[Ferro-Alloys.com] Financial performance

"We benefited from robust demand for our high-quality products driven by strong demand from China and constrained seaborne supply. However, our first half production and shipments were affected by significant disruptions from weather events, a fire at one of our ports and mine operational challenges.

Underlying EBITDA of $7.6 billion was 33% higher than 2018 first half, reflecting higher prices which were partially offset by higher unit costs. The Platts index for 62% iron fines (CFR) was 31% higher on average compared with 2018 first half, which increased our EBITDA by $2.7 billion relative to 2018 first half.

2019 first half Pilbara unit cash costs were $14.6 per tonne (2018 first half: $13.4 per tonne). The fire and weather-related events reduced first half shipments by 14 million tonnes (100% basis), increasing unit costs by around $1.2 per tonne. Higher salaries, rising fuel prices and cyclical maintenance compared with 2018 were mostly offset by a weaker Australian dollar.

We have continued investing in productivity and automation, and expect 50% of our truck fleet to be fully autonomous by the end of 2019. Deployments are complete at seven of our sites, with Hope Downs 1 and Marandoo in transition. AutoHaul is now fully operational.

Our Pilbara operations delivered an underlying EBITDA margin of 72%, compared with 67% in 2018 first half.

We priced approximately 77% of our sales with reference to the current month average index; 16% with reference to the prior quarter’s average index lagged by one month; 5% with reference to the current quarter average; and 2% on the spot market. Approximately 33% of our sales were made on an FOB basis with the remainder sold including freight.

We achieved an average iron ore price of $78.5 per wet metric tonne on an FOB basis (2018 first half: $57.9 per wet metric tonne). This equates to $85.3 per dry metric tonne (2018 first half: $63.0 per dry metric tonne).

Pilbara Blend sales included an additional 3.9 million tonnes of alternate products in 2019 first half.

Gross sales revenue for our Pilbara operations included freight revenue of $0.6 billion (2018 first half: $0.8 billion).

Net cash generated from operating activities of $5.3 billion was 23% higher than 2018 first half, driven by the same trends as underlying EBITDA.

Free cash flow for our Pilbara operations of $4.6 billion, 21% higher than 2018 first half, reflected the strong realised pricing partly offset by royalties, taxes and higher capital spend. This was largely sustaining capital, but also included Koodaideri early works. "

Review of operations

Pilbara operations produced 155.7 million tonnes (Rio Tinto share 129.7 million tonnes), 8% lower than 2018 first half. Significant disruptions were caused by Tropical Cyclone Veronica, and a fire at our Cape Lambert A port in the first quarter. The impacts of the cyclone continued into the second quarter, with repairs to the Cape Lambert A port facilities impacting Robe Valley and Yandicoogina shipments and operations. All repairs are now complete.

As announced on 19 June 2019, we are experiencing mine operational challenges, particularly at our Greater Brockman hub. This has seen shortfalls in planned material movement and impacted mine sequencing both in the Greater Brockman hub and in the broader system. We will increase waste material movement over 2019 and 2020 to improve mine performance and pit sequencing. 

New projects and growth options

The $2.6 billion Koodaideri mine is progressing to plan with engineering, procurement and construction activities on schedule, including the ramp-up of the mine bulk earthworks and commencement of rail bulk earthworks. We expect first ore from Koodaideri in late 2021, consistent with previous guidance. It will incorporate a processing plant and infrastructure, including a 166-kilometre rail line connecting the mine to our existing infrastructure network. Once complete, the initial mine development will have an annual capacity of 43
million tonnes.

The Robe River Joint Venture sustaining production projects (West Angelas C&D and Mesa B, C and H at Robe Valley) are progressing through the necessary environmental and heritage approval process. Mesa H environmental and heritage approvals have experienced some delays, with contingency plans being assessed in case required. Consistent with previous guidance, first ore from these projects is anticipated in 2021.

2019 guidance

In 2019, we expect our Pilbara shipments to be 320 to 330 million tonnes (100% basis), subject to weather. Major rail maintenance is scheduled to occur in October, and is reflected in our existing guidance. In 2019, we expect our Pilbara unit cash costs to be $14-15 per wet metric tonne on an FOB basis, which incorporates costs for the additional waste movement in the mines (~$0.25 per tonne) in the second half and the overall reduction in shipments.

• [Editor:kangmingfei]