tinto (ASX:RIO) has made a very strong start to its 2023 financial year with a stellar performance in its most important business – the WA iron ore operations – where it reported a 16% lift in exports in the three months to March.

It was the strongest ever quarterly performance by the company’s iron ore business, the largest in Australia.

Its Pilbara iron ore business produced 79.3 million tonnes and shipped 82.5 million tonnes in the three months to the end of March, up 11% and 16% respectively.

Rio’s performance helps explain, in part, the record iron ore imports by China in the March quarter of 294 million tonnes.

Rio’s local rival, BHP is due to update the market today (Friday on its performance).

The strong performance in iron ore was partially offset by a downgrade to copper production guidance because of technical problems at Rio’s American (Kennecott) copper mines and confirmation that severe cost inflation was hurting the viability of its new lithium asset in Argentina.

Copper guidance has been cut by up 17% for the full 2023 year as analysts remarked that it was odd that such a big downgrade appeared so early in a year. Output was flat at 145,000 tonnes for the quarter.

That was after the company reported that production at the Kennecott copper operation dropped 36% in the quarter due to record snowfall and the failure of a conveyor belt. The concentrator is expected to operate at reduced rates until the third quarter of this year, according to Rio.

Mining pit “geotechnical challenges” at Escondida mean production is being adjusted over the rest of the year.

In contrast, output from the 30% stake in Escondida (in Chile and controlled by BHP, which reveal full performance today) and its Oyu Tolgoi mine, saw their copper production jump 6% and 41% respectively (because Rio has moved to a controlling stake and therefore a higher share of output).

2023 copper production guidance is now a range of between 590,000 to 640,000 tonnes (still above 2022’s 521,000 tonnes). That’s down from 650,000 to 710,000 tonnes.

But production of bauxite fell 11% to 12.1 million tonnes because of wet weather on Cape York in northern Queensland.

“Production was further affected by equipment downtime at both Weipa and Gove. We have maintained our bauxite production guidance at 54 to 57 million tonnes as we implement plans to recover lost production at both sites through the remainder of the year.”

Rio said its aluminium and titanium dioxide slag production lifted 7% and 4% to 785,000 and 285,000 respectively. Guidance for the year has been maintained.

Rio boosted its spending on exploration and evaluation last quarter to S$310 million pre-tax – up from $168 million in the first quarter of 2022.

The quarter saw iron ore prices increase 8% over the period, lifting to an average monthly price of $US125 per dry metric tonne – up 27% on that of the final quarter of last year. They have since fallen to well under $US120 a tonne so far in April ($US117.50 a tonne on Thursday)

The aluminium price slipped 1% over the quarter to an average of $US2,395 a tonne (up 3% quarter-on-quarter) and the copper price rose 7% to $US4.05 a pound (around $US4.07 a pound on Thursday).

Rio Tinto CEO Jakob Stausholm noted the improvement in the company’s key business

“We continue to make steady progress with our highest ever first quarter shipments achieved in the Pilbara iron ore business. Through the ongoing deployment of our Safe Production System we expect to see a sustainable lift in operating performance across our global portfolio over time, in line with improvements already achieved.

“We remain focused on disciplined growth in materials the world needs for the energy transition, delivering first sustainable production from the underground mine at Oyu Tolgoi in Mongolia and progressing early works on the Rincon lithium project in Argentina.

“We advanced the Simandou high grade iron ore project in Guinea with our partners, and entered into an agreement for a joint venture to unlock La Granja in Peru, one of the largest undeveloped copper projects in the world.”

And finally the $US140 million first estimate of its Rincon lithium prospect in Argentina is clearly too low and “our $140 million estimate and schedule to develop the starter plant is under review in response to significant local inflation and cost escalation for equipment.”

Argentinian inflation is now running at more than 100% a year and it wouldn’t surprise if Rio puts the project on the back burner.

There was also no mention of the fact that by being located in Argentina, the project faces a tough time making headway in selling into the US EV and battery markets and getting subsidies like Australian companies and rivals from neighbouring Chile will be accessing.

Rio shares eased 2.3% to $120.33.