Rio Tinto PLC updates
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Rio Tinto, the world’s biggest iron ore producer, has reported record half-year profits that topped its total for all of 2020 as the price of its key commodity hit an all-time high on the back of booming demand from China.
The strong earnings growth enabled the Anglo-Australian company to reward its shareholders with the biggest half-year payout in its history — dividends of $9.1bn, or $5.61 a share.
The profits and dividend highlight the huge amounts of cash being generated by the mining industry, which has been one of the biggest beneficiaries of China’s rapid economic recovery from the coronavirus pandemic and huge stimulus packages announced by governments worldwide.
Rio’s peers, which include Anglo American, BHP, Glencore and Vale, are also expected to deliver blockbuster results and cash returns when they report over the next month.
Based on production and commodity price forecasts, PwC expects the world’s top 40 miners to record after-tax profits of $118bn in 2021, up 68 per cent from the previous year.
In contrast to previous cycles, big diversified miners have resisted the temptation to invest in ambitious new projects and increase supply, in part because of few development options, particularly in metals such as copper. As a result, big miners are generating record levels of cash.
Rio said net income rose 271 per cent to a record $12.3bn in the six months to June on revenues of $33bn. Profits were higher than expected by analysts, and $2.5bn larger than Rio achieved in all of 2020.
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Rio will pay out 75 per cent of its earnings as dividends as it swung to a net cash position of $3.1bn from net debt of $664m at the end of 2020. Rio’s stated dividend policy is to pay out 40-60 per cent of earnings.
Alexander Pearce, analyst at BMO Capital Markets, said Rio’s dividend announcement set a “positive precedent for shareholder returns from its peers.”
Iron ore was Rio’s main driver of profits, accounting for almost 85 per cent of net income.
The commodity hit a record high above $233 a tonne in May due to demand from China, which has churned out record amounts of steel this year. Although the price has eased, it remains above $200 a tonne, almost 90 per cent higher than 12 months ago.
Booming iron ore prices helped divert attention from a weak operational performance. The volume of iron ore shipped from its mines in the Pilbara region of Western Australia fell 12 per cent year on year in the three months to June due to adverse weather, labour shortages and a new approach to cultural heritage.
Last year, Rio blew up two aboriginal rock shelters to make way for a mine expansion, drawing international condemnation and the resignation of previous chief executive Jean-Sébastien Jacques.
“We are making progress on our four priorities, identifying opportunities for operational improvement, advancing our ESG agenda, taking important investment decisions and stepping up our external engagement,” said chief executive Jakob Stausholm.
Outside of Australia the company is struggling to develop Oyu Tolgoi, a huge underground copper mine in Mongolia’s Gobi desert, because of disagreements with the government. It has also been forced to curtail operations at its Richard Bay Minerals business in South Africa because of security issues.