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Rio Tinto counts the cost of COVID-19

Rio Tinto has reported a jump in iron ore shipments, following a challenging start to the year.
Rio Tinto counts the cost of COVID-19 Rio Tinto counts the cost of COVID-19 Rio Tinto counts the cost of COVID-19 Rio Tinto counts the cost of COVID-19 Rio Tinto counts the cost of COVID-19

Iron ore production, on a 100% basis, rose 7% quarter-on-quarter and 4% year-on-year to 83.2 million tonnes.

Shipments jumped 19% quarter-on-quarter to 86.7Mt, missing RBC Capital Markets' estimate of 88.6Mt.

First-half shipments were 159.6Mt, which the company said kept it on track to meet 2020 guidance of 324-334Mt.

The company left unit cost guidance of US$14-15 per tonne unchanged, despite one-off COVID-19 costs of 50c/t due to cleaning, screening, additional flights and roster changes.

Rosters should be back to normal by next month.

Average realised iron ore pricing in the first half of 2020 was US$78.50 per wet metric tonne, free-on-board, equivalent to $85.40 per dry metric tonne at 8% moisture.

Bauxite was also a strong performer for Rio in Queensland, with production up 5% quarter-on-quarter to 14.6Mt.

Mined copper production was flat at 132,800t, as was aluminium output at 800,000t.

Group volumes across the business were up 1% compared quarter-on-quarter on a copper equivalent basis.

Guidance for all products was left unchanged.

 "We delivered a strong performance, particularly in iron ore and bauxite, demonstrating the underlying resilience of our business and ability to adapt in difficult conditions," Rio CEO J-S Jacques said.

"Our iron ore assets are performing well in a strong pricing environment and we are on track to meet our 2020 iron ore guidance.

"Despite various COVID-19 related challenges, all our assets have continued to operate, with our first priority to protect the health and safety of all our employees and communities."

Rio came under fire during the quarter for destroying two 46,000-year-old caves at Juukan Gorge in the Pilbara.

The company has initiated a review.

"We remain even more committed to our relationship with communities, following the Juukan Gorge events in the Pilbara, and we are engaging extensively with traditional owners around our operations and across Australia," Jacques said.

Rio had previously flagged 2020 capital expenditure of $5-6 billion, but lifted that guidance to $6 billion due to the appreciation in major currencies against the US dollar.

Capex for 2021 is now expected to be $7 billion, up from $6.5 billion.

The company said although governments were lifting COVID-19 restrictions, there continued to be an impact on projects.

The Koodaideri iron ore project remains on track for production ramp-up in early 2022.

As reported earlier this week, Rio is advancing the Winu copper project in Western Australia's Paterson Province.

The company said access to site was improving as restrictions eased.

"We continue to see potential to develop the Paterson into a broader opportunity through both our own exploration and joint ventures in the region," Rio said.

Rio said conditions in China had stabilised and the US and Europe had started to reopen and recover.

However, it warned a second wave of COVID-19 infections remained a key threat.

According to Rio, China's demand for iron ore and copper remained strong.

It said COVID-19 related supply disruptions are between 3 to 4% of annual copper supply currently, in addition to normal industry supply disruptions, and could increase further.

"We are executing our value over volume strategy to drive performance, productivity and free cashflow per share," Jacques said.

"We will remain agile and ready to adapt to the changing operating and macro environment."

Morgans analyst Adrian Prendergast said the quarterly results were solid.

"Importantly, paving the way for a healthy first half cash dividend as we have been flagging," he said.

"A small bump to 2020 capex from currency swings meanwhile will only have a marginal impact."

Rio shares were up 0.6% to A$104.18 this morning. The stock hit a six-month high of $104.98 earlier this week.