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Rio Tinto Plc

Rio Tinto PLC Q2 operations review

Rio Tinto plc (LON:RIO) Chief Executive J-S Jacques said “We saw a challenging operational performance across our portfolio in the first half, while also investing in future growth at Richards Bay Minerals and Resolution. Whilst we experienced operational and weather issues at our iron ore operations in Australia, pricing and market demand has remained robust. We remain focused on safely improving and optimising the performance and productivity of our assets in order to drive future cash flow. This, combined with our value over volume strategy and the disciplined allocation of capital, will continue to deliver superior returns to our shareholders in the short, medium and long term.”

  Q2 2019vs Q2 2018vs Q1 2019H1 2019vs H1 2018
Pilbara iron ore shipments (100% basis)Mt85.4-3%+24%154.6-8%
Pilbara iron ore production (100% basis)Mt79.7-7%+5%155.7-8%
Bauxitekt13,407+1%+5%26,171+1%
Aluminiumkt8030%+1%1,5990%
Mined copperkt137.1-13%-5%281.0-5%
Titanium dioxide slagkt303+31%+2%599+14%
IOC iron ore pellets and concentrateMt2.5+191%+2%5.0+55%

Operational update

• Pilbara iron ore shipments of 85.4 million tonnes (100% basis) in the second quarter were 3% lower than the second quarter of 2018. Shipments were impacted in April due to recovery works following Tropical Cyclone Veronica.

• 2019 guidance for Pilbara shipments was revised on 19 June 2019 to between 320 and 330 million tonnes, 100% basis (previously between 333 and 343 million tonnes) due to mine operational challenges. Unit cost guidance has been revised to $14 – $15 per tonne (previously $13 – $14 per tonne).

• Lower iron ore production was the primary driver of a 2% reduction in copper equivalent production in the first half compared to the corresponding period of 2018.

• Bauxite production of 13.4 million tonnes in the second quarter was 1% higher than the same period of 2018.

• Aluminium production of 0.8 million tonnes was in line with the second quarter of 2018.

• Mined copper production of 137 thousand tonnes was 13% lower than the second quarter of 2018, with lower production from Escondida and Kennecott reflective of lower grades.

• Titanium dioxide slag production of 303 thousand tonnes was 31% higher than the second quarter of 2018, reflecting improved operational performance following operational challenges faced in the corresponding period of 2018.

• Second quarter production at Iron Ore Company of Canada was significantly higher than the corresponding quarter of 2018, which was impacted by a labour strike. However, guidance for Rio Tinto’s share of iron ore pellets and concentrate production is revised to between 10.7 and 11.3 million tonnes (previously 11.3 to 12.3 million tonnes), due to adverse weather conditions in the first quarter and a flooding incident in June.

• Rio Tinto today released a separate announcement providing an update on the Oyu Tolgoi underground project.

• 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 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.

IRON ORE

Rio Tinto share of production (million tonnes)

 Q2 2019vs Q2 2018vs Q1 2019H1 2019vs H1 2018
Pilbara Blend Lump19.8-9%-1%39.8-7%
Pilbara Blend Fines28.5-9%-1%57.2-6%
Robe Valley Lump1.2-16%+89%1.8-39%
Robe Valley Fines2.1-19%+72%3.4-41%
Yandicoogina Fines (HIY)14.0-2%+4%27.4-3%
Total Pilbara production65.6-8%+2%129.7-8%
Total Pilbara production (100% basis)79.7-7%+5%155.7-8%
Total Pilbara shipments (a) (100% basis)85.4-3%+24%154.6-8%

(a)   Pilbara Blend sales include 2.4 million tonnes of alternate products in Q2 2019 and 3.9 million tonnes in H1 2019

Pilbara operations

Pilbara operations produced 155.7 million tonnes (Rio Tinto share 129.7 million tonnes) in the first half of 2019, 8% lower than the same period in 2018.

As highlighted in our first quarter Operations Review, significant disruptions were caused by Tropical Cyclone Veronica, and a fire at Cape Lambert A. The impacts of Cyclone Veronica continued into the second quarter, with repairs to the Cape Lambert A port facilities impacting Robe Valley and Yandicoogina shipments and operations. All repairs are now complete.

As announced on 19 June 2019, mine operational challenges are being experienced, particularly at our Greater Brockman hub. This has seen shortfalls in planned material movement and impacted mine sequencing both in the Greater Brockman hub and in the broader system. Waste material movement will be increased over 2019 and 2020 to improve mine performance and pit sequencing. Cost guidance (below) has been revised to include these additional mining activities.

