Rio Tinto Rains Cash on Investors -- WSJ
02 August 2019 - 5:02PM
Dow Jones News
By Rhiannon Hoyle
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 2, 2019).
SYDNEY -- Rio Tinto PLC said it would pay a special dividend and
raise its midyear payout, even as its first-half net profit fell
because of a write-down of the value of a major copper investment
in Mongolia.
Rio Tinto said it would pay a $1.0 billion special dividend and
raise its interim dividend to $1.51 a share from $1.27 a share a
year ago, continuing a cash windfall for mining investors as the
price of iron ore surges to its highest in more than five
years.
The world's second-biggest mining company by market value on
Thursday reported a 12% rise in its first-half underlying earnings
to $4.93 billion, missing the $5.16 billion median forecast of
seven analysts polled by The Wall Street Journal. It was the
miner's highest first-half earnings since 2014.
"It is a very strong set of results," Chief Executive
Jean-Sébastien Jacques said, adding that profit margins were at
their highest in a decade.
However, net profit fell 6% to $4.13 billion after the company
wrote down its investment in the Oyu Tolgoi copper deposit in
Mongolia by $800 million. Rio Tinto said last month it will take
longer and cost more to finish building an underground mine at Oyu
Tolgoi after early engineering work pointed to a heightened risk of
rockfalls.
"Right now we have a lot of uncertainty about the project,"
Chief Financial Officer Jakob Stausholm told The Wall Street
Journal.
The Oyu Tolgoi operation -- one of the few big mine developments
globally -- will be the world's third-largest copper mine once it
is completed, according to the company's projections.
Miners have become much more focused on investor returns after
several deals clinched at the top of the last mining cycle were
much less profitable than hoped. Some investors are pressing
companies to explain how they will grow production as reserves of
copper to iron ore get used up.
Last month, Anglo American PLC said it would buy back $1 billion
in stock and raised its interim dividend by 27% as it reported a
jump in half-year earnings. Rivals including BHP Group Ltd. are
also expected to report bumper profits and returns this month.
Cash flows have been bolstered by a boom in the global iron-ore
market, as exports from the major hubs of Brazil and Australia have
faced disruptions and China's steel production surged to fresh
records. The price of iron ore has jumped by more than 60% since
the start of 2019.
Rio Tinto said its net debt totaled $4.86 billion at the end of
June, down from $12.90 billion three years ago.
Still, the Anglo-Australian miner hasn't been able to capitalize
fully on the increase in iron-ore prices after production was hurt
by bad weather in Australia's arid Pilbara region, which accounts
for 60% of the world's iron ore traded by sea. Mr. Jacques said the
company was struggling to maintain premium iron-ore grades for its
customers after running its mines hard in recent years, and
delaying some new investments.
"We have operational issues, but this is mining," he said.
Mr. Jacques was upbeat about the global outlook, despite
U.S.-China trade frictions remaining unresolved. Beijing is
responding to a slowdown in its economy with stimulus measures and
that should buoy demand for iron ore and other commodities, he
said.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
August 02, 2019 02:47 ET (06:47 GMT)
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