Rio Tinto has delivered a 33 per cent jump in first-half net profit to $US4.38 billion ($5.9 billion), driven by a recovery in commodity prices.
Underlying earnings – which excludes impairments and exchange losses – rose 12 per cent to $US4.416 billion from $US3.9 billion a year earlier as higher iron ore output overcame lower, albeit still strong, prices in the current period.
That was below forecasts of $US4.53 billion, according to estimates in an independent survey of 15 analysts.
“Versus consensus, it’s a slight miss. It looks like aluminium was the problem at the divisional level,” said Jason Teh, chief investment officer at Sydney based Vertium Asset Management, which owns Rio shares.
In early trade in London, dual-listed Rio’s UK shares were down three per cent.
Chief financial officer Chris Lynch attributed the miss partly to the market not taking into account pricing in old alumina contracts the company has, which cost Rio “a couple of hundred million” dollars as it missed out on exposure to recent price gains in alumina after the United States imposed sanctions on Rusal.
The group declared an interim dividend for Australian shareholders of $1.7084 a share, up 24 per cent from $1.3772 a year earlier.
Rio Tinto has also announced an additional $US1 billion buyback of its UK-listed shares in its results, which were released after the close of the Australian market.
For the half Rio achieved an earnings margin of 67 per cent on its Pilbara operations on a free-on-board basis against a backdrop of consistently strong iron ore prices and record steel production in China.
Cash flow dropped 17 per cent to $US5.2 billion in the half, with the biggest impact from a $US1.2 billion payment to the Australian Taxation Office for the group’s 2017 profits.
Rio Tinto chief executive Jean-Sebastien Jacques said inflation pressure is starting to be felt across the mining industry but had been offset by improved productivity.
Speaking to media in a phone briefing, Mr Jacques said he did not see any risk of a material impact on the company from current trade war tensions.
Markets were on edge again on Wednesday with reports US President Donald Trump may be considering new, increased tariffs on Chinese imports.
Mr Jacques said in such an environment, resilience was key.
“At this point in time do we see any material impact on our business in relation to these rumours of trade war? The answer is no,” he said.
However Mr Jacques said Rio Tinto was strengthening its business and customer relationships and was not being complacent.
The increase in funds for share buybacks comes as asset sales worth $US5 billion already announced in 2018 have left the world’s number two iron ore miner with a cash pile well in excess of the $US5.5 billion outlined for planned capital expenditure this year.
In one deal, Rio has outlined the proposed terms of the sale of its 40 percent stake in Grasberg, the world’s second biggest copper mine, to an Indonesian government-owned holding firm for $3.5 billion.
The global miner has increased its forecast capital expenditure for 2020 to $US6.5 billion, up from $US6 billion.
RBC analyst Tyler Broda reiterated an “underperform” rating on Rio following the results announcement.
Despite a dividend that was ahead of expectations, RBC said it had expected payouts to be weighted towards the second half rather than evenly split, meaning its earnings per share expectations for the full year were unchanged.
While saying Rio is in a strong position, RBC said it expects the group’s “premium valuation and concentrated exposure in iron ore” to crimp future profitability.
RIO TINTO’S FIRST HALF:
* Net profit of $US4.38 billion ($5.9 billion)
* Consolidated sales revenue $US19.9 billion, up from $US19.3 billion
* Interim dividend (Australia) of $1.7084 a share fully franked, up 24 per cent from $1.3772 a year earlier.