22nd Feb 2023 10:40
(Alliance News) - Rio Tinto PLC on Wednesday joined mining peers in cutting its dividend, as it reported a steep drop in annual profit due to falling prices for iron ore.
Russ Mould, investment director at AJ Bell, said the results illustrate how the mining industry's fortunes "fluctuate" from year to year.
"Having enjoyed a boom in 2021, a pull-back in commodity prices in 2022 has led to a big drop in both earnings and the dividend. This was already expected by the market; hence the mild share price reaction to the news," he said.
For 2022, the Anglo-Australian mining and metals company reported pretax profit of USD18.66 billion, down 39% from USD30.83 billion a year prior.
Revenue decreased to USD55.55 billion, 12% lower than USD63.50 billion in 2021, though marginally above JPMorgan's expectations of USD52.49 billion.
Net earnings fell 41% to USD12.4 billion from USD21.1 billion the previous year. Rio attributed this to movement in commodity prices, alongside the impact of higher energy and raw materials prices on operations, and higher rates of inflation on operating costs and mine closure liabilities.
Rio received an average iron ore price of USD97.6 per wet metric tonne, compared to USD132.3 per tonne the previous year. This equates to USD106.1 per dry metric tonne, down from USD143.8 per dry metric tonne.
Iron ore portside sales in China were reported at 24.3 million tonnes in 2022, up from 14.0 million tonnes in 2021.
Victoria Scholar, head of investment at interactive investor, said that China's "draconian zero-tolerance" to Covid-19 hit Rio Tinto hard as it weighed on iron ore prices.
She cautioned that while's China's economic reopening looks set to provide a tailwind to Rio Tinto this year, the risk of further restrictions from Beijing and another spike in infections remain potential hurdles.
AJ Bell's Russ Mould agreed: "What happens next is more important – a reopening of the Chinese economy should in theory lead to a rise in commodity demand, helping to offset any potential weakness in other parts of the world."
Susannah Streeter, head of money and markets at Hargeaves Lansdown, noted that the dip could be short-lived given that iron ore prices are climbing sharply and surging to eight-month highs.
"[Rio Tinto has] clearly been affected by short term headwinds, but as China's economy reopens, after the relaxation of the zero-Covid policy and infections subside, demand for steel is expected to rebound," she said.
"Looking further ahead the company's pivot towards metals which contribute to the green shift and the [electric vehicle] revolution should make it resilient over the longer term," Streeter added.
Shares in Rio Tinto were down 3.0% at 6,019.00 pence on Wednesday morning in London. Over the past 12-months, the stock is 5.8% higher.
For 2022, Rio Tinto declared a final dividend of USD2.25, nearly halved from USD4.17 a year prior.
This amounted to a total dividend of USD4.92, down from USD7.93 in 2021, but marginally above analyst expectations.
Berenberg expected a total dividend of USD4.80, while AJ Bell's Russ Mould echoed market consensus of USD4.82.
On Tuesday, fellow mining peer BHP Group Ltd cut its half-year dividend to 90 cents from 150 cents a year prior. Fortescue Metals Group Ltd, the Perth-based iron ore miner, similarly slashed its interim dividend to 75 Australian cents from 86 cents the year before.
BHP was down 3.1% on Wednesday morning in London, while Fortescue closed 1.8% lower in Sydney.
In the FTSE 100, mining peers Anglo American, Glencore, Endeavour Mining and Antofagasta were all in the red on Wednesday morning in a negative read-across. The stocks were down 2.7%, 2.6%, 2.1%, and 2.2%, respectively.
By Heather Rydings, Alliance News senior economics reporter
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