<article><p class="lead">UK-Australian mining firm Rio Tinto has pushed back the start-up date for its 43mn t/yr Koodaideri iron ore mine in the Pilbara region of Western Australia (WA) and warned that production costs are under pressure from Covid-19.</p><p>Rio Tinto, which today reported a half-year profit of $3.32bn in 2020, down from $4.13bn for 2019, pushed back the ramp-up of the <a href="https://direct.argusmedia.com/newsandanalysis/article/1801442">Koodaideri project</a> into early 2022 from late 2021. It maintained its timeline for its other Pilbara projects, having secured approval for its <a href="https://direct.argusmedia.com/newsandanalysis/article/2115132">Mesa H</a> in July.</p><p>The firm warned that the pandemic is likely to add around $0.50/t to its cash costs in 2020 through additional infection control measures. It maintained its cost guidance for the year at $14-15/t, as the increased Covid-19 costs were largely offset by productivity gains, lower diesel costs and a weaker Australian dollar in the first half. But both the Australian dollar and diesel price have <a href="https://direct.argusmedia.com/newsandanalysis/article/2114704">rallied</a> putting pressure on this cost guidance.</p><p>Rio Tinto said that its cost guidance was dependent on an average Australian dollar exchange rate of $0.67 against the US dollar. The Australian dollar is currently at $0.72 and has been mostly above $0.70 since the start of June. A 10pc increase in the value of the average value of the Australian dollar against the US dollar would cut Rio Tinto's underlying earnings before interest tax depreciation and amortisation by $542mn in 2020.</p><p>A weaker Australian dollar reduces domestic costs such as labour and local contractors in US dollar terms, while a stronger currency reduces the cost of imported consumables such as diesel. But the strengthening dollar has coincided with a near doubling of the diesel price as Covid-19 lockdowns are eased around the world. Diesel prices have risen from a low of $22.75/bl in Singapore on 22 April to $50.25/bl yesterday, according to Argus assessments, although this is still well below the $82.40/bl at the start of the year.</p><p>The delay to Koodaideri, which has low operating costs, will put further upwards pressure on Rio Tinto's costs in the medium term.</p><p>Rio Tinto's iron ore division reported an underlying profit of $4.56bn, up from $4.51bn in the first half of 2020, on slightly higher average realised prices of $85.40/t fob Pilbara compared with $85.30/t for 2019.</p><p>The firm priced around 79pc of its sales with reference to the current month average index, 14pc were priced with reference to the previous quarter's average index lagged by a month and the remainder were referenced to the current quarter average or on the spot market. It sold 31pc on a fob basis and the rest on terms that included freight costs.</p><p class="bylines">By Jo Clarke</p></article>
