Rio Tinto cuts copper cost guidance as Pilbara posts biggest half since 2018

Rio Tinto (RIO) railed its largest first-half iron ore tonnage out of the Pilbara since 2018 and materially lowered its full-year copper cost guidance, though the group's headline iron ore output landed below what analysts had pencilled in.

The miner shipped 85.3 million tonnes from the Pilbara in the June quarter, up 7% year-on-year and the most since 2020. While every production and sales guidance range for 2026 was left unchanged.

Rio lowered its full-year net unit cost guidance for copper by 43% (at the midpoint) from 65-75 US cents to 30-50 US cents a pound, crediting higher gold prices and productivity gains. Gold is mined alongside copper at Oyu Tolgoi and Kennecott, and its sale offsets the cost of producing each pound of copper.

Rio Tinto shares opened 2.5% higher this morning at $167.80.

Production vs. estimates

Here are the key numbers for the second quarter (100% basis) compared to a year ago, and against analyst expectations:

• Global iron ore production down 1% to 87.1Mt vs 89.6Mt ests (3% miss)

• Pilbara iron ore production flat at 83.5Mt vs 82.2Mt ests (2% beat)

• Pilbara iron ore shipments up 7% to 85.3Mt vs 83.5Mt ests (2% beat)

• Copper mined down 7% to 213kt vs 212kt ests (in line)

• Bauxite down 3% to 15.2Mt vs 15.2Mt ests (in line)

• Alumina up 10% to 2.00Mt vs 2.01Mt ests (in line)

• Aluminium flat at 0.84Mt vs 0.85Mt ests (1% miss)

• Lithium carbonate equivalent up 20% to 14.6kt vs 15.2kt ests (4% miss)

The core Pilbara output was slightly ahead, but the group figure missed as Canadian production fell 31% year on year and Simandou is still early in its ramp up phase.

Middle East and markets

Rio said operational impacts from the Middle East conflict remain limited, with no material disruption to production or outbound supply chains. It described conditions in the Strait of Hormuz as highly volatile and said it is holding contingency plans against further escalation.

Its commodity commentary was mixed:

• Copper hit a record US$6.39 a pound in mid-May before easing to around US$5.90 on a stronger US dollar

• Iron ore rose 2% over the quarter to US$105 a dry tonne

• Aluminium reached a four-year high in May, buoyed by Middle East smelter curtailments cutting ex-China supply, then eased to about US$3,150 a tonne, still well above the 2025 average of US$2,632

• Lithium carbonate rose 13% quarter on quarter, with battery storage demand up 108% year on year and now around 30% of lithium demand

• Rio noted diesel rose from about US$85 a barrel to about US$140 during the half, adding roughly US$0.80 a tonne to Pilbara unit costs year on year, a headwind absorbed within unchanged guidance.

Latest analyst commentary

Analysts have yet to run the ruler over today's numbers. The most recent note, from UBS on 10 July, carried a Neutral rating and a 12-month target of $177.00. The analysts framed the risk and reward as balanced, with near-term volume growth from Simandou, Oyu Tolgoi and lithium offset by a softening price basket and cost inflation. UBS forecasts earnings per share of US$8.50 this year rising to US$8.91 in 2027, and a net dividend yield of 4.7% to 4.9% across the next three years

Macquarie's recent coverage was posted after Rio's first-quarter result on 21 April, rating the stock Outperform with a $186.00 target. The analysts called Oyu Tolgoi's recovery "a good surprise", while cautioning it was too early to tell whether Rio's cost efforts were paying off, and said the productivity focus across Rio's major assets should be helped by the divestment program.