Rio Tinto First-Half Earnings, Dividend Fall on Weaker Commodity Prices -- Update

By Rhiannon Hoyle

Mining giant Rio Tinto reported a 43% drop in first-half net profit and pared its payout to shareholders, reflecting a fall in commodity prices as China's economic recovery faltered.

The world's second-biggest miner by market value on Wednesday said it made a net profit of $5.12 billion in the six months through June, down from $8.94 billion a year earlier.

Underlying earnings totaled $5.72 billion, compared with $8.66 billion in the first half of 2022, as prices of aluminum, copper and, most importantly, iron ore--which accounts for the majority of Rio Tinto's profits--declined.

It is the company's lowest first-half underlying earnings since 2020, after which commodity prices surged on government stimulus programs in response to the Covid-19 pandemic. Analysts had expected first-half underlying earnings of roughly $5.85 billion, according to 11 forecasts compiled by Visible Alpha.

Directors of Rio Tinto declared an interim dividend of $1.77 a share, which the miner said was equal to 50% of underlying earnings, in line with its policy and typical midyear payouts in recent years. A year ago, Rio Tinto paid out $2.67 a share, also 50% of underlying earnings.

A postpandemic surge in Chinese metals demand predicted by some miners and traders hasn't materialized, as consumers refrain from spending and exports slump.

An ongoing downturn in the country's property sector, a big buyer of industrial metals, has weighed on the economy, which barely grew in the second quarter from the first quarter. Earlier this week, one of China's top decision-making bodies signaled plans to boost the ailing sector, helping to drive up prices of metals and stocks of miners, including Rio Tinto.

"We are of course deeply engrained in the Chinese economy, it's our biggest market," said Jakob Stausholm, the miner's chief executive.

He said he is cautiously optimistic about the outlook for China's economy. "For sure they have some challenges, but in the past they have had that and they have managed that well," he told reporters.

The Anglo-Australian miner makes most of its money from the vast iron-ore mining operations it runs in remote northwest Australia. As steel's main ingredient, iron ore is one of the world's most-traded commodities, and Rio Tinto is the top producer alongside Brazil's Vale.

While shipments from those Australian operations were 7% higher in the first half versus a year earlier, the average price Rio Tinto was paid for that iron ore was 11% lower year over year.

In addition to China's sluggish economic growth, global exports of iron ore have been strong, with shipments from dominant global suppliers Australia and Brazil recently estimated to be at or close to all-time highs, Rio Tinto said last week.

Weaker aluminum prices outweighed Rio Tinto's increased output of that commodity, too. While the company produced 9% more aluminum during the period year over year, it was paid 25% less per metric ton.

"That was the absolute major factor that drove our Ebitda down period on period," Chief Financial Officer Peter Cunningham said of the impact of commodity prices on earnings.

Rio Tinto is increasing spending on deals and projects to grow its production, especially of commodities needed for an energy transition including a rapid take-up of electric vehicles. That includes an expansion of copper-mining operations in the U.S. and in Mongolia, where it says its Oyu Tolgoi business is set to become the world's fourth-largest copper mine by 2030.

"Rio Tinto has not grown a lot over a decade but actually, this first half, you really see evidence of profitable growth," Stausholm said.

The miner on Wednesday said a test plant at its Rincon lithium project in Argentina will cost more than previously anticipated, raising its capital estimate to $335 million from $140 million previously.

"We were pretty clear when we took over Rincon that we wanted to go fast," said Stausholm. "We jumped a few steps on its way and probably didn't do enough engineering," but the miner has also learned lessons it can use on the full-scale development, he said.

Write to Rhiannon Hoyle at [e-mail]

(END) Dow Jones Newswires

July 26, 2023 05:56 ET (09:56 GMT)

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