Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rio Tinto PLC (RIO, Financial) reported robust underlying earnings of $4.8 billion, a 1% increase year on year.
- Copper equivalent production grew by 2%, with significant contributions from the Oyu Tolgoi underground mine.
- The company is maintaining a strong balance sheet and attractive returns to shareholders, with a 50% dividend payout equating to $2.9 billion.
- Significant progress in decarbonization efforts, including securing competitively priced renewable power for assets and advancing solar projects in partnership with local communities.
- The Simandou project in Guinea received full sanctioning, marking a major milestone for the largest greenfield mining and infrastructure project in the world.
Negative Points
- Challenges at the Kennecott copper mine due to geotechnical issues, impacting production timelines and costs.
- Lower iron ore sales in the first half, which affected the overall earnings despite increased production capacity.
- Higher iron ore unit costs driven by input price escalation and lower volumes, impacting EBITDA by $400 million.
- The market for some minerals, such as TIO2, remains weak, affecting volumes and profitability.
- The global economy is not performing optimally, with construction in major markets being soft and steel demand from the Chinese property sector down by as much as 30% from its peak in 2020.
Q & A Highlights
Q: Can you talk about the challenges and opportunities at Kennecott, particularly regarding the $1.1 billion second pushback and geotechnical issues?
A: Jakob Stausholm, CEO: Kennecott is a massive asset with inherent geotechnical challenges. We have a plan to manage these issues, but the exact timeline for production uplift is still being reconfigured.
Q: How do you rank future copper growth options, particularly between Oyu Tolgoi (OT) expansion and Resolution?
A: Jakob Stausholm, CEO: We aim to optimize OT and move forward with Resolution as soon as approvals are in place. Resolution is complex, but we are making progress. Both projects are important, and we will push the boundaries at OT while awaiting further approvals for Resolution.
Q: Can you discuss the potential for M&A, particularly in the context of synergies and premiums?
A: Jakob Stausholm, CEO: In mining, synergies are often not high compared to enterprise value, making it difficult to justify high premiums. We are open to M&A but only if it creates shareholder value and avoids being procyclical.
Q: What are the current challenges and timelines for the next tranche of Pilbara replacement mines?
A: Peter Cunningham, Interim CFO: The program is on track with Western Range 70% complete. The key variable is the timing of approvals, particularly traditional owner engagement and permitting processes.
Q: How quickly will the Simandou project ramp up after first ore at the mine gate in 2025?
A: Mark Davies, Chief Technical Officer: First ore is expected at the mine gate in 2025, with the rail system ramping up in the first quarter of 2026. The initial year will see ore going through the WCS port, capped at 60 million tonnes of capacity.
Q: Can you elaborate on the impact of the Safe Production System (SPS) on returns and ROCE?
A: Jakob Stausholm, CEO: SPS is about changing practices and work culture to improve operational performance. For example, Amrun Bauxite mine performed above nameplate in June, demonstrating the potential for significant improvements.
Q: What are the key infrastructure requirements for commercializing Direct Lithium Extraction (DLE) in Argentina?
A: Jakob Stausholm, CEO: DLE is the future-proof way of extracting lithium with minimal environmental impact. The key is optimizing water usage to extract the most lithium, and our research facilities are leading in this area.
Q: How do you view the potential for uranium in your portfolio given the global shift towards nuclear energy?
A: Jakob Stausholm, CEO: While there is a future for uranium, it depends on societal choices regarding nuclear energy. The demand for uranium may increase in the next two to three decades, but it is not an urgent focus for us right now.
Q: What is the status of the Traditional Owner engagement and permitting process for the Pilbara replacement mines?
A: Mark Davies, Chief Technical Officer: The process is ongoing, with some delays due to heritage approvals. We are actively engaging with Traditional Owners to progress these projects.
Q: How do you plan to address the challenges of decarbonizing the Iron Ore Company of Canada (IOC)?
A: Mark Davies, Chief Technical Officer: We are installing electric boilers and exploring biochar options to reduce carbon emissions. Quick decarbonization will come from switching to renewables, while other process technologies will take longer to develop.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
