Rio Tinto reported flat half year revenue at $26.9bn and a 5% drop in underlying cash profit (EBITDA) to $11.5bn. Performance was driven by a 13% drop in iron ore prices and a $0.3bn impact from tariffs, offset by higher copper/aluminium prices and good cost control.
Production rose 6%, largely driven by the ramp up in copper from the Oyu Tolgoi operation. Guidance for 2025 points to a c.5% rise across the business.
Free cash flow fell 31% to $2.0bn, driven by higher capital expenditure. Net debt rose $9.1bn to $14.6bn, with $7.6bn associated with the Arcadium acquisition.
A dividend of $1.48 per share was announced, down 16% on the prior year.
The shares were broadly flat in early trading.
Our view
Investors were unphased by a small drop in Rio Tinto’s first half profits. The current weakness in key iron ore prices is out of the company’s control but that’s not the case for production. And on that front performance has improved significantly despite a wave of cyclones at key Australian assets earlier in the year.
CEO elect Simon Trott is yet to take up the reins. We’re keen to hear if he’ll continue his predecessor’s pivot towards materials for the energy transition at the same pace.
But for now, iron ore remains the main performance driver - accounting for 70% of underlying cash profit over 2024, and here pricing remains weak, with tariffs weighing on the outlook for China’s manufacturing industry. Washington and Beijing have pulled back from the brink of an all-out trade war, but with deal talks longer than hoped for the situation remains unpredictable.
Despite a rebase in prices, one of Rio's main attractions remains very much intact. Its flagship Pilbara iron ore business is the group's cash cow. It's not immune to inflation though and costs have been rising, but we're starting to see the pressure ease.
The biggest new project eating the bulk of the planned $3bn annual growth investment is in iron ore, with the Simandou project in Guinea. It’s one of the world’s largest untapped reserves of high-grade iron ore and the only real large-scale driver of new global supply set to come online in the foreseeable future.
Rio recently took advantage of weakness in the lithium market to snap up a set of major assets, and propel its lithium operation to the next level. This is all part of the strategy to build more exposure in areas needed for the energy transition, with aluminium and copper the two other materials in focus.
Copper is becoming a more important part of the story, with the ramp up of operations in Mongolia expected to be a key contributor to production growth again next year.
That level of spend is propped up by a resolute balance sheet, which gives options. But there’s unlikely to be much excess capital to return to shareholders over and above the standard 40-60% payout. Nothing is guaranteed.
Investors in mining companies need to accept the volatility associated with metal price movements. But all in, Rio looks relatively attractive. The iron ore portfolio has room to grow with the Simandou project, and Rio’s well placed to benefit from demand for decarbonising metals like copper, lithium and aluminium. However, until Simon Trott sets out his vision for the company, investors are likely to remain on the fence.
Environmental, social and governance (ESG) risk
Mining companies tend to come with relatively high ESG risk. Emissions, effluences and waste, and community relations are key risk drivers in this sector. Carbon emissions, resource use, health and safety and bribery, and corruption are also contributors to ESG risk.
According to Sustainalytics, Rio Tinto's management of material ESG issues is strong.
There are comprehensive policies and strong management programmes that address material ESG issues and it has adopted a 2050 net zero climate change target for Scope 1 & 2 emissions across operations. But in recent half-year results, management warned its interim target of a 15% reduction by 2025 would not be met without the use of carbon offsets.
Rio Tinto key facts
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