Rio Tinto writes off Boyne aluminium smelter value and slashes dividend as profit drops
The mining giant’s annual net profit of $US12.42bn, down 41 per cent, was billed a ‘resilient’ result despite a challenging year on commodity markets.
Rio Tinto has completely written off the value of its Boyne aluminium smelter in Queensland, blaming high energy costs for the decision despite the federal government’s move to temporarily cap power prices.
Chief executive Jakob Stausholm said on Wednesday the decision was an “accounting measure” that had no implications for the closure of the facility, with the company looking for renewable energy options to keep the smelter running for another decade after its current joint venture arrangements end in 2030.
But the impairment includes a decision to separate the Gladstone coal-fired power station from Rio’s Pacific Aluminium business unit, and Mr Stausholm would not comment on the future of the power station on Wednesday.
Rio owns 42 per cent of the 1680-megawatt Gladstone power station, with NRG Energy Inc holding a 37.5 per cent stake. It powers Rio’s Boyne smelter, but also sells its excess capacity into the Queensland grid.
Gladstone is scheduled to close in 2035, but the loss of Boyne as a customer would likely shorten that life.
The power station was caught badly short as thermal coal prices soared in mid-2022, as about half of its coal was being bought on the spot market, according to Rio disclosures.
“In 2022, we impaired the remaining full value of the Boyne Smelter in Queensland, Australia, as a result of reduced capacity and the high cost of energy from the coal-fired power station impacting economic performance,” Rio said on Wednesday.
Mr Stausholm told The Australian the smelter’s power contracts with Gladstone rolled off towards the end of the decade, and the company’s focus was on finding stable renewable energy sources to replace the coal-fired generation at its Pacific Aluminium assets – including Boyne and Tomago in NSW – which combined accounted for more than half of the company’s scope 1 and 2 carbon emissions.
The Rio boss said finding a way to reduce those emissions was an “existential” matter for Rio’s plans to halve its carbon emissions by 2030.
“You don’t necessarily have to be 100 per cent (renewable) by 2030. But we really have to have significant progress. I’m not able to comment exactly what that means for the power station. But I think our expectations are pretty clear,” he said.
Queensland premier Annastacia Palaszczuk has previously outlined a plan to close all state-owned coal-fired power stations by 2035, but the plan has left open a window for privately-owned plants – including Gladstone – to keep operating.
Mr Stausholm said Australian energy prices remain too high, but that Rio remained committed to keeping its Australian aluminium smelters operating.
“The key thing right now is to find the path to decarbonise and hopefully that pathway forward is also making it competitive and viable for the future,” he said.
“I remain optimistic and we are in the middle of discussions, particularly with the Queensland government, but also the federal government. I hope we can find a win-win, where we kind of achieving what the Australian society wants, but we also have a viable pathway forward.”
Rio Tinto became the latest miner to slash its dividend on Wednesday after its annual net profit dropped 41 per cent to $US12.42bn following a challenging year on commodity markets.
The group will pay a final dividend of $US2.25 for 2022, down 46 per cent from $US4.17 in the previous year.
Rio Tinto booked underlying earnings before interest, tax, depreciation and amortisation of $US26.27bn, down 30 per cent from 2021.
Mr Stausholm said the profit was a “resilient” result despite a challenging year on commodity markets.
“Despite challenging market conditions, we remain resilient because of the quality of our assets, our great people and the strength of our balance sheet. That is why we delivered strong financial results with underlying EBITDA of $US26.3bn, free cash flow of $US9.0bn and underlying earnings of $US13.3bn, after taxes and government royalties of $US8.4bn,” he said in a statement.
“This enables us to continue to invest in strengthening the business while also paying a total dividend of $8.0 billion, a 60 per cent payout, in line with our policy.”
But the company sounded a warning on costs, after its average unit cash cost of its iron ore division jumped to $US21.30 a tonne, or $US21.70 including the cost of Covid-19 measures. That is up 14.5 per cent from 2021 levels of $US18.60 a tonne – or $US19.10 a tonne including the cost of the impact of the Covid-19 pandemic.
Its Pilbara costs are up almost 44 per cent from the $US14.80 a tonne cost of shipping iron ore in 2020.
The company warned in January that its full-year average costs in iron ore were likely to come in “slightly above” the top end of its $US19.50 to $US21 a tonne range.
Consensus analyst estimates tipped Rio’s underlying net profit at $US13.4bn, according to figures published by Vuma, and expected a final dividend of $US2.08 a share after the company paid out $US2.67 after its August half-year result.
Rio’s profit result came after a strong December quarter performance from its Pilbara iron ore operations suggested the turnaround at its dominant division is well on track, with the company hinting at a strong year ahead for its iron ore exports.
Rio snuck over the bottom end of its full year iron ore export guidance, shipping 321.6 million tonnes for the year.
Rio exported 87.3 million tonnes in the last three months of 2022 – an annualised rate of just over 349 million tonnes a year.
But the strong finish only just covered for a start to the year, with Rio only just beating the bottom end of its 320 to 335 million tonne guidance.
Rio maintained its 2023 export guidance of 320 to 335 million tonnes, with annual cost guidance unchanged at $US21 to $US22.50 a tonne.
Rio expects copper production of 650,000 to 710,000 tonnes for the year after closing its acquisition of Turquoise Hill Resources.
Its shares closed 0.5 per cent lower at $125.51 on the ASX, valuing the group at $180.42bn, as investors awaited its results after the close of trade on Wednesday.
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