Rio Tinto Cuts Dividend as Weak Prices Take Toll
August 03 2016 - 05:10AM
Dow Jones News
SYDNEY—Rio Tinto PLC said its first-half net profit more than
doubled from a year earlier, when write-downs and exchange-rate and
derivative losses hurt its bottom line.
Weak prices for metals and bulk commodities pressured margins,
though, and the Anglo-Australian mining company reported a 47% fall
in underlying earnings. It cut its interim dividend by 58%.
In February, as the miner reported an annual loss for 2015, Rio
Tinto abandoned a policy of stable or rising dividends, saying it
could no longer justify the commitment, given the worsening outlook
for the global economy. Future dividends, it said, would be more
closely linked to market conditions.
On Wednesday, Rio Tinto said it would pay shareholders US$0.45 a
share, down from $1.075 a year earlier.
The miner reported a first-half net profit of US$1.71 billion,
up from $806 million a year earlier—when it posted noncash
exchange-rate and derivative losses of $1.3 billion—and underlying
earnings of $1.56 billion, down from $2.92 billion. That was in
line with the median forecast of seven analysts surveyed by The
Wall Street Journal.
Rio Tinto said net debt fell 6% during the half, to $12.9
billion.
As commodity prices plunged to multiyear lows, Rio Tinto and
other global miners have been reducing spending and paying off debt
accumulated during a China-led boom. While prices for mined
commodities including iron ore, coal and copper improved during the
early months of 2016, executives have projected markets could
remain depressed and volatile for years to come.
"Growth in China has stabilized, but it is on a long transition
path of slower and less commodity-intensive growth," said Rio Tinto
Chief Executive Jean-Sé bastien Jacques, who took the helm in early
July. "Meanwhile the global economy seems stuck in a subdued
low-productivity growth pattern which would indicate that continued
caution is required for the second half of 2016."
Rio Tinto has been doubling down its cost-cutting, which has
included increasing utilization of trucks and plant, reworking
deals with suppliers and freezing on wages. The company reduced
annual operating costs by $600 million in the first half, it
said.
Rio Tinto previously said it aimed to reduce costs by a further
$1 billion in 2016, and by a similar amount in 2017. The miner
drove down annual costs by US$1.3 billion in 2015. Former Chief
Executive Sam Walsh earlier this year described the targets for
this year and next as ambitious, but achievable.
Earnings in the company's biggest division, iron ore, fell by
17% as prices for the steelmaking commodity turned down, a trend
underpinned by rising supplies.
Rio Tinto, one of the world's top iron-ore suppliers alongside
Brazil's Vale SA, increased its own first-half shipments of iron
ore from Australia by 8% from a year earlier. The company has spent
billions of dollars expanding its iron-ore mines and infrastructure
in Australia in recent years.
Rio Tinto has become something of an outlier in its pursuit of
production growth as markets slump, with projects including an
underground copper mine in Mongolia and a bauxite mine in Australia
under way. On Wednesday, it reiterated a forecast that it will
spend about US$4 billion on major projects in 2016.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
August 03, 2016 04:55 ET (08:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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