Rio Tinto half-year net profit up, dividend steady as iron ore dips

The mining giant’s rail smash in May has put a dent in iron ore earnings, but the company still delivered underlying EBITDA of $US12.1bn.

A rail smash in May put a dent in Rio Tinto’s half-year financial results. Picture: Supplied

Rio Tinto boss Jakob Stausholm says he is increasingly comfortable with the mining major’s ability to carry out large-scale M&A, refusing to rule out Rio entering the market for a major acquisition amid a wave of industry consolidation.

The group’s position has shifted significantly over the last year. Mr Stausholm told shareholders at the company’s 2023 annual shareholder meeting the company had little desire to engage in major takeovers, saying Rio intended to stick with its strategy of growth through its own internal pipeline and acquiring early-stage projects, rather than paying a premium for big acquisitions.

Mr Stausholm told reporters on Wednesday that Rio’s organic growth strategy was working, with the company forecasting 3 per cent compounding growth in production, on a copper equivalent basis, from 2025 to 2028.

He also pointed to Rio’s strategy of buying out joint venture partners, such as its takeout of Oyu Tolgoi part-owner Turquoise Hill, and smaller acquisitions such as the miner’s move into lithium through Rincon in Argentina.

“So far, the model has worked extremely well. We had a decade where we didn’t grow. And now because we are executing projects better and we are sanctioning projects, we are actually seeing good organic growth coming,” he said.

“We have also seen some growth coming from M&A. But they have been very selective because at the end of the day, it’s not a question whether M&A is good or bad. There are good deals and there are bad deals.”

Rio Tinto CEO Jakob Stausholm during the companies AGM in Brisbane. PictureL Lyndon Mechielsen

But amid a wave of major moves by the company’s rivals - including BHP’s failed takeover of Anglo American, and this week’s move on Filo Corp’s South American undeveloped copper projects with Lundin Mining - Mr Stausholm indicated Rio was becoming more comfortable with the idea of a significant move of its own.

Mr Stausholm would not comment on reports linking the company to a bid for Canada’s Teck Resources, but told The Australian that Rio’s options had grown in the time since he had become its chief executive.

“My assessment now I’ve been CEO for three and a half years is so far we could only do small deals, because it was a rather big transformation towards our four objectives - to regain social licence, to rebuild some competences. For example, I would argue we are much better at executing projects today than we were some years back,” he said.

“The spreadsheet part is the easy part, but then you have to make the spreadsheet a reality later on and be able to integrate. And I feel better about that.”

But Mr Stausholm said Rio would not enter into deals just because other major miners were doing so.

“The whole industry might change, and Rio might not make a deal. Or there might be no change and we might make a deal. I have absolutely no fear of missing out. The key thing for me is, can a deal add value?” he said.

Rio Tinto will pay a $US1.77 dividend on the back of a $US5.8bn net profit for the half-year, with chief executive Jakob Stausholm saying the company was now at an “inflection point” in its growth agenda.

Rio booked underlying earnings before interest, tax, depreciation and amortisation of $US12.09bn, up 3 per cent on the first half of 2024, with after tax profit up 14 per cent.

Underlying EBITDA fell just short of consensus analyst expectations of $US12.22bn, but underlying earnings in line with consensus.

Rio’s overall result was driven by improved EBITDA in its copper and aluminium operations, which delivered $US1.6bn and $US1.8bn in underlying EBITDA, respectively.

Aluminium earnings were up 38 per cent from the previous year, with copper up 67 per cent as Rio ramps up underground production from its giant Oyu Tolgoi copper operation in Mongolia.

But the company’s dominant iron ore division still delivered the bulk of Rio’s profits, booking underlying EBITDA of $US8.8bn for the year, albeit down 10 per cent from the first half of 2023.

Falling iron ore prices were only partly responsible for the $US1bn fall in underlying EBITDA in the period, however, with a six-day rail outage in May the major issue for the company’s result.

An autonomous haul truck dumps a load of rock in the mine pit at Rio Tinto Group's Gudai-Darri iron ore mine in the Pilbara region of Western Australia. Picture: Carla Gottgens/Bloomberg

Rio shipped 158.3 million tonnes of iron ore in the first half of 2024 – an annualised rate of 316.6 million tonnes, well below the bottom end of its 323 to 338 million tonne export guidance.

When delivering its June quarter production result, the mining major said it expects to make up the gap in the second half of the year, however, leaving its annual cost and shipment guidance unchanged for the full year.

Rio chief executive Jakob Stausholm said in a statement the company’s overall copper equivalent production is on track to grow by 2 per cent this year, with the company aiming for 3 per cent compound annual growth over the next four years.

“We are at an inflection point in our growth, with a step change from our aluminium business and consistent production at our Pilbara iron ore operations,” he said.

“We have considerable growth in cash flow from the ramp-up of the underground copper mine at Oyu Tolgoi, and more value to come as our Simandou investment and Rincon lithium project proceed at pace.

“Our strengthened operations along with stable pricing for our commodities have allowed us to again deliver robust financial results, with underlying EBITDA of $12.1 billion. We recorded free cash flow of $2.8bn, as we invested in growth, and underlying earnings of $5.8bn, after taxes and government royalties of $4.4bn. Return on capital employed was a healthy 19 per cent.”

Rio shares were up 2.6 per cent at $117.79 in a higher market on the ASX.

Originally published as Rio Tinto half-year net profit up, dividend steady as iron ore dips