Rio Tinto Plc - Operational Update

Rio Tinto chief executive J-S Jacques said "Our iron ore business faced several challenges at the start of this year, particularly from tropical cyclones. As a result, and following the continuing assessment of damage at the port resulting from the cyclones and other minor disruptions, 2019 guidance for Pilbara shipments is reduced to between 333 and 343 million tonnes. The quarterly operational performance in our other products was solid, generally higher than last year. Our focus remains on safety, delivering our 'value over volume' strategy and allocating capital with discipline, to continue delivering superior returns to our shareholders in the short, medium and long term."

 

 

 

Q1 2019

vs Q1 2018

vs Q4 2018

Pilbara iron ore shipments (100% basis)

Mt

69.1

-14%

-21%

Pilbara iron ore production (100% basis)

Mt

76.0

-9%

-12%

Bauxite

kt

12,763

+1%

+8%

Aluminium

kt

796

+0%

-3%

Mined copper

kt

143.9

+3%

-5%

Titanium dioxide slag

kt

296

+1%

+1%

IOC iron ore pellets and concentrate

Mt

2.5

+5%

-13%

 

Operational update

Pilbara iron ore shipments of 69.1 million tonnes (100 per cent basis) in the first quarter were 14 per cent lower than the first quarter of 2018. Production was significantly impacted by the weather disruptions in March and a fire at Cape Lambert A in January. These events will have an impact on second quarter performance. 

2019 guidance for Pilbara shipments has been revised to between 333 and 343 million tonnes (previously between 338 and 350 million tonnes, 100 per cent basis). The reduction reflects a slower ramp up and ongoing disruption to shipments caused by weather and other disruptions.

Commissioning of the Amrun bauxite mine was completed in March 2019, with the project delivered under budget and ahead of schedule. Bauxite production of 12.8 million tonnes in the quarter was one per cent higher than the same period of 2018, despite several weather events throughout the quarter significantly impacting production at the Amrun, Weipa and Gove mines.

Aluminium production of 0.8 million tonnes was in line with the first quarter of 2018. Excluding the non-managed Becancour smelter, which was impacted by a lock-out, production was one per cent higher, reflecting continued productivity creep.

First quarter mined copper production of 144 thousand tonnes was three per cent higher than the first quarter of 2018, with strong contributions from Oyu Tolgoi and Rio Tinto Kennecott.

Titanium dioxide slag production of 296 thousand tonnes was one per cent higher than the first quarter of 2018.

First quarter production at Iron Ore Company of Canada was five per cent higher than the corresponding quarter of 2018, despite adverse weather conditions impacting production in February.

At the Oyu Tolgoi Underground Project the review of the mine design and the development schedule is continuing. The commissioning of the main production shaft (Shaft 2) is now expected to complete in October 2019.

On 27 February 2019, Rio Tinto announced it had discovered copper-gold mineralisation in the Paterson Province in the far east Pilbara region of Western Australia.

On 8 April 2019, Rio Tinto announced the approval of the construction of the Zulti South project at Richards Bay Minerals (RBM) in South Africa for $463 million (Rio Tinto share $343 million).

On 15 April 2019, Rio Tinto announced it had committed $302 million ($166 million Rio Tinto share) of additional expenditure to advance its Resolution Copper project in the US state of Arizona

 

 

All figures in this report are unaudited. All currency figures in this report are US dollars, and comments refer to Rio Tinto's share of production, unless otherwise stated. To allow production numbers to be compared on a like-for-like basis, production from asset divestments completed in 2018 is excluded from Rio Tinto share of production data but assets sold in 2019 remain in comparisons.

 

 

IRON ORE

 

Rio Tinto share of production (million tonnes)

 

Q1 2019

vs Q1 2018

vs Q4 2018

Pilbara Blend Lump

20.0

-4%

-8%

Pilbara Blend Fines (a)

28.8

-3%

-9%

Robe Valley Lump

0.6

-60%

-55%

Robe Valley Fines

1.2

-60%

-52%

Yandicoogina Fines (HIY)

13.5

-3%

-9%

Total Pilbara production

64.1

-7%

-11%

Total Pilbara production (100% basis)

76.0

-9%

-12%

Total Pilbara shipments (100% basis)

69.1

-14%

-21%

(a)   Pilbara Blend Fines sales include 1.5 million tonnes of other lower grade materials in Q1 2019

 

Pilbara operations

Pilbara operations produced 76.0 million tonnes (Rio Tinto share 64.1 million tonnes) in the first quarter, nine per cent lower than the same period in 2018. Production was impacted by a fire at Cape Lambert A in January, which affected Robe Valley Lump and Fines production, and significant disruptions caused primarily by Tropical Cyclone Veronica in March.

