Rio Tinto Chief Executive J-S Jacques said "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. 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.
"Our focus is to maintain a business as usual approach with many safeguards at a very unusual time. Our operational teams are continuing to run our assets safely so we can continue to contribute to local and national economies and serve our customers. 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.
"We are executing our value over volume strategy to drive performance, productivity and free cash flow per share. We will remain agile and ready to adapt to the changing operating and macro environment."
Q2 Operational update
- We continue to prioritise the health and safety of our employees and communities during this turbulent period. We achieved an all injury frequency rate of 0.37 for the first half of 2020, trending positively compared with a rate of 0.42 in 2019. We have now fully embedded our rigorous COVID-19 health and hygiene controls as we adapt to the new operating conditions. Our operational sites and offices are moving ahead with the implementation of fit for purpose COVID-19 screening as an additional measure to protect our people and communities.
- We remain even more committed to our relationship with communities, following the Juukan Gorge events in the Pilbara. We are engaging extensively with Traditional Owners, including the Puutu Kunti Kurrama and Pinikura people, and indigenous leaders in the Pilbara and across Australia. On 19 June 2020, we announced a board-led review of our heritage management processes within Iron Ore to be completed by October 2020. We will also contribute to the Inquiry by the Joint Standing Committee on Northern Australia that will report to the Senate and we will continue to support the West Australian government's planned reform of the Aboriginal Heritage Act 1972 (WA).
- Overall, we achieved a robust production performance with volumes up 1% compared with the second quarter of 2019 on a copper equivalent basis despite significant global challenges, restrictions related to COVID-19 and the impact of the earthquake at Kennecott, Utah.
- Pilbara iron ore shipments of 86.7 million tonnes (100% basis) were 1% higher than the second quarter of 2019 despite the impact of COVID-19 related operational controls. With 1.7 million tonnes of port sales in the second quarter, we continue to grow our portside business steadily, looking to better serve our existing customers and open opportunities to sell to new customers who do not participate in the seaborne market.
- Bauxite production of 14.6 million tonnes, 9% higher than the second quarter of 2019, continued the first quarter trend following the successful ramp-up of Amrun in 2019, and higher production at the non-managed CBG joint venture in Guinea reflecting good progress on the ramp-up of the expansion.
- Aluminium production of 0.8 million tonnes in the second quarter was 2% lower than the second quarter of 2019 primarily due to pot relining at Kitimat, the decision to operate the ISAL smelter at 85% capacity, and the curtailment of the fourth pot line at our New Zealand Aluminium Smelter (NZAS) in April 2020 due to COVID-19 impacts.
- On 9 July 2020, we announced the wind-down of operations and eventual closure of NZAS following the conclusion of the strategic review.
- Second quarter mined copper was 3% lower than the same period of 2019 due to lower head grade at Kennecott. Second quarter refined copper was 67% lower than the same period of 2019 due to the impact from the 5.7 magnitude earthquake in the first quarter resulting in an unplanned flash converting furnace rebuild at Kennecott, in addition to the planned 45-day smelter shutdown in May/June.
- On 29 June 2020, we announced an agreement with Turquoise Hill Resources and the Government of Mongolia on the preferred domestic power solution for Oyu Tolgoi that paves the way for the Government to fund and construct a State Owned Power Plant at Tavan Tolgoi. Parties will work towards finalising a Power Purchase Agreement by March 2021.
- The new Oyu Tolgoi mine design announced on 3 July 2020, confirms that the caving method of mining remains valid. We are targeting first sustainable production between October 2022 to June 2023 and development capital of $6.6 to $7.1 billion based on the updated mine design of Panel 0. Material contained in pillars retained on either side of Panel 0 have been reclassified from Ore Reserves to Mineral Resources. Part of the material contained in these pillars is expected to be recoverable at a later stage following additional studies which are currently underway.
- Titanium dioxide slag production of 262 thousand tonnes was 13% lower than the second quarter of 2019 partly due to COVID-19 restrictions in Quebec and South Africa.
