Rio Tinto PLC update
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Rio Tinto announced a record half-year profit, surpassing the total profit for the full year of 2020, as the price of its main commodity iron ore hit a record high in the context of strong demand in China.
Strong earnings growth has enabled the Anglo-Australian company to return to shareholders with the largest half-year return in history: a dividend of US$9.1 billion, or US$5.61 per share.
Profits and dividends highlight the huge amount of cash generated by the mining industry, which has been one of the biggest beneficiaries of the rapid recovery of the Chinese economy from the coronavirus pandemic and huge stimulus plans announced by governments around the world.
Rio Tinto’s peers, including Anglo American, BHP Billiton, Glencore and Vale, are also expected to bring sensational performance and cash returns when they report next month.
Based on output and commodity price forecasts, PricewaterhouseCoopers predicts that the after-tax profits of the world’s top 40 mining companies will reach US$118 billion in 2021, an increase of 68% over the previous year.
Compared with the previous cycle, large diversified mining companies resisted the temptation to invest in ambitious new projects and increase supply, partly because there were few development options, especially in metals such as copper. As a result, large miners have generated record levels of cash.
Rio Tinto said that in the six months ending in June, net income increased by 271% to a record 12.3 billion U.S. dollars and revenue was 33 billion U.S. dollars. The profit was higher than analysts’ expectations, and it was US$2.5 billion higher than Rio Tinto’s revenue for the full year of 2020.
By the end of 2020, the company will shift from a net debt of US$664 million to a net cash position of US$3.1 billion, paying 75% of its earnings as dividends. Its stipulated dividend policy is to pay a percentage of 40% to 60% of income.
BMO Capital Markets analyst Alexander Pearce said that Rio Tinto’s dividend announcement is “a positive precedent for peer shareholder returns.”
Iron ore is the main driver of Rio Tinto’s profits, accounting for nearly 85% of net income.The company is the world’s largest producer of commodities, and the commodity hit a record high of over US$233 per ton in May Under the demand of China, The company produced a record amount of steel this year. Although prices have fallen, they have remained at around US$200 per ton, nearly 90% higher than 12 months ago.
Rio last year blew up two ancient aboriginal rock shelters to make way for the expansion of the mine, which aroused international condemnation and the resignation of then-CEO Jean-Sébastien Jacques.
CEO Jakob Stausholm said: “We are making progress on four priorities, identifying opportunities for operational improvement, advancing our ESG agenda, making important investment decisions and strengthening our external participation.”
The company is outside Australia Efforts to develop Oyu TolgoiDue to disagreements with the government, a huge underground copper mine in the Gobi Desert of Mongolia. It was also forced to reduce its Richard Bay Minerals operations in South Africa due to safety issues.
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