First half sales of 154.6 million tonnes (Rio Tinto share 129.6 million tonnes) were 8% lower than the first half of last year due to lower mine production and damage to the port facilities caused by the cyclone.

Approximately 16% of sales in the first half of 2019 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. We continue to prioritise meeting our long-term customer commitments.

Approximately 33% of sales in the first half were made free on board (FOB), with the remainder sold including freight.

Achieved average pricing in the first half of 2019 was $78.5 per wet metric tonne on an FOB basis (2018 first half: $57.9 per wet metric tonne) which equates to $85.3 per dry metric tonne. Pilbara Blend sales included an additional 2.4 million tonnes of alternate products in the second quarter, bringing the total alternate product sales in the first half of 2019 to 3.9 million tonnes.

Pilbara projects

The Koodaideri iron ore mine is progressing to plan with engineering, procurement and construction activities on schedule, including the ramp-up of the mine bulk earthworks and commencement of rail bulk earthworks. First ore from Koodaideri is expected in late 2021, consistent with previous guidance.

The Robe River Joint Venture sustaining production projects (West Angelas C&D and Mesa B, C and H at Robe Valley) are progressing through the necessary environmental and heritage approval process. Mesa H environmental approvals have experienced some delays, with contingency plans being assessed in case required. Consistent with previous guidance, first ore from these projects is anticipated in 2021.

2019 guidance

As announced on 19 June 2019, Rio Tinto’s Pilbara shipments in 2019 are expected to be between 320 and 330 million tonnes, 100% basis (previously between 333 and 343 million tonnes). Guidance will remain subject to weather. Major rail maintenance is scheduled to occur in October, and is reflected in the existing guidance.

Rio Tinto’s Pilbara unit cost guidance in 2019 has been revised to $14 – $15 per tonne (previously $13 – $14 per tonne), which incorporates costs for the additional waste movement in the mines in the second half, and the overall reduction in shipments. 

ALUMINIUM

Rio Tinto share of production (‘000 tonnes)

 Q2 2019vs Q2 2018vs Q1 2019H1 2019vs H1 2018
Rio Tinto Aluminium     
Bauxite13,407+1%+5%26,171+1%
Bauxite third party shipments9,477+8%+7%18,318+8%
Alumina1,878-6%-6%3,886-3%
Aluminium8030%+1%1,5990%

Bauxite

Second quarter bauxite production of 13.4 million tonnes was 1% higher than the same period of 2018. Production at managed operations increased by 2%, with the ramp-up of Amrun progressing despite weather related impacts in the first quarter. This was partly offset by lower production from the non-managed Porto Trombetas (MRN) JV in Brazil. The expansion project at CBG, a non-managed JV in Guinea, experienced a slower than expected ramp-up, but is now delivering at target run-rates.

9.5 million tonnes of bauxite were shipped to third parties in the second quarter, 8% higher than the same period of 2018.

Alumina

Alumina production in the second quarter of 2019 was 6% lower than the same period in 2018 due primarily to major maintenance activities at non-managed QAL and the lower bauxite supply from MRN impacting production at Vaudreuil.

Aluminium

Aluminium production of 0.8 million tonnes in the second quarter was in line with the corresponding period of 2018. Excluding the non-managed Becancour operation, where a lock-out constrained operations, aluminium production in the first half was 1% higher than the corresponding period in 2018, reflecting continued productivity improvement.

On 2 July 2019, management and unions at the Becancour smelter agreed a new labour arrangement which will lead to restart of production at the end of July, with full ramp-up expected by mid-2020.

Average realised aluminium prices in the first half of 2019 were $2,174 per tonne (H1 2018: $2,547 per tonne). This includes premiums for value-added products (VAP), which represented 54% of primary metal sold in the first half of 2018 (H1 2018: 58%) and generated attractive product premiums averaging $242 per tonne of VAP sold (H1 2018: $222 per tonne) on top of the physical market premiums. The mid-west premium duty paid increased from $396 per tonne in the first half of 2018 to $420 per tonne in the first half of 2019. A 10% tariff on aluminium imports into the United States under Section 232, which was effective for Canadian imports, was paid until the tariffs were removed on 19 May 2019.

