Rio Tinto announced a 29% decline in first-half profit and more than halved its dividend on Wednesday. The global miner was affected by weaker iron ore prices due to cooling demand from China, rising expenses, and manpower shortages.
It’s the second-highest interim payout ever, although less than last year’s record payout when commodity prices soared.
Since then, iron ore prices have grown because of continuing demand uncertainties from big steel manufacturer China, whose zero-COVID policy has weighed on ferrous markets.
Mining businesses around the world are struggling owing to a pandemic-related shortage of skilled personnel and increasing inflation. Iron ore prices have fallen from their 2021 highs and are projected to remain low.
“While pricing is challenging, demand remains positive,” CEO Jakob Stausholm said.
“I always thought building a stronger Rio Tinto (NYSE:RIO) would take time,” he remarked.
High unplanned absences, tight labour markets, growing input costs, and supply chain disruptions continue to impair the company’s operations and expansion projects. (https://refini.tv/3OEkhaO)
Rio declared an underlying profit of $8.63 billion for the six months ended June 30, compared to a record $12.17 billion a year earlier and a company-compiled expectation of $8.37 billion.
The corporation cut its interim dividend from $5.61 to $2.67. Rio’s first-half dividend was $4.3 billion, the second-highest ever.
The business decreased its 2022 capital spending plan by $500 million to $7.5 billion.
Citibank expects ’22 consensus profit downgrades due to lower-than-expected first-half earnings and lower mark-to-market iron ore prices in the second half.
The near-term market focus will be on capital management, China demand expectations, and iron ore shipments.
China’s growth worries
China’s effort to centralise iron ore procurement has hampered miners.
In the medium term, Jakob feels enthusiastic about China.
“China can thrive and isn’t fighting inflation like the West,” he told reporters.
Guinea 2 ordered Rio’s Simandou iron ore project to suspend work.
Jakob stated, “Our negotiation team is in Guinea working with our JV partners and the authorities.”
