Here’s what Rio Tinto (ASX:RIO) boss says is ‘causing some challenges’ right now

The Omicron variant is spreading in Western Australia.

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Key points

  • Rio Tinto gaining on strong iron ore prices
  • COVID and border closure impacting WA labour market
  • Production could be impacted

Rio Tinto Limited (ASX: RIO) shares have been benefiting from a resurgent iron ore price.

The industrial metal is currently trading at US$152 per tonne, having dropped to lows of some US$87 per tonne in mid-November.

The surging price have helped propel Rio Tinto shares to a 19% gain this calendar year, even as the S&P/ASX 200 Index (ASX: XJO) has slipped 4%.

Of course to mine that iron ore you need skilled people in the field. And that, says Rio Tinto Iron Ore CEO Simon Trott, is “causing some challenges”.

What’s all this about a labour shortage?

Unemployment levels are falling across Australia.

But after 2 years of border closures to the rest of the nation and with COVID-19 now leaking into the state, the big miners like Rio Tinto are facing a particularly tight labour market in Western Australia.

And with 37 new local cases reported yesterday, by far the most in WA since the pandemic spread down under, those labour challenges aren’t likely to go away anytime soon.

In an effort to keep its own work force safe and free from week-long periods of isolation, Rio Tinto tests its workers before they fly out to the mine sites.

According to Trott (quoted by ABC News):

We have to be ready. We’re going to have to respond to the circumstances that we face each time, and we can’t stand here and predict exactly what will happen in the future. Certainly, we’re seeing greater cases in the community.

Rio Tinto tests some 12,000 of its workers at Perth Airport each week. Last month 2 of those workers tested positive before flying to the Pilbara.

While those workers were screened out before arriving on the mine site, Trott doesn’t expect this to last indefinitely:

A really big part is about making sure that we plan for having cases on site. As we’ve seen in other states in Australia, and across the world, we can’t imagine that we will be immune from it.

As ABC News reported, Rio Tinto is expanding its rapid antigen tests beyond just those working at the mine sites.

“We have, in the last week, stood-up screening for employees at our Perth office as well, where employees will be tested on their first day at work each week,” Trott said.

As for the labour crunch hitting miners in WA?

According to Trott:

Clearly that does have an impact in terms of our day-to-day operations and the activities that we do, and we need to work our way through that. It is certainly causing some challenges at the moment.

How could this impact Rio Tinto shares?

Higher labour costs and project disruptions could see some investors hitting the sell button when the quarterly activity reports come out.

Bell Potter Securities’ Giuliano Sala Tenna said:

Labour costs will rise and they won’t be able to get jobs done. There will be lots of dislocations within the projects, so we’re concerned that we’re going to see some weak quarterlies, which could see some knee-jerk reactions to some of the share prices [for] those miners.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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