London: Rio Tinto Group reported its worst profit since 2004 as depressed prices for iron ore, aluminium and copper eroded earnings at the world’s second-biggest mining company.
Underlying profit fell 47 per cent to $1.56 billion in the six months through June, compared with $2.92 billion a year earlier, London-based Rio said in a statement on Wednesday. That matched the $1.56 billion average estimate from seven analysts surveyed by Bloomberg. The dividend fell 58 per cent to 45 cents a share, reflecting a new policy that ties the payment to earnings.
The 143-year-old mining giant has cut costs, reined in spending and sold underperforming assets in a bid to weather the commodities crisis sparked by China’s slowing growth and a glut of raw materials. The company is led by new Chief Executive Officer Jean Sebastien Jacques, 44, who was head of Rio’s copper unit before taking on the top job from Sam Walsh last month.
“It’s not a bad result given the turbulent backdrop that we’ve seen with commodity prices,” said David Lennox, a resource analyst at Sydney-based Fat Prophets. “The start of the second half has been a little better than the first, so if that continues it may be that the first-half results mark a low point in earnings.”
Rio shares have jumped 23 per cent in London this year, rebounding from a seven-year low reached in January. The broader Bloomberg World Mining Index is up 38 per cent in 2016 as investors bet last year’s worst sell-off since 2008 was overdone.
The stock added 0.4 per cent to 2,452 pence at 8:01am in London.
Commodity prices have stayed weak. Iron ore, which delivers most of Rio’s earnings, averaged $52.14 a metric ton in the first half, a 14 per cent drop from a year earlier. Copper’s average price sank 21 per cent and aluminium was 14 per cent lower.
In a June interview, Jacques outlined his vision to grow the company through investing in existing projects and expanding profitable operations, rather than focusing on mergers and acquisitions. He announced a management reshuffle in June that resulted in the departure of Rio’s head of iron ore, a division responsible for about 75 per cent of earnings last year.
Rio’s estimate for capital spending was maintained at $4 billion this year. First-half spending was $1.3 billion, down 47 per cent from $2.5 billion a year ago. Net debt was $12.9 billion, compared with $13.8 billion on Dec. 31.
“We expect the market conditions to remain challenging and volatile,” Jacques said on a call with reporters from London. China’s economy is on a long-term path of slower and less commodity-intensive growth, Rio said in the statement.
