Rio releases latest results, cuts progressive dividend

Rio Tinto has reported a massive 51 per cent dropping in full year profit, and an $866 million net loss.

The miner’s underlying earnings fell from US$9.305 billion to US$4.540 billion year on year, while net cash generated dropped by a third from US$14.286 billion to US$9.383 billion.

It has also dropped its progressive dividend.

With the continuing uncertain market outlook, the board believes that maintaining the current progressive dividend policy would constrain the business and act against shareholders’ long-term interests,” Rio Tinto chairman Jan du Plessis said.

“We are therefore replacing the progressive dividend policy with a more flexible approach that will allow the distribution of returns to reflect better the company’s position and outlook.”

Walsh blamed market weakness for the poor results, with the “continued deterioration in the macro-environment [generating] market uncertainty”.

Rio Tinto sees little respite for the year, stating that “China’s high debt levels are expected to constraining the central government’s ability to broaden its stimulus policies, limiting the scope for meaningful investment in 2016”.

“The macro-economic consensus points to a moderate improvement in global growth in 2016, but volatility in financial and oil markets is a strong sign that macroeconomic risks abound, with geopolitical concerns also not far in the background.”

However, “Longer term, demand prospects remain positive and we expect this will support a recovery from the current cyclical low phase.”

Most of the reduction in earnings came from the copper and coal division, which saw a 67 per cent drop in earnings year on year, whilst iron ore only halved.

Aluminium fared relatively will with only a 10 per cent drop in earnings, compared to the diamonds and minerals division, whilst Rio actually saw a 14 per cent increase in underlying earnings from its exploration and other operations.

At its Pilbara iron ore operations it saw net earnings fall from US$7.956 billion in 2014 to US$4.013 billion in 2015.

In the face of a lowered coal price Rio Tinto saw positive movement at its Australian operations and, not including funds generated from selling off Bengalla and the Mt Pleasant mine earlier this year, it saw a doubling in earnings, from US$21 million in 2014 to US$ 48 million.

Uranium showed less weakness than in previous years, seeing losses reduce from US$117 million in 2014 to only US$42 million for last year.

Despite these losses, which highlight the current mining market woes, Rio Tinto remained positive.

“Against a highly challenging environment, Rio Tinto delivered a strong performance in 2015 with underlying earnings of $4.5 billion,” Rio Tinto CEO Sam Walsh said in the company’s results.

“At the same time, we have significantly strengthened our balance sheet and finished 2015 with net debt of $13.8 billion, which is $700 million better than the $14.5 billion pro-forma position at the end of 2014.”

In terms of shareholder returns, Rio chairman du Plessis added, “For 2016, we intend that the full year dividend will not be less than 110 US cents per share.”

Rio is taking serious measures to inure itself against the ongoing downturn, and has already slashed capital expenditures by nearly half, from US$8.162 billion down to US$4.685 billion.

It has also “maintained a strong balance sheet with net debt of US$13.8 billion and gearing of 24 per cent in the lower half of the targeted range”.

The miner also has around US$700 million in free cash flows.

However it is unknown whether Rio Tinto will take actions to address the glaring iron ore oversupply, after recording a 1 per cent increase in iron ore output year on year, and plans to lift this figure again by a third from 263 million tonnes to 350 million tonnes.

In terms of the high levels of coal flooding the market, Rio Tinto looks to keep similar production levels year on year.

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