Rio Tinto Group’s first-half profit edged higher from the year before — although it narrowly missed estimates — as the world’s biggest iron ore miner proved resilient to China’s economic slowdown.
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Published Jul 30, 2024 • 3 minute read
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(Bloomberg) — Rio Tinto Group’s first-half profit edged higher from the year before — although it narrowly missed estimates — as the world’s biggest iron ore miner proved resilient to China’s economic slowdown.
An ongoing property crisis and disappointing post-pandemic recovery in China, the biggest metals-consuming nation, has put downward pressure on demand for most industrial commodities. However, Rio kept full-year production guidance for its metals unchanged, with Chief Executive Officer Jakob Stausholm saying on the earnings call that the company sees fairly robust and stable demand from Asia’s largest economy.
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The miner reported a 1.8% increase in underlying profit to $5.8 billion in the six months to June, below the median analyst estimate of $5.89 billion. Lower iron ore and aluminum prices cut earnings by $200 million, but that was offset by stronger copper prices.
The world’s largest miners have remained historically profitable despite concerns over sluggish growth in China, which has weighed on iron ore prices this year. Rio, which gets more than half its revenue from the steelmaking staple, will bring its massive Simandou project in Guinea into production in 2025, which is likely to push down prices even further.
“We are at an inflection point in our growth, with a step change from our aluminum business and consistent production at our Pilbara iron ore operations,” Rio Chief Executive Jakob Stausholm said in a statement. “We have considerable growth in cash flow from the ramp-up of the underground copper mine at Oyu Tolgoi, and more value to come as our Simandou investment and Rincon lithium project proceed at pace.”
The company’s shares gained as much as 1.2% after the earnings announcement, and were trading 0.9% higher to A$115.67 apiece at 10:24 a.m. in Sydney.
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Rio will pay an interim dividend of $1.77 a share. Production of aluminum, which generates around a fifth of revenue, rose 3% during the half from a year earlier, while copper was up by about 2%, the company said. The miner is aiming to deliver 3% annual growth in output of the metal that’s vital to the energy transition from 2024 to 2028 from existing operations and projects.
The company’s latest guidance indicates “a favorable long-term outlook, driven by significant growth investments and strong sustainability initiatives,” said Junvum Kim, a senior sales trader at Saxo Bank A/S. “However, the immediate landscape presents challenges,” including threats to earnings from falling iron ore prices, elevated closure and exploration costs, and operational disruptions, he said.
M&A Strategy
While the broader mining sector is chasing acquisitions, particularly in copper, after a period where shareholder returns took center stage, Rio has been quiet in the dealmaking space. Instead, it’s allocated hundreds of millions into greenfield exploration with a focus on copper and lithium.
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BHP Group Ltd. attempted a $49 billion takeover of Anglo American Plc earlier this year, and this week set up a joint venture with Lundin Mining Corp. to buy Filo Corp., gaining access to South American copper projects.
Rio said Wednesday it would allocate $10 billion annually over three years from 2024 on capital investment.
“The very simple thing about M&A is that you have to have synergies that exceed the premium otherwise it doesn’t really make sense,” Stausholm said, adding that the miner wasn’t completely ruling out any future acquisitions.
Glencore Plc will be the next big miner to report earnings, with its first-half results expected early next month along with BHP.
(Updates with details throughout)
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