- Production of pellets and concentrate at the Iron Ore Company of Canada (IOC) was 9% higher than the same period of 2019 with continued focus on concentrate feed to match market demand.
- Governments are gradually lifting restrictions on the movement of goods and people as part of their COVID-19 recovery plans. However, some restrictions remain in place or are being reintroduced. As a result, there continues to be an impact on projects in general although to a lesser degree than earlier in the year.
- Capital expenditure is expected to be around $6 billion in 2020 (previously $5 to $6 billion) due to an appreciation in our major operating currencies against the US dollar since the first quarter and a reduced impact of COVID-19 on both sustaining and development expenditure. Capital expenditure for 2021 and 2022 is expected to be around $7 billion per year (previously $6.5 billion). This includes spend from 2020 that has been re-phased as a result of COVID-19 restrictions. Further details can be found in the Investments, growth and development projects section below.
- We made a final payment of US$1.0 billion in Australian income tax in June 2020 with respect to 2019 profits.
In China, conditions have improved through the second quarter and appear to be stabilising. While employment and trade uncertainties remain, the construction and infrastructure sectors are performing well; house prices and stock markets are also recovering, lending support to consumer confidence. The United States and Europe have started to re-open and recover. A second wave of infections remains a key threat for advanced economies.
- China's demand for iron ore continues while the recovery in Japan and Europe is yet to begin meaningfully and is likely to be subdued when it does.
- The automotive sector is showing initial signs of recovery from a very low base, supporting demand for aluminium value-added products (VAP).
- There has been limited impact on bauxite demand to date.
- China's copper concentrate market remains favourable; however, the US market is weaker. 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.
During the COVID-19 pandemic, we have implemented strict protocols globally across the business. These measures are in line with government guidance and directives, and advice from leading medical experts and international health organisations on best practice to keep our employees, contractors and partners healthy and safe. These range from physical distancing to travel restrictions, roster changes and team splits, to flexible working arrangements, rapid screening and personal hygiene controls.
While uncertainties continue to exist in our business environment, we are focused on our underlying resilience and ability to adapt in a fast-moving environment. Key updates are outlined below and full details of initiatives taken to date can be found on our website.
Operations and Workforce
- With the de-escalation of health restrictions in Western Australia, we are progressing the return to normal rosters at our Iron Ore operations, construction and exploration projects. We expect this transition to be completed by August 2020.
- Our office-based employees are beginning to return to offices in regions where permitted. In most cases, employees are returning to offices in alternate teams to reduce the risk of widespread transmission and ensure business continuity.
- We have introduced screening programmes across sites as a control to stop the spread of COVID-19. For the Pilbara fly-in-fly-out workforce, we have conducted more than 50,000 checks through facilities we established at Perth and regional airports as an enhanced control for employees boarding flights to site.
- At our copper assets in Mongolia and the US, our teams have used virtual technology to overcome some challenges related to COVID-19 travel restrictions. At our Oyu Tolgoi underground project in Mongolia, the use of virtual reality glasses has helped gain access to global experts to support project progression during construction and commissioning stages.
- At Richards Bay Minerals (RBM), furnaces are gradually ramping up production following easing of restrictions in South Africa. However, we are managing the situation carefully in the challenging South African environment.
- In the second quarter, we continued to focus on the optimisation of IOC product mix to match market demand, moving from pellet to concentrate.
- In aluminium, in response to market conditions we have reduced the proportion of primary metal being produced as VAP, which represented 40% of primary metal sold in the first half of 2020 (first half 2019: 54%).
- Production guidance remains unchanged across all commodities from the First Quarter Operations Review.
- We will continue to monitor and adjust production levels and product mix to meet customer requirements in 2020, in line with our value over volume strategy, government imposed restrictions related to COVID-19, and any other potential COVID-19 related disruptions.
The full second quarter production results are available here
This announcement is authorised for release to the market by Rio Tinto's Group Company Secretary.