 

First quarter sales of 69.1 million tonnes (Rio Tinto share 58.2 million tonnes) were 14 per cent lower than the same period of last year due to the lower production and damage to the port facilities caused by the cyclone.

 

Approximately 16 per cent of sales in the first quarter were priced by reference to the prior quarter's average index lagged by one month. The remainder was sold either on current quarter average, current month average or on the spot market.

 

Approximately 33 per cent of sales in the quarter were made free on board (FOB), with the remainder sold including freight.

 

Pilbara projects

Following approval of the $2.6 billion investment in the Koodaideri replacement mine in November 2018, the project is now progressing to plan with engineering and procurement activities on schedule and site construction works commenced.

 

The two Robe River Joint Venture projects (West Angelas and Robe Valley), which will sustain production capacity, are progressing. The projects are currently in the process of seeking environmental approvals. Engineering and procurement activities are on schedule and establishment activities at both locations have commenced.

 

2019 guidance

On 1 April 2019, Rio Tinto announced that the impact of the disruption caused by Tropical Cyclone Veronica in March, combined with the impact of the fire at Cape Lambert A in January, was expected to result in a loss of approximately 14 million tonnes of production in 2019.

 

Following further assessment, the damage to the port from Tropical Cyclone Veronica is expected to result in ongoing disruption to shipments, with recovery work further hindered by Tropical Cyclone Wallace. As a result, Rio Tinto's Pilbara shipments in 2019 are now expected to be between 333 and 343 million tonnes (previously at the lower end of the guidance range of between 338 and 350 million tonnes, 100 per cent basis). The recovery in the second quarter will remain subject to weather.

 

On 6 April 2019, a minor fire occurred in a screen house at the East Intercourse Island port. Operations at the facility have restarted.

 

Rio Tinto's Pilbara unit cost guidance in 2019 remains at $13 - $14 per tonne.



 

ALUMINIUM

 

Rio Tinto share of production ('000 tonnes)

 

Q1 2019

vs Q1 2018

vs Q4 2018

Rio Tinto Aluminium

 

 

 

Bauxite

12,763

+1%

+8%

Bauxite third party shipments

8,842

+7%

+20%

Alumina

2,008

+1%

-1%

Aluminium

796

+0%

-3%

 

Bauxite

First quarter bauxite production of 12.8 million tonnes was one per cent higher than the same period of 2018. Increased production capacity following the expansion of Amrun in Queensland was partly offset by weather events throughout the quarter at Weipa, Amrun and Gove, which significantly impacted production. Amrun ramp-up is progressing well, with production rates as per plan. The expansion project at CBG, a non-managed JV, is progressing, with full ramp up expected in 2019.

 

8.8 million tonnes of bauxite were shipped to third parties in the first quarter, seven per cent higher than same period of 2018.

 

Amrun

The Amrun project was officially opened on 8 March 2019 and commissioning is complete. The project and construction workforce has been demobilised.

 

Alumina

Alumina production in the first quarter of 2019 was one per cent higher than the same period in 2018.

 

Aluminium

Aluminium production of 0.8 million tonnes in the first quarter was in line with the corresponding period of 2018. Excluding production from the non-managed Becancour smelter, which continues to be impacted by a lock-out, production was one per cent higher, reflecting continued productivity creep.

 

Kemano

At the Kemano hydro-power facility at Kitimat, British Columbia, boring of the tunnel commenced on 9 March 2019. The $0.5 billion project is due to be completed by late-2020.

 

2019 guidance

2019 guidance is unchanged. Rio Tinto's expected share of bauxite production in 2019 is between 56 and 59 million tonnes. Aluminium production guidance is between 3.2 and 3.4 million tonnes and alumina production guidance is 8.1 to 8.4 million tonnes.

 



 

COPPER & DIAMONDS

 

Rio Tinto share of production ('000 tonnes)

 

Q1 2019

vs Q1 2018

vs Q4 2018

Mined copper

 

 

 

Rio Tinto Kennecott

52.5

+48%

-10%

Escondida

76.0

-16%

-5%

Oyu Tolgoi

15.4

+18%

+11%

 

 

 

 

Refined copper

 

 

 

Rio Tinto Kennecott

29.6

-16%

-54%

Escondida

18.7

-10%

-13%

 

 

 

 

Diamonds ('000 carats)

 

 

 

Argyle

2,786

-22%

-13%

Diavik

1,010

-5%

-6%

 

Rio Tinto Kennecott

First quarter mined copper production was 48 per cent higher than the same period of 2018 as mining activity continued in a higher grade area of the pit, coupled with productivity improvements and increased plant throughput.

