Rio takes steps to protect Pilbara Blend

RIO Tinto will spend US$80 million to address operational issues in its Pilbara iron ore business.
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Rio Tinto CEO J-S Jacques

Despite a strong financial result in the first half from the company's iron ore operations, with EBITDA of US$7.5 billion, up 33%, and a 72% EBITDA margin due to high prices, it was a challenging period operationally.

Operations were interrupted by Tropical Cyclone Veronica and a fire at Cape Lambert, which resulted in a 14 million tonne shortfall, while the company more recently reported challenges at the Greater Brockman Hub.

The two things Rio is doing to address the issues are to downgrade guidance, which was announced last month, and embark on an additional waste movement program.

Full-year guidance was last month lowered to 320-330Mt from 333-343Mt, while C1 costs guidance was increased to $14-15 per tonne from $13-14/t, incorporating lower shipments and additional waste movement.

The company will spend about $80 million this year on a program of additional waste movement due to mine sequencing challenges and a deficit in overburden removal.

Jacques said this was due to the challenges of moving to autonomous trucks and in some instances, inadequate equipment.

"This is not good enough and we are taking clear action," Rio CEO J-S Jacques said yesterday.

He also admitted the company had run its Pilbara network of mines "very hard".

"From 2021, Koodaideri will be very, very helpful in the system," Jacques said.

Rio said it had also experienced some cost pressures in Western Australia, and was trying to reduce its reliance on contractors.

"There is inflation in the system," Jacques said.

"I did flag it a year ago - we see cost inflation, no doubt about it."

Jacques said the quality of its Pilbara Blend product would not be compromised for the sake of tonnage.

"We will not downgrade the quality of our product," he said.

"We made the choice to protect the blend, not to damage the quality of the product."

Jacques said regardless of any slowdown in China, the company's high-quality Pilbara Blend, would always be in high demand and described it as the "flagship product in China".

"This is reflected in the price it commands," he said.

Rio achieved an average iron ore price of $78.50 per wet metric tonne or $85.30 per dry metric tonne in the half, up from $57.90/wmt or $63/dmt a year earlier.

Rio revealed the iron ore issues had a $200 million impact on its first half mine-to-market productivity program, reducing the full-year guidance to $500 million.

The program is now expected to deliver an additional $1-1.5 billion from 2021, previously $1.5 billion, based on the assumptions that Rio will lift iron ore production, which will be subject to market conditions.

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