Rio Tinto Rains Cash on Investors Even as It Digs Out of Hole in Mongolia www.wsj.com
SYDNEY— Rio Tinto RIO -4.47% PLC said it would pay a special dividend and raise its midyear payout, even as its first-half net profit fell because of a write-down of the value of a major copper investment in Mongolia.
Rio Tinto said it would pay a $1.0 billion special dividend and raise its interim dividend to $1.51 a share from $1.27 a share a year ago, continuing a cash windfall for mining investors as the price of iron ore surges to its highest in more than five years.
The world’s second-biggest mining company by market value on Thursday reported a 12% rise in its first-half underlying earnings to $4.93 billion, missing the $5.16 billion median forecast of seven analysts polled by The Wall Street Journal. It was the miner’s highest first-half earnings since 2014.
“It is a very strong set of results,” Chief Executive Jean-Sébastien Jacques said, adding that profit margins were at their highest in a decade.
However, net profit fell 6% to $4.13 billion after the company wrote down its investment in the Oyu Tolgoi copper deposit in Mongolia by $800 million. Rio Tinto said last month it will take longer and cost more to finish building an underground mine at Oyu Tolgoi after early engineering work pointed to a heightened risk of rockfalls.
“Right now we have a lot of uncertainty about the project,” Chief Financial Officer Jakob Stausholm told The Wall Street Journal.
The Oyu Tolgoi operation—one of the few big mine developments globally—will be the world’s third-largest copper mine once it is completed, according to the company’s projections.
Miners have become much more focused on investor returns after several deals clinched at the top of the last mining cycle were much less profitable than hoped. Some investors are pressing companies to explain how they will grow production as reserves of copper to iron ore get used up.
Last month, Anglo American PLC said it would buy back $1 billion in stock and raised its interim dividend by 27% as it reported a jump in half-year earnings. Rivals including BHP Group Ltd. are also expected to report bumper profits and returns this month.
Cash flows have been bolstered by a boom in the global iron-ore market, as exports from the major hubs of Brazil and Australia have faced disruptions and China’s steel production surged to fresh records. The price of iron ore has jumped by more than 60% since the start of 2019.
Rio Tinto said its net debt totaled $4.86 billion at the end of June, down from $12.90 billion three years ago.
Still, the Anglo-Australian miner hasn’t been able to capitalize fully on the increase in iron-ore prices after production was hurt by bad weather in Australia’s arid Pilbara region, which accounts for 60% of the world’s iron ore traded by sea. Mr. Jacques said the company was struggling to maintain premium iron-ore grades for its customers after running its mines hard in recent years, and delaying some new investments.
“We have operational issues, but this is mining,” he said.
Mr. Jacques was upbeat about the global outlook, despite U.S.-China trade frictions remaining unresolved. Beijing is responding to a slowdown in its economy with stimulus measures and that should buoy demand for iron ore and other commodities, he said.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
Published Date:2019-08-02