There was some respite from cost inflation in Aluminium compared with 2018 for certain raw materials, in particular for caustic soda and petroleum coke albeit with a lag effect due to the pricing mechanism. However, this was partly offset by inflationary pressures on other costs.

Kemano

At the Kemano hydro-power facility at Kitimat, British Columbia, the tunnel boring machine has achieved a total of 828 metres excavated as at 30 June 2019. Current progress is slightly behind schedule, but cost forecasts remain on budget.

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)

 Q2 2019vs Q2 2018vs Q1 2019H1 2019vs H1 2018
Mined copper     
Rio Tinto Kennecott41.1-20%-22%93.7+8%
Escondida82.9-10%+9%158.9-13%
Oyu Tolgoi13.1-1%-15%28.5+9%
      
Refined copper     
Rio Tinto Kennecott63.3+55%+114%92.8+22%
Escondida19.0-9%+2%37.7-10%
      
Diamonds (‘000 carats)     
Argyle3,292-5%+18%6,079-13%
Diavik1,188+3%+18%2,198-1%

Rio Tinto Kennecott

Second quarter mined copper production was 20% lower than the same period of 2018. Lower grades experienced as mining activity moved into lower levels of the pit were partially offset by increased mined ore.

Refined copper production was 55% higher than the second quarter of 2018, reflecting strong smelter performance and improved mining rates. Production was significantly higher than the prior quarter, when the anode furnace was shut for planned maintenance. 

Rio Tinto Kennecott continues to toll and purchase third party concentrate to optimise smelter utilisation, with 31.8 thousand tonnes of concentrate received for processing in the second quarter of 2019, compared with 31.3 thousand tonnes in the second quarter of 2018. Purchased and tolled copper concentrate are excluded from reported production figures.

Grades were higher in the second quarter for molybdenum, with concentrate production more than two and a half times higher than the same quarter in 2018.

Escondida

Mined copper production at Escondida in the second quarter of 2019 was 10% lower than the same period of 2018 mainly due to lower copper grades feeding the concentrators.

Oyu Tolgoi

Mined copper production from the open pit in the second quarter of 2019 was 1% lower than the same period in 2018 and 15% lower than the prior quarter as ore sources move to lower grade areas of the pit, as planned.

Oyu Tolgoi Underground Project

On 16 July 2019, Rio Tinto released a separate announcement providing an update on the Oyu Tolgoi underground project.

Provisional pricing

At 30 June 2019, the Group had an estimated 287 million pounds of copper sales that were provisionally priced at 275 cents per pound. The final price of these sales will be determined during the second half of 2019. This compares with 240 million pounds of open shipments at 31 December 2018, provisionally priced at 277 cents per pound.

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 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 second quarter of 2019 was 5% lower than the same period in 2018 due to lower recovered grade, partially offset by stronger mining rates.

At Diavik, carats recovered in the second quarter were 3% higher than the second quarter of 2018 due to slightly higher grades and ore processing throughput.

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

 Q2 2019vs Q2 2018vs Q1 2019H1 2019vs H1 2018
Iron ore pellets and concentrate (million tonnes)     
IOC2.5+191%+2%5.0+55%
      
Minerals (‘000 tonnes)     
Borates – B2O3 content138+4%+20%253-1%
Titanium dioxide slag303+31%+2%599+14%
      
Uranium (‘000 lbs)     
Energy Resources of Australia620+3%-22%1,413+11%
Rössing1,142+23%+43%1,944+9%

Iron Ore Company of Canada (IOC)

Second quarter production available for sale at IOC was significantly higher than the corresponding period of 2018, which was impacted by a labour strike, and 2% higher than the prior quarter. Although 55% higher than the corresponding period of 2018, first half production was impacted by adverse weather in the first quarter and a flooding incident in June.

Borates

Second quarter borates production was 4% higher than the second quarter of 2018, and production will continue to be aligned to customer demand.

Iron and Titanium

Titanium dioxide feedstock production in the second quarter was 31% higher than the same period of 2018, reflecting improved operational performance following challenges faced in the corresponding period of 2018.

Eight of nine furnaces at Rio Tinto Fer et Titane (RTFT) are currently in operation, with three of four furnaces currently in operation at Richards Bay Minerals (RBM). Reconstruction of the currently idled fourth furnace at RBM commenced in July, with the furnace expected to be in operation by the end of 2019. A decision to re-start the remaining idled furnace at RTFT will be based on maximising value over volume.

