Rio Tinto Half Year Result: Higher commodity prices boosted RIO cash & dividends

CommSec

Rio Tinto has reported an interim underlying profit of $US3.94b, up from US$1.56b a year ago. The result was slightly lower than consensus forecasts. Its interim dividend jumped to a record US$1.10 per share, compared to US$0.45 a year ago.

  • Rio Tinto (RIO) posted a very solid first half result for 2017. The overall view was that the business has received a boost from higher average commodity prices and tighter controls on debt and spending. The major concern for investors is, will this growth last and has it come at the cost of mining plans for Rio Tinto?
  • Rio posted an underlying earnings of US$3.94 billion, but this was below market expectations of US$4.26 billion and largely boosted by higher commodity prices. The average price of thermal coal over the period increased by nearly 53% (1H17 $78; 1H16 $51) which boosted revenues. Underlying earnings from iron ore increased by 87% to US$3.3 billion. This was helped by high-grade, low phosphorus iron ore from the Pilbara, especially its Silvergrass project which reduced the impact of poor weather conditions and one-off maintenance interruptions.
  • RIO posted margin improvements with Earnings Before Income Tax, Depreciation & Amortisation (EBITDA) margin coming in at 45% in the first half of 2017, compared with 33% the same time last year.
  • The underlying earnings result also was hampered by a higher tax rate and the ongoing costs of the strike at its Escondida copper mine in Chile.
  • RIO has been working on reducing costs and debt. Over the year it has seen a US$2.1 billion pre-tax sustainable operating cash cost improvement that was well ahead of schedule. Capital expenditure for the period was US$1.8 billion, well below the US$2.4 billion expected by the market. RIO management said it still plans to spend US$5 billion in Capital Expenditure for the full year 2017. The company reduced net debt by US$2 billion to US$7.6 billion, and improved its net gearing ratio to 13%, with no bond maturities until 2020.
  • RIO increased its dividend payout ratio to 75% of underlying earnings and said it will pay a US$1.10 or A$1.3772 to shareholders on 21 September 2017. Rio Tinto also announced it would increase its share buy-back by US$1 billion over its Rio Tinto plc (London based) shares by the end of 2017. Taking total returns to shareholders of US$3 billion - ahead of market expectations.

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