Rio ships more iron ore, but rising costs threaten earnings

Mining giant Rio Tinto has lifted shipments of iron ore, the nation’s biggest export, but higher inflation is denting earnings and its WA operations are being hit by worker absenteeism as COVID-19 cases spike.

The top global iron ore producer told investors on Friday it increased shipments of the steel-making raw material from its flagship Pilbara operations by 5 per cent in the June quarter to 79.9 million tonnes, in line with most analysts’ expectations.

“We strengthened our operational performance at a number of sites, which we will now replicate across the portfolio,” Rio Tinto chief executive Jakob Stausholm said, adding that ramping up operations at the recently opened Gudai-Darri mine will support ore production going forward.

However, the company said shipments across the first-half of 2021 remained down by 2 per cent as skilled labour shortages, COVID-19 disruptions and wet weather undermined operations, with iron ore output having fallen by 15 per cent in the earlier March quarter.

It also warned higher inflation was dragging on underlying earnings, resulting in increased pre-tax costs of about $US400 million over the past six months.

Analysts on Friday responded negatively to Rio Tinto’s results, pointing to “production misses across the board”.

Loading

“Annual production guidance was maintained albeit we wouldn’t imagine it will stray too far from the low end of the 320 million tonnes to 335 million tonnes range,” said Tyler Broda, an analyst with the Royal Bank of Canada.

The lower iron ore prices, higher-than-expected pricing for copper and guidance downgrades in aluminium were likely to combine to reduce consensus estimates heading into the half-year results later this month, he added.