Rio Tinto
(ASX:RIO) might have delivered production increases across its iron ore, copper and bauxite operations in 2022 (although aluminium production dipped) but earnings for the year to December won’t go anywhere near the huge $US21.9 billion reported for 2021.
Rio has already reported a 28% slide in interim earnings to $US8.9 billion and the second half, while solid in terms of production and sales – especially of iron ore and copper – did see some big price falls for these two key commodities for the mining giant.
Rio said it produced 324.1 million tonnes of iron ore (100% basis) in 2022, 1% higher than 2021, while shipments (321.6 million tonnes were in line with the 2021’s total.
Rio boosted fourth quarter iron ore production and shipments by 6% and 5%, respectively, compared to the third quarter of 2022 and the fourth quarter of 2021.
The company said it benefited from performance improvements throughout the year, with the continued ramp up of its new Gudari-Darri iron ore mine this year to deliver a further boost and hopefully lift output well above 320 million tonnes.
But the reality is that any boost will be minor, as the company signalled by leaving its 2023 iron ore guidance unchanged from November’s announcement of 320 million to 335 million tonnes.
Whether Rio manages to again meet that guidance, or tops it, will depend on the health of the Chinese economy and demand. Iron ore prices jumped 22% in the final quarter, despite sliding to around $US76 a tonne in November.
Rio did point out that for all the size of the 4th quarter price rise, the $US99 average price for the three months was still 4% lower than the third quarter.
Iron ore prices have started 2023 solidly, touching $US131 a tonne briefly late last week and trading consistently in the $US110-$125 a tonne range so far this month.
Copper saw an improved performance, but second half prices saw a big dip from the highs in the first half of more than $US4.90 a pound on Comex.
Prices have rebounded to well past $US4.10 a pound in an upbear start to 2023 on the lure of gains as the Chinese economy re-opens from its Covid closure. But as we have pointed out before, copper (and iron ore) were not shut out of the Chinese economy in 2021 or 2022.
Indeed iron ore imports only dipped 1.5% in 2022 and still totalled well over 1.1 billion tonnes and copper imports – as metal and concentrates and ores still hit all time highs.
Chinese crude steel production last year fell for a second year but still managed to stay just above a billion tonnes in 2022.
2022 saw higher copper grades at the Kennecott (US) and Escondida (30% owned in Chile with BHP having 57%) mines in 2022 but these gains were partly offset by lower grades and recoveries at Oyu Tolgoi in Mongolia due to planned mine sequencing.
Despite this, Rio still delivered a 6% in annual production from 2021, with 521,000 tonnes produced in 2022.
And despite experiencing equipment reliability issues at its Weipa and Gove bauxite operations in Queensland last year, Rio saw a 1% increase in production from 2021 with an output of 54.6 million tonnes across 2022.
Annual aluminium production fell 4% to 3 million tonnes thanks to reduced output from the Kitimat smelter in Canada and Boyne smelter in Queensland.
“The rate of pot restarts at Kitimat picked up in the fourth quarter and Boyne smelter cell recovery efforts continued,” Rio said.
“Recovery at both smelters is progressing with full ramp-up expected to be completed during the course of 2023. All of our other aluminium smelters continued to demonstrate stable performance.”
Apart from the steady iron ore guidance for this year, Rio lifted its mined copper estimate from between 550,000–600,000 tonnes of copper to 600,000–655,000 tonnes, reflecting the company’s increased ownership in Oyu Tolgoi from 33% per cent to 66% (after the takeover of Turquoise Hill) 9and not due to expectations of higher demand).
In Tuesday’s statement, CEO Rio Jacob Stausholm said the Turquoise Hill acquisition was a significant milestone.
“The acquisition of Turquoise Hill Resources strengthens our copper portfolio and demonstrates our ability to allocate capital with discipline to grow in materials the world needs for the energy transition and delivering long-term value for our shareholders,” he said.
Rio’s WA iron ore mining and exporting business dominates the company, supply around 70% of earnings. That costs a big factor and an area investors and analysts concentrate on each quarterly, half year and annual report.
That’s why a small rise in iron ore costs last year worried some investors on Tuesday.
Rio said “Our 2022 Pilbara iron ore unit cash costs are likely to end up slightly above the top end of our $US19.5-$US21.0 a tonne guidance range, primarily due to inflation, diesel prices and labour costs.
“Guidance for 2023 Pilbara iron ore unit cash costs is unchanged at $USS21.0 to $US22.5 a tonne, based on A$:US$ exchange rate of 0.70.”
Rio shares ended Tuesday’s session down 1.2% at $120.67. That left them up 4.5% so far in 2023.
