RIO Rio Tinto Limited

By David Winning 

Rio TintoPLC warned the coronavirus epidemic is threatening its supply chain as it reported a 41% decline in annual net profit, but said it would pay a record final dividend.

The world's second-biggest miner by market value on Wednesday said its products were continuing to reach customers, but it was seeking ways to adjust to the impact of the virus--which originated in China and is known as Covid-19--on demand for commodities globally.

"We are closely monitoring the impact of the Covid-19 virus and are prepared for some short-term impacts, such as supply-chain issues," Chief Executive Jean-Sébastien Jacques said.

Rio Tinto is a major supplier of iron ore to China. The country buys about 60% of the world's iron ore traded by sea and uses the commodity to make steel for infrastructure such as bridges and in the construction of apartments. With fears of contagion keeping workers at home, Chinese production, including steel, has taken a hit. Morgan Stanley has estimated that more than 40 blast furnaces have been taken offline temporarily with the potential loss of 80 million metric tons of annualized iron-ore demand.

The virus has spread to other countries, with infections sharply rising in South Korea, Italy and Iran, and fueled a global stocks selloff. The Australia-listed shares of Rio Tinto--which has become more reliant on Chinese demand for its iron ore in recent years after it sold coal mines and copper pits--closed at a three-month low ahead of Wednesday's earnings results.

Rio Tinto reported a net profit of $8.01 billion for 2019, down from a profit of $13.64 billion a year earlier. The result was dragged down by $1.7 billion in impairment charges, primarily against the Oyu Tolgoi underground project in Mongolia and the Yarwun alumina refinery in Australia. This compared with a $4.0 billion gain on asset sales in 2018, Rio Tinto said.

However, annual profit before one-off items was up 18% at $10.37 billion, beating consensus expectations for an underlying profit of $10.13 billion based on data compiled by FactSet. That reflected a 37% on-year rise in the price of iron ore dug up at its operations in Australia's Pilbara region, which more than offset a 3% drop in annual production of the commodity.

The company declared a final dividend of $2.31 a share, taking the company's full-year dividend to $3.82 a share. In addition, it paid a special dividend worth $0.61 a share in September. For 2018, the miner paid ordinary dividends totaling $3.07 a share.

Investors are weighing the impact of the coronavirus and operational setbacks against increased dividends, which have become more of a focus for global miners in recent years after several deals clinched at the top of the last mining cycle were much less profitable than hoped. BHP Group Ltd. this month lifted its dividend after high iron-ore prices drove its half-year net profit up 29% to $4.87 billion.

Rio Tinto this month lowered a forecast for iron-ore shipments from the Pilbara region due to damage caused by a tropical cyclone, which analysts estimated could drive a 2% cut to earnings if it isn't offset by higher prices. Rio Tinto now expects to ship between 324 million and 334 million tons of iron ore this year. In 2019, the miner moved 327.4 million tons.

Rio Tinto also expects to produce between 530,000 tons and 570,000 tons of copper this year, and 3.1 million tons to 3.3 million tons of aluminum. Forecasts for those commodities, made in mid-January, were framed by expectations that the global economy would be generally stable.

Rio Tinto said its net debt totaled $3.7 billion at the end of December, swinging from a small net cash position in 2018. It also forecast capital expenditure this year of $7.0 billion.

Write to David Winning at david.winning@wsj.com

(END) Dow Jones Newswires

February 26, 2020 03:45 ET (08:45 GMT)

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