Resilient Iron Ore Price Helps Rio Navigate “Challenging” Half

By Glenn Dyer | More Articles by Glenn Dyer

Despite Rio Tinto boosting its mid-year dividend payout despite a 20% fall in net profit, the company is even more hostage to iron ore than at any other time in its history.

Half-year iron ore earnings accounted for just on 80% of total earnings before interest tax depreciation and amortisation for the period to June 30 and makes the company even more hostage to the health of the Chinese steel industry which is helping keep world iron ore prices above $US100 a tonne at the moment.

The world’s biggest iron ore miner on Wednesday reported a net profit of $US3.32 billion in the six months to June, down from $US4.13 billion in the same period a year earlier when it wrote down its investment in the Oyu Tolgoi copper deposit in Mongolia.

This year its lopped a $US1 billion off the value of its aluminium business after it announced the staged closure of its New Zealand smelter.

The said the on-year decline in statutory profit reflected the higher impairment charges, exchange-rate losses, and extra closure costs for some assets.

The company said first-half underlying earnings fell by 4% to $US4.75 billion.

Directors declared an interim dividend of $US1.55 a share, up 3% on a payout of $US1.51 a year ago.

Rio’s accounts reveal that its WA iron ore business reported underlying earnings before interest tax depreciation and amortisation (EBITDA) of more than $US7.698 billion, or more than 79.8% of total underling EBITDA for the half year of $US9.640 billion

“Despite the challenging backdrop, we generated underlying earnings before interest, tax, depreciation, and amortisation of $9.6 billion, with a margin of 47%, driven by our strong and stable operations, with all of our assets continuing to operate throughout the first half,” CEO Jean-Sébastien Jacques said in a statement with the results.

“The global economy suffered a severe contraction in the three months through June, as the U.S. grappled with the spread of the coronavirus and other countries faced second waves of infections that are proving harder to contain than initial outbreaks,” he said.

“Many economies have started to reopen, but pandemic flare-ups have made it a bumpy process and authorities have often had to reverse course and tighten restrictions once again.

Rio Tinto’s iron-ore exports rose 1% in the three months to June and it continues to forecast annual shipments of between 324 million tons and 334 million tons.

A recent strengthening of demand in China, the world’s top buyer of iron ore and many other commodities, has provided another boost.

China this month said its economy in the second quarter grew 3.2% from a year earlier, helped by an aggressive campaign to eradicate the virus within its borders. Steel utilization rates in the country have improved and annual production is on track to reach 1 billion tonnes in 2020.

The Escondida copper mine in Chile is operating with fewer workers as part of a strategy to limit the risk of the coronavirus spreading. Rio Tinto estimates the pandemic has disrupted 3%-4% of global copper supply and warns this could increase further.

That’s seen copper prices jump more than 30% since February to more than $US2.91 a pound this week on Comex.

Rio Tinto said its net debt totalled $US4.83 billion at the end of June, down from $US12.90 billion four years ago.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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