Big investment: An employee works on sample trays of jadarite, containing lithium and borate, at the Rio Tinto Group research centre in Loznica, Serbia. The company says it will allocate US$10bil annually over three years from 2024 to capital investment. — Bloomberg
SYDNEY: Rio Tinto Group’s first-half profit increased from the previous year – 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, and chief executive officer Jakob Stausholm said on the earnings call that the company saw fairly robust and stable demand from Asia’s largest economy.
The miner reported a 1.8% increase in underlying profit to US$5.8bil in the six months to June, below the median analyst estimate of US$5.89bil.
Stronger copper prices offset lower iron ore and aluminium prices, which cut US$200mil in earnings.
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 aluminium business and consistent production at our Pilbara iron ore operations,” Stausholm said.
“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.”
Rio will pay an interim dividend of US$1.77 a share.
Production of aluminium, which generates around a fifth of revenue, rose 3% during the half from a year earlier, while copper was up by about 2%, Rio said.
The miner aims to achieve 3% annual growth in metal output, which is critical to the energy transition from 2024 to 2028 from existing operations and projects.
The company’s latest guidance indicates “a favourable 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.
While the broader mining sector is chasing acquisitions, particularly in copper, after a period where shareholder returns took centre stage, Rio has been quiet in the dealmaking space.
Rio has instead invested hundreds of millions in greenfield exploration, concentrating on copper and lithium.
BHP Group Ltd attempted a US$49bil takeover of Anglo American Plc earlier this year, and this week it set up a joint venture with Lundin Mining Corp to buy Filo Corp, gaining access to South American copper projects.
Rio said yesterday it would allocate US$10bil annually over three years from 2024 on capital investment.
“The very simple thing about mergers and acquisitions 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, along with BHP, will be the next big miner to report earnings, with first-half results expected early next month. — Bloomberg
