Rio profits hit by fall in iron ore

Eyes on what happens in China

RIO Tinto will pay a $US2.67 a share interim dividend after booking a $US8.9bn first-half net profit, 28 per cent below its record result in the first half of 2021.

Rio, the world’s secondlargest mining company by market value, booked underlying earnings before interest, tax, depreciation and amortisation of $US15.6bn for the period, as falling commodity prices bit into the company’s revenue.

Amid fresh signs that China’s troubled construction industry could hit steel demand and iron ore prices, which have halved since this time in 2021, Rio chief executive Jakob Stausholm said in a statement market conditions for its commodities remained “good, albeit below last year’s record levels”.

“We delivered largely flat production and solid financial results, with underlying EBITDA of $US15.6bn, free cash flow of $US7.1bn and underlying earnings of $US8.6bn,” he said.

“As a result, we are paying our second highest ever interim dividend of $US4.3bn, a 50 per cent payout, in line with our policy. The market environment has become more challenging at the end of the period.”

Analysts had expected Rio to book underlying EBITDA of $US15.83bn for the first half of the year, on the back of an expected $US10.35bn EBITDA at its flagship iron ore division. Consensus estimates tipped underlying earnings of $US8.37bn for the half, down from $US12.17bn in the first half of 2021, when the iron ore price was flying and Rio’s iron ore operations delivered EBITDA of $US16.06bn and underlying earnings of $US10.22bn.

While Rio maintained its full-year production guidance in iron ore, the impact of the rapid spread of Covid-19 through the company’s Pilbara workforce in the first three months of the year mean Rio’s first-half exports of 151.4 million tonnes still remain behind their levels in the first half of 2021.

Iron ore is still trading at around $US106 a tonne, but that is only about half of its extraordinary valuation at the same time a year ago.

The miner said higher rates of inflation were pressuring its operating costs and closure liabilities, and said it “remained focused on cost control throughout the half, in particular maintaining discipline on our long-run fixed costs.” Rising price inflation across its global operations resulted in a $US595m reduction in underlying EBITDA, including $US137m for closure provisions, it said.

Macquarie analysts had said the result could be a litmus test for Rio Tinto’s capital-allocation policy, suggesting the miner could take advantage of broad risk aversion in markets to find options for countercyclical growth. But chief executive Jakob Stausholm said the miner is committed to both giving attractive returns to shareholders, and investing to sustain and grow the company’s portfolio.

Rio paid a $US5.61 a share dividend on its 2021 first-half net profit of $US12.3bn.