Rio Tinto chief puts on a brave face as interim earnings slide
GLOBAL miner Rio Tinto yesterday posted sharply lower first-half profits on sliding metal prices. It pledged $1bn in cost cuts this year.
The company’s ironore division was particularly hard hit, with underlying earnings in the section plunging 55% in the first half from a year earlier despite a dramatic reduction in how much it spends to mine each tonne.
Rio Tinto CEO Sam Walsh called the results “robust” in light of operating conditions but warned the company now faced price declines in nearly all the commodities it churned out.
Miners have been among the worst performers on London’s FTSE index of blue-chip firms so far this year, hit by oversupply and slowing growth in major consumer China. The FTSE 350 mining index has fallen by about 20% since the start of the year.
Investec said in a note: “The next six months are likely to be an even more challenging period, given the price declines we have seen so far, with the anticipated oversupply of iron ore yet to fully play out.”
Mr Walsh said Rio’s capital spending reduction target had been raised to $1bn this year from $750m to help offset weak conditions.
Despite the dismal outlook, Rio lifted its interim dividend by 12% to $1.075 per share, keeping to board policy.
The miner’s net profit tumbled 82% to $806m in the six months to June 30, while underlying earnings, which strip out the effect of one-off impairments, declined 43% to $2.9bn, in line or slightly above most analyst forecasts.
Barclays said the results were “very good” given market conditions, adding that it would remain equal weight on the stock.
In iron ore, which accounted for 72% of Rio Tinto’s overall net earnings, Mr Walsh said he was expecting about 120million tonnes of unprofitable mining capacity to close this year, with 80million tonnes coming from China’s operators.
“In terms of supply and demand, we are really seeing the market has reached some sort of equilibrium,” he said.
He reiterated the company’s 2015 production target of 340million tonnes.
China’s steel production, a key measure of iron-ore demand, has been lower this year than the year before, but Mr Walsh is still expecting long-term growth.
“The recovery will be characterised by slower commodity demand growth compared to the past decade and a likely continued focus on productivity and costs over capital project development,” he said.
Spot iron ore hit a record low of $44.10 a tonne early last month after plunging in the first half of the year. Even with a modest recovery to $56.40 a tonne, it is down more than 22% this year.