Rio Tinto (ASX:RIO)
is maintaining full year guidance for its iron ore production and exports after a solid June quarter performance but it is facing a sharp fall in earnings for the six months as iron ore prices trade more than 30% lower than the record corresponding period in 2021.
It is clear that despite the post invasion surge in commodity prices from late February, the company will report weaker earnings for the June half compared to a year ago when iron ore prices hit all-time highs.
Rio reported underling earnings of $US21.4 billion for the June 2021 half, up 72% from 2020’s Covid depressed level.
A year ago, Rio shareholders received an interim ordinary dividend of 376 US cents a share and a special of 185 US cents a share (for a total of 561 US cents a share). There is no chance of that being repeated this year or anywhere near it.
That was a total return of $US9.1 billion to Rio shareholders. No wonder it and BHP were among the top 10 companies globally to return the most to shareholders for calendar 2021. That will not be the case this year.
BHP reports its 2021-22 production and sales performance next Tuesday and its figures will also confirm that shareholders won’t be seeing a repeat of the cornucopia of riches that received in 2020-21, even if there’s still some tidying up of income and revenues from the former petroleum business now tucked away in Woodside.
Iron ore prices in the June, 2022 half were up to $US100 a tonne lower than a year earlier and the slight fall in June half year shipments will only add to the downward pressure on Rio’s earnings.
Rio’s average iron ore price for the June, 2021 half was around $US168.50 a dry metric tonne. That’s more than the peak price of just over $US158 a tonne in early March in the wake of the Russian invasion of Ukraine.
Iron ore prices (all prices for 62% Fe fines shipped from the Pilbara to northern China) finished June at just over $US108 a tonne, around 30% less than the March peak and just under the $US113 a tonne level on December 31.
In its June quarter and half year reports on Friday, the world’s biggest iron ore miner said shipments from its WA iron ore mines rose 5% to 79.9 million tonnes from the same quarter of 2021.
That was up 12% from the March quarter and saw shipments for the six-month period of 151.4 million tonnes, down 2% after the weaker performance in the first three months of 2022.
Production for the June quarter rose 4% to 78.8 million tonnes from a year earlier and 10% from the previous quarter. Total production was up 1% at 150.3 million tonnes from the first half of 2021.
As a result, Rio said “Full year shipments guidance remains unchanged at 320 to 335 million tonnes.”
Guidance for copper was maintained, but Rio trimmed its estimates for the production of alumina, aluminium and diamonds.
Alumina has been trimmed 5%-10% to a range of 7.6 to 7.8 million tonnes from 8 to 8.4 million tonnes; aluminium has been dropped by 100,000 tonnes of metal to 3 million to 3.1 million tonnes while diamond output has been cut by 10% to 4.5 million to 5 million carats.
In all cases the new figures will still be around or a little better than 2021’s actual performance if second half production targets are met
Rio said its bauxite production of 14.1 million tonnes was 3% higher than the second quarter of 2021 due to strong operational performance at Weipa as a result of improved plant reliability at Amrun on Cape York.
The 27.8 million tonnes produced in the June half year was up 2%. Guidance was kept in the range of 54 million to 57 million tonnes for the year, slightly higher than the 54 million tonnes in 2021.
Mined copper production of 126 thousand tonnes was 9% higher than the second quarter of 2021 due to higher material movement and higher grades and recoveries at Kennecott and Escondida in Chile, “partly offset by lower grades and recoveries at Oyu Tolgoi (in Mongolia) as a result of planned mine sequencing,” Rio said in Friday’s report.
That saw a total of 252,000 tonnes of mined copper for the June half year, up 7%. Full year guidance was kept in the range of 500,000 to 575,000 tonnes, just higher than the 494,000 tonnes for calendar 2021.
Titanium dioxide slag production of 293 thousand tonnes was 2% lower than the second quarter of 2021 with steady performance at Richards Bay Minerals in South Africa and improved stability of operations at Rio Tinto Fer et Titane, Canada. There were some operational disruptions at QIT Madagascar Minerals following cyclones in Madagascar. June half production was 566,000 tonnes, down 2%, Rio said on Friday.