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Australian mining industry digs deep for labor shortage answers

Rio Tinto reports steep decline in iron-ore output as prices go up

Australia is the world's top iron-ore producer, supplying 53% of global exports in 2020. (Photo by Fumi Matsumoto)

SYDNEY/TOKYO -- Australia's iron-ore miners are grappling with a severe shortage of workers, prompting cuts in production and shipments as they compete with other industries for talent while navigating coronavirus constraints.

The problems are pushing prices higher and cloud the outlook for exports, particularly to resource-hungry China.

Anglo-Australian mining giant Rio Tinto reported a lackluster second quarter Friday, saying iron-ore production had slid 9% year-on-year to 75.9 million tons. Its January-to-June output also tallied 5% lower than the first half of 2020.

COVID-19 restrictions "limited our ability to access additional people, particularly in Western Australia and Mongolia, in order to deliver operational improvements or maintenance initiatives and accelerate projects," Chief Executive Jakob Stausholm said in a statement. Western Australia boasts some of the world's largest reserves of iron ore.

The company left its full-year shipments forecast intact -- between 325 million tons to 340 million tons -- but Stausholm said he expected the figure to be "at the low end of the range."

Rio Tinto is hardly alone among mining players in its workforce challenges.

Mineral Resources, an operator of iron ore mines known as MRL, faced a lack of truck drivers due to COVID-19 travel restrictions. "This shortage has meant that, on average, hauling capacity of approximately 10,000 [wet metric tons] per day otherwise available to MRL was sitting idle," the company said in a statement earlier this year. MRL downgraded its shipment guidance for the year ended June to a range between 17.4 million tons to 18 million, more than 10% below its previous target.

BHP said in May it would hire 200 train driver trainees, equivalent to 45% of its current driver pool.

Australia is the world's top iron-ore producer, supplying 53% of global exports in 2020. The country is enjoying strong global demand for its high-quality iron ore, particularly from Chinese steelmakers that seek the material from Down Under because it helps reduce carbon dioxide emissions during steel manufacturing.

Western Australia, home to 99% of the country's iron-ore production, hosts an estimated 147,000 workers in the resources industry spanning gold, copper and liquefied natural gas. But "there is a significant shortage of workers now, with the potential for there to be a peak shortage of 33,000 workers," according to a report from the Chamber of Minerals and Energy of Western Australia released in late June. The peak shortage is expected to occur during the July-September quarter of 2023.

Iron-ore producers are trying to maintain shipment levels by tapping inventories and other measures. But the worker shortage is unlikely to ease anytime soon.

That is because the fight for talent is heating up with Australia's eastern states, where major cities like Sydney and Melbourne are located. An infrastructure construction boom is now underway in the southeast.

Typically, workers at mines in Western Australia fly to the state to work for a few weeks and return to their homes in urban areas to take days off. But more are opting to work in the east near metropolitan areas instead of working away from their family in places like Pilbara, a sparsely populated iron-ore mining mecca where temperatures top 40 degrees Celsius in summer.

State and national border closures meant to stem the pandemic have complicated travel.

Meanwhile, costs are rising, in part because of wage hikes. Fortescue Metals Group in May raised its projected capital expenditure for the Iron Bridge mine project to a range of $3.3 billion to $3.5 billion from $2.6 billion, citing higher materials as well as equipment prices and labor restrictions.

These are expected to lift iron-ore prices further from current high levels. The international benchmark for China-bound spot prices published by S&P Global Platts climbed to a record for the first time in about 10 years in late April. It hovered in the $220 range in early July, more than twice the level from a year earlier.

"The labor shortage will limit iron-ore supplies, and this will support the market," said Naohiro Niimura of Market Risk Advisory, a commodities consultancy in Tokyo.

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