On 8 April 2019, Rio Tinto announced the approval of the construction of the Zulti South project at RBM in South Africa for $463 million (Rio Tinto share $343 million). First production is scheduled for late-2021.

Uranium

Energy Resources of Australia continues to process existing stockpiles. Second quarter production was 3% higher than the same period of 2018, with higher grade and recoveries partly offset by lower plant throughput.

Second quarter production at Rössing Uranium was 23% higher than the same quarter of 2018, reflecting higher grades and recoveries.

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% stake in Rössing Uranium. Approval has now been received from the Namibian Competition Commission and final completion occurred in July.

2019 guidance

At IOC, guidance for Rio Tinto’s expected share of 2019 iron ore pellets and concentrate production is revised to between 10.7 and 11.3 million tonnes (previously 11.3 to 12.3 million tonnes), due to the adverse weather conditions in the first quarter and the flooding incident in June.

Titanium dioxide slag production guidance is unchanged between 1.2 and 1.4 million tonnes, and boric oxide equivalent production guidance remains at 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 half of 2019 was $287 million, compared with $232 million in the first half of 2018, with increased spend on central exploration and at Resolution Copper. Approximately 51% of this expenditure was incurred by central exploration, 38% by Copper & Diamonds, 7% by Energy & Minerals and the remainder by Iron Ore and Aluminium.

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

Exploration highlights

Rio Tinto has a strong portfolio of projects with activity in 18 countries across eight commodities. The bulk of the exploration expenditure in this quarter was focused on copper targets in Australia, Canada, Chile, Kazakhstan, Mongolia, Namibia, 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.

At the Winu project in Western Australia, results continue to indicate relatively wide intersections of vein style copper mineralisation associated with gold and silver beneath relatively shallow cover which ranges from 50 to 100 metres. The mineralisation remains open at depth and to the east, north, and south.  Reverse circulation (RC) and diamond drilling is continuing, with RC drilling primarily focused upon defining the extent and tenor of the supergene zone, and diamond drilling continuing to test the extents of the deposit. Drilling is ongoing with eight diamond rigs and three RC rigs drilling at Winu.

A summary of activity for the quarter is as follows:

Product GroupsStudies stageAdvanced explorationprojects Greenfield/ Brownfield
programmes
AluminiumCape York, AustraliaAmargosa, BrazilSanxai, LaosCape York, Australia
Copper & DiamondsCopper/molybdenum: Resolution, USCopper: Winu, Australia, La Granja, PeruNickel: Tamarack, USDiamonds: FalCon, CanadaCopper Greenfield: Australia, Chile, China, Kazakhstan, Mongolia, Namibia, Papua New Guinea, Peru, Serbia, US, ZambiaCopper Brownfield: Bingham, Resolution, US Oyu Tolgoi, MongoliaNickel Greenfield: Canada, Finland, UgandaDiamonds Greenfield: CanadaDiamonds Brownfield: Diavik, Canada
Energy & MineralsLithium borates: Jadar, SerbiaPotash: KP405, CanadaHeavy mineral sands: Mutamba, MozambiqueUranium: Roughrider, Canada Heavy mineral sands: TanzaniaIndustrial Minerals: Serbia 
Iron OrePilbara, AustraliaPilbara, AustraliaPilbara, Australia

Forward-looking statements

This announcement may include “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding Rio Tinto’s production forecast or guidance, financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Rio Tinto’s products and reserve and resource positions), are forward-looking statements. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”, “may”, “should”, “will”, “target”, “set to”, “assumes” or similar expressions, commonly identify such forward looking statements.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual production, performance or results of Rio Tinto to be materially different from any future production, performance or results expressed or implied by such forward-looking statements. Such forward-looking statements could be influenced by such risk factors as identified in Rio Tinto’s most recent Annual Report and Accounts in Australia and the United Kingdom and the most recent Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the “SEC”) or Form 6-Ks furnished to, or filed with, the SEC. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this announcement. Rio Tinto expressly disclaims any obligation or undertaking (except as required by applicable law, the UK Listing Rules, the Disclosure and Transparency Rules of the Financial Conduct Authority and the Listing Rules of the Australian Securities Exchange) to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Rio Tinto’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Nothing in this announcement should be interpreted to mean that future earnings per share of Rio Tinto plc or Rio Tinto Limited will necessarily match or exceed its historical published earnings per share. 

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