The Rio Tinto Limited (ASX: RIO) share price is dropping on Friday following the release of its second quarter update.
At the time of writing, the mining giant's shares are down 1% to $130.25.
How did Rio Tinto perform in the second quarter?
As you might have guessed from the Rio Tinto share price performance today, the mining giant had a softer than expected quarter.
According to the release, Pilbara iron ore production came in at 75.9 million tonnes for the three months. This was 9% lower than the prior corresponding period due to above average rainfall in the West Pilbara, shutdowns to enable replacement mines to be tied in, processing plant availability, and cultural heritage management.
Also on the decline were Rio Tinto's iron ore shipments. They came in at 76.3 million tonnes, which was 12% lower than the second quarter of FY 2020. Ongoing COVID-19 restrictions and a tight labour market have further impacted the company's ability to access experienced contractors and particular skill sets.
It was a similar story for mined copper production. It fell 13% over the prior corresponding period to 115.5 thousand tonnes. Management advised that this was driven by lower recoveries and throughput at Escondida. This was the result of the prolonged impact of COVID-19 and a planned relocation of the in-pit crusher at Kennecott in April.
Finally, Bauxite production fell 6% to 13.7 million tonnes, aluminium production rose 4% to 0.8 million tonnes, and titanium dioxide slag production increased 14% to 298,000 tonnes.
Iron ore shipments guidance
Also weighing on the Rio Tinto share price is management's guidance for FY 2021.
It advised that it expects its iron ore shipments to be at the low end of its guidance range. Though, this remains subject to COVID-19 disruptions, the tie-in and ramp up of brownfield replacement mines, and management of cultural heritage.
In addition, Rio Tinto's Pilbara iron ore FY 2021 unit cost guidance is now US$18 to US$18.50 per tonne. This is up from US$16.70 to US$17.70 per tonne previously. Though, positively, it is still materially lower than the price is commanding. Management advised that Rio Tinto achieved average first half pricing of $154.9 per wet metric tonne on an FOB basis. This is the equivalent to $168.4 per dry metric tonne, at 8% moisture assumption.
Mined copper and bauxite production is also expected to be at the low end of the guidance range. Whereas its full year titanium dioxide slag production guidance has been removed. This is due to risks around the timing of resumption of operations at RBM in South Africa following an escalation in the security situation.
Management commentary
Rio Tinto's Chief Executive, Jakob Stausholm, appears disappointed with the quarter. He said: "The global economy, in particular China, recovered strongly and we are intensely focused on servicing our customers with as much product as we can. However, we faced some challenges in the first half notably at our Pilbara operations, which were impacted by replacement mine tie-ins and materially higher rainfall."
"Heightened COVID-19 constraints, which resulted in numerous travel restrictions, added further pressure on the business and limited our ability to access additional people, particularly in Western Australia and Mongolia, in order to deliver operational improvements or maintenance initiatives and accelerate projects," he added.
Mr Stausholm acknowledged that the company needs to improve operationally so it can deliver superior returns for shareholders.
He explained: "Safety is our first priority and our performance in this area remains robust in challenging conditions. However, as identified shortly after my appointment, operationally we are not where we want to be. Our first half performance has reaffirmed my belief that we have identified the right priorities to strengthen the business: to become the best operator, strive for impeccable ESG credentials, excel in development and secure a strong social licence."
"We have made initial progress against our priorities, but a large volume of work remains to make Rio Tinto even stronger, so we can continue to deliver superior returns to shareholders, invest in sustaining and growing our portfolio, and make a broader contribution to society," he concluded.
The Rio Tinto share price is up 13% in 2021.