 

Refined copper was 16 per cent lower than the first quarter of 2018 and significantly lower than the previous quarter due to a planned anode furnace shutdown at the smelter in February.

 

Rio Tinto Kennecott continues to toll and purchase third party concentrate to optimise smelter utilisation, with 5.6 thousand tonnes of concentrate received for processing in the first quarter of 2019, compared with 51.8 thousand tonnes in the first quarter of 2018. Purchased and tolled copper concentrate are excluded from reported production figures.

 

As previously guided, the production profile will see increased variability in grade in 2019 as operations mine in lower levels of the pit, together with waste stripping related to the south wall pushback expansion. Anticipated south wall pushback grades begin to increase in late-2020 and are expected to offset this variability over the longer term.

 

Grades were also higher in the first quarter for molybdenum, with concentrate production 29 per cent higher than the same quarter in 2018. Molybdenum concentrate production is expected to increase in the second quarter of 2019.

 

Escondida

Mined copper production at Escondida in the first quarter of 2019 was 16 per cent lower than the same period of 2018 due to lower grades.

 

Oyu Tolgoi

Mined copper production from the open pit in the first quarter of 2019 was 18 per cent higher than the same period in 2018, with higher copper grades and recovery partly offset by lower plant throughput due to the processing of harder ore.

 

Oyu Tolgoi Underground Project

Work is underway at the Oyu Tolgoi Underground Project to understand the overall cost and schedule impacts resulting from the review of the mine design and delays with the fit-out and commissioning work on Shaft 2, as announced in February 2019.

 

Work continues on critical Shaft 2 equipping activities, central heating plant, mine infrastructure, underground materials handling systems and on priority underground development. Pre sinking works for Shaft 3 and Shaft 4 have commenced.

 

The mine design work, announced in February, to adjust to more detailed geotechnical information and difficult ground conditions continues. Also as announced in February, there have been further delays in the technically complex fit-out and commissioning work on the main production and services shaft (Shaft 2). It is now anticipated that the commissioning of Shaft 2 will be completed by the end of October 2019. This further delay in Shaft 2 will impact on the timeline for other activities in the underground development, and the impact of this and of the mine design work referred to above on the overall project schedule and costs will be announced once the necessary work has been completed.  

 

The total project workforce was around 9,000 at the end of the first quarter, with a continued high (89 per cent) participation rate of Mongolian nationals.

 

Resolution Copper

On 15 April 2019, Rio Tinto announced it had committed $302 million ($166 million Rio Tinto share) of additional expenditure to advance its Resolution Copper project in the US state of Arizona. The investment will fund additional drilling, ore-body studies, infrastructure improvements and permitting activities as Rio Tinto looks to progress the project to the final stage of the project's permitting phase.

 

Diamonds

At Argyle, carat production in the first quarter of 2019 was 22 per cent lower than the same period in 2018 due to lower recovered grade.

 

At Diavik, carats recovered in the first quarter were five per cent lower than the first quarter of 2018, as lower recovered grades were partially offset by higher ore processing.

 

2019 guidance

2019 guidance is unchanged. Rio Tinto's share of mined copper production for 2019 is expected to be between 550 and 600 thousand tonnes, subject to grade availability. Refined copper production is expected to be between 220 and 250 thousand tonnes.

 

Diamond production guidance for 2019 is between 15 and 17 million carats.



 

ENERGY & MINERALS

 

Rio Tinto share of production

 

Q1 2019

vs Q1 2018

vs Q4 2018

Iron ore pellets and concentrate (million tonnes)

 

 

 

IOC

2.5

+5%

-13%

 

 

 

 

Minerals ('000 tonnes)

 

 

 

Borates - B2O3 content

115

-7%

-3%

Salt

1,310

-13%

-12%

Titanium dioxide slag

296

+1%

+1%

 

 

 

 

Uranium ('000 lbs)

 

 

 

Energy Resources of Australia

793

+19%

-14%

Rössing

802

-6%

-18%

 

Iron Ore Company of Canada (IOC)

First quarter production at IOC was five per cent higher than the corresponding period of 2018, despite adverse weather disruptions experienced in February.

