Rio Tinto warned that costs at its iron ore mine would rise more than expected this year due to wage and part inflation.
Anglo-Australian said unit costs for the Pilbara Mine in Australia, the place where the group makes most of its profits, will increase between $21.75 to $23.50 per metric tonne. This is at the midpoint worse than the analysts’ expectations of $22.13.
The company stated that the increase in costs was due to increased labour costs and inflation of parts and labour at the mine.
Rio Tinto’s chief financial officer, Peter Cunningham (57), said that the rate of cost increases was “much tempered”, and raw material prices had improved. He added that there was still a “lagged” effect, as wages were still high.
He said that in some places around the world, there is still a tight labour market. Western Australia is one of them.
The decline in commodity prices has pushed earnings before interest, tax and other items to $23.9 billion from $26.3 billion. This is in line with the consensus estimate of $24 billion. Pre-tax profits fell to $15.5 billion from $20.5 billion.
Prices for copper and aluminum have fallen as a result of weaker economic conditions. An increase in supply has outpaced’modest growth in demand’, which reduced the adjusted profit by $1.5 billion.
The pre-tax profit includes a $700m impairment of its Australian aluminum refineries as prices fell due to lower consumption.
Cunningham said that the demand for iron ore, a key steel-making ingredient, had remained “pretty robust” despite concerns over consumer sentiment and China’s property sector. Cunningham stated that demand for iron ore – a key ingredient in steel production – had remained “pretty strong” despite concerns about consumer sentiment , and the nation’s property sector.
The company will pay out $7.1 billion in dividends to its shareholders. This is a lower amount than the $492 cents that it paid back in 2022 but still higher than what analysts expected.
Cunningham stated that the ramp-up for Simandou iron-ore project, Guinea’s largest untapped high grade iron-ore deposit, is on track. Rio is waiting on its joint venture partners, a Chinese consortium headed by Chinalco to receive final approvals before the project can be developed. Rio’s capital expenditure share will be $6.2billion over the next 3 years.
The group also wants to expand its business into lithium, an important ingredient in electric vehicle batteries. Since the beginning of this year, the price of the metal is down by around a fifth.
Cunningham stated that “there’s no changing the view that lithium is really really important for the energy transition”, referring to an expected 25 per cent compound annual growth in demand during the current decade, as the adoption of EVs grows.
He acknowledged that the high prices in the past have led to more supply on the market. “We expected lithium to be volatile, given the degree of growth.”
The London-listed firm’s shares dropped by 79p or 1.5 percent to close at £51.51.