Rio Tinto earnings results

CommSec CommSec

 

2 August 2019

Results 

Half Year 2019

Half Year 2018

Change

Consolidated Revenues (US$m)

21,809.0

21,217

+2.8%

Bloomberg Consensus (US$m)

20,659.0

 

 

Pilbara unit cash costs (US$/t)

14.6

13.4

+9%

Ore Average Realised Price (US$/t)

85.3

63.0

+35.4%

Underlying Earnings (US$m)

4,932.0

4,416.0

+11.7%

Bloomberg Consensus (US$m)

4,859.0

 

 

Interim Dividends (US$)

2.12

1.27

+66.9%

Rio Tinto (RIO) profits improved thanks to a strong rise in iron ore prices

Results

  • Rio Tinto (RIO) – Australia’s largest iron ore miner – posted a slightly above consensus half year underlying profit of US$4.9bn in after-hours trade; its biggest result since 2014.

Drivers

  • Simply put, a significant lift in iron ore prices more than offset the impact of weaker production and higher costs over the half. 
  •  The average price it received for each tonne of iron ore sold was US$85.30; a massive 35% lift on a year earlier. This was due to a shortage of supply driven by two deadly mining accidents in Brazil involving its competitor Vale, cyclones in WA and a surprise lift in demand from China.
  • The production and shipments of iron ore – by far its biggest earner – fell by 8% over the six months to June 30 as was pre-released to the market on 16 July. Shipments were impacted in April due to Tropical Cyclone Veronica which temporarily halted production at its key Pilbara operations. These disruptions also pushed costs $481m higher over the half.
  • Another concern for RIO is its Oyu Tolgoi asset; a massive underground copper mine it’s been developing in Mongolia. It warned recently that not only will its completion be delayed by 16-30 months, but it would need to spend an additional US$1.2-$1.9bn on its development.
  • RIO is heavily reliant on iron ore as its principal driver of earnings, with the sale of the commodity accounting for 70% of profits. However it also mines Aluminium, Copper, Diamonds and Energy products. Copper production fell 13%, Aluminium was steady, while Bauxite rose by just 1%.

Dividend

  • RIO declared US$2.12 per share in dividends, payable to eligible investors on 19 September.   
  • This includes a US$2.5bn or US$1.51 per share interim dividend and a US$1bn or US$0.61 per share special dividend. The total payout of US$3.5bn is a 9% lift on this time last year.
  • Due partly to the strength in RIO’s share price (has close to tripled in value since January 2016) the market was considering it more likely the miner would opt for paying investors larger dividends rather than the costlier and less effective option of buybacks.

Outlook

  • All key guidance measures were kept unchanged.
  • RIO expects to spend around US$6bn in capital investments over the year and US$6.5bn in 2020 and 2021.
  • It is targeting Pilbara unit costs of US$14-15 per wet metric tonne in 2019 and is anticipating iron ore shipments to be between 320-330 million tonnes over the year. This was revised down on 19 June from a previous 333-343 million tonnes.

Share price

  • RIO shares fell by close to 4% on the result but also followed a 3.8% slide in the iron ore price overnight as President Trump threatened a fresh 10% tariff on an additional US$300bn of Chinese imports. The miner’s shares have surged by 20% Year-to-Date; which is largely in-line with the broader market. While its shares are still around $29 or 30% away from hitting the all-time high $124.18 hit in 2008, the stock has close to tripled in value over the past three and a half years.  

 


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