 

Pellet production of 2.7 million tonnes (Rio Tinto share 1.6 million tonnes) was two per cent higher than the first quarter of 2018. Concentrate production for sale of 1.5 million tonnes (Rio Tinto share 0.9 million tonnes) was 11 per cent higher than the first quarter of 2018.

 

Borates

First quarter borates production was seven per cent lower than the first quarter of 2018, due to the impact of higher than average rainfall and the temporary curtailment of production at the evaporator. Normal production levels resumed in March, and production will continue to be aligned to customer demand.

 

Iron and Titanium

Titanium dioxide feedstock production in the first quarter was one per cent higher than the same period of 2018.

 

Three of nine furnaces at Rio Tinto Fer et Titane were idle for most of the first quarter, however two of these furnaces are restarting and currently ramping up. Three of four furnaces at RBM are currently in operation. A decision to re-start idle furnaces will be based on maximising value over volume.

 

On 8 April 2019, Rio Tinto approved the next stage in the development of RBM through the construction of the Zulti South project. The $463 million (Rio Tinto share $343 million) investment will sustain RBM's current capacity and extend the mine life.

 

Salt

Salt production in the first quarter of 2019 was 13 per cent lower than the first quarter of 2018 due to the impact of Tropical Cyclone Veronica. Production will continue to be aligned to customer demand.

 

Uranium

Energy Resources of Australia continues to process existing stockpiles. First quarter production was 19 per cent higher than the first quarter of 2018 due to higher mill throughput, grade and recoveries.

 

First quarter production at Rössing Uranium was six per cent lower than the same quarter of 2018, with lower mill throughput partially offset by higher grade.

 

On 26 November 2018, Rio Tinto announced it had entered into a binding agreement with China National Uranium Corporation for the sale of its entire 68.62 per cent stake in Rössing Uranium. The transaction is subject to certain conditions precedent including merger approval from the Namibian Competition Commission. Subject to these conditions precedent being met, the transaction is expected to complete in the first half of 2019.

 

2019 guidance

2019 guidance is unchanged. At IOC, guidance for Rio Tinto's expected share of iron ore pellets and concentrates production in 2019 is between 11.3 and 12.3 million tonnes. Titanium dioxide slag production guidance is between 1.2 and 1.4 million tonnes, and boric oxide equivalent production guidance is 0.5 million tonnes.

 



 

EXPLORATION AND EVALUATION

 

Pre-tax and pre-divestment expenditure on exploration and evaluation charged to the profit and loss account in the first quarter of 2019 was $124 million, compared with $101 million in the first quarter of 2018. Approximately 51 per cent of this expenditure was incurred by central exploration, 38 per cent by Copper & Diamonds, seven per cent by Energy & Minerals and the remainder by Iron Ore and Aluminium.

 

There were no significant divestments of central exploration properties in the first quarter of 2019.

 

Exploration highlights

Rio Tinto has a strong portfolio of projects with activity in 16 countries across seven commodities. The bulk of the exploration expenditure in this quarter was focused on copper targets in Australia, Canada, Chile, Kazakhstan, Mongolia, Papua New Guinea, Peru, Serbia, United States, Zambia and diamond projects in Canada. Mine-lease exploration continued at a number of Rio Tinto managed businesses including Pilbara Iron in Australia, Oyu Tolgoi in Mongolia, Weipa in Australia, Diavik in Canada, as well as Bingham, Resolution and Boron in the US.

 

A summary of activity for the quarter is as follows:

 

Product Groups

Studies stage

Advanced exploration

projects

Greenfield/ Brownfield

programmes

Aluminium

Cape York, Australia

Amargosa, Brazil

Sanxai, Laos

Cape York, Australia

Copper & Diamonds

Copper/molybdenum: Resolution, US

Copper: La Granja, Peru

Nickel: Tamarack, US

Diamonds: FalCon, Canada

Copper Greenfield: Australia, Chile, China, Kazakhstan, Mongolia, Papua New Guinea, Peru, Serbia, US, Zambia

Copper Brownfield: Bingham, Resolution, US Oyu Tolgoi, Mongolia

Nickel Greenfield: Canada, Uganda

Diamonds Greenfield: Canada

Diamonds Brownfield: Diavik, Canada

Energy & Minerals

Lithium borates: Jadar, Serbia

Potash: KP405, Canada

Heavy mineral sands: Mutamba, Mozambique and Zulti South, South Africa

Uranium: Roughrider, Canada

 

Heavy mineral sands: Tanzania

Industrial Minerals: Serbia

 

Iron Ore

Pilbara, Australia

Pilbara, Australia

Pilbara, Australia