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RIO

Rio Tinto Ltd: Half year results shows reduction in net earnings

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Rio Tinto Ltd (ASX: RIO) is one of the world’s largest metals and mining company. Rio Tinto produces iron ore, aluminum, copper, diamonds, titanium and borates. Rio Tinto has 60 operations and projects around the world and around 37,000 suppliers. Rio Tinto has a market capitalisation of A$33 billion.

 

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What are the key features of Rio Tinto’s Half year results (half year ending 30 June 2020)?

Net cash generated from operating activities for the half year is US$5,628 million, down 12% compared to the corresponding period. Free cash flow for the half year is US$2,809, down 28% compared to the corresponding period. Net earnings for the half year is US$3,316, down 20% compared to the corresponding period. Ordinary dividend per share is US155.0 cents, up 3%.

Rio Tinto’s production levels for HY20 compared with HY19 are as follows: iron ore shipments were up around 3%, bauxite production was up 8%, alumina production was up 3%, aluminium production was is down 2%, copper production was down 5%, refined copper production was down 43%, diamond production was down 7%, TiO2 production was down 7%, and borates production was up 2%.

Rio Tinto maintains a sound balance sheet with net debt of US$4.8 billion at the end of 30 June 2020. The rise reflected payment of the final dividend of $3.6 billion and $0.2 billion of share buy-backs, partly offset by our free cash flow. Cash and cash equivalents plus other short-term cash investments is US$8.8 billion at the end of 30 June 2020.

What is the outlook for Rio Tinto?

Rio Tinto management broadly maintained production guidance for FY20.

Rio Tinto’s FY20 production guidance is as follows:

  • Iron ore shipments in the range of 324 – 334 Mt.
  • Bauxite production is in the range of 55 – 58 Mt.
  • Alumina production is in the range of 3.1 – 3.3 Mt.
  • Mined copper production is in the range of 457 – 520 kt.
  • Refined copper production is in the range of 165 – 205 kt.
  • Diamonds production is in the range of 12 – 14 Mct.
  • TiO2 production is in the range of 1.2 – 1.4 Mt.
  • IOC production is in the range of 10.5 – 12.0 Mt.
  • Borates production is 0.5 Mt.

In terms of commodity prices, the key question now for investors is will the iron ore price remain strong over the remainder of 2020. Over the medium to long term, it can be expected that the iron ore price will fall from current levels of around US$107 per tonne to around US$50 per tonne.

What is the market reaction?

The market reaction to Rio Tinto half year report is neutral. Rio Tinto share price is up around 0.3% and is currently trading at A$103.76. However, the Australian market today is also up around 0.7%. Rio Tinto is trading at a forward P/E ratio in the low-teens and has an annual dividend yield of around 4.9%.


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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