Analysts are likely to focus on how rapidly Rio Tinto (RIO) has managed to pare back operating costs and capital spending. But above all the miner's half-year results demonstrate the benefits of scaling up production to counter the volatility of commodity prices.
Iron-ore prices were in retreat through much of the period, but Rio offset this by hitting record sales volumes, mainly thanks to increased capacity at the Pilbara ports in Western Australia. Underlying net profits were consequently up by a fifth to $5.1bn (£3.01bn) - the bulk of which was attributable to iron-ore exports. Rio also generated 8 per cent more operating cash flow this year than last, which enabled the group to pay down debt while raising expectations of increased shareholder returns.
That was one of Sam Walsh's objectives when he took over as chief executive last year. To achieve it, he has overseen $3.2bn in cash cost improvements, which exceeded an original $3bn target six months ahead of schedule. Momentum in this area is expected to generate another $1bn in savings by the end of 2015.
Capital spending is also being reined in. The forecast outlay for 2014 is now $9bn, down from an earlier estimate of $11bn. A reminder of Rio’s previous profligacy was provided at the end of July, when it announced it was selling coal mines in the Tete province of Mozambique for just $50m. The assets were acquired as part of the $3.7bn Riversdale acquisition only three years ago.
On the production front, Rio was also comfortably ahead of schedule - another testament to Sam Walsh's operational nous. The group achieved its initial plateau rate of production at the Pilbara iron-ore complex, ramping up to 290m tonnes per annum (Mt/A) by the end of May. The group confirmed that the port infrastructure work at Pilbara - needed to drive the rate up to 360 Mt/A - should be completed by the first half of next year.
Investec anticipates adjusted EPS of 512¢, rising to 562¢ in 2015.
| RIO TINTO (RIO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 3,460p | MARKET VALUE: | £64bn | |
| TOUCH: | 3,458-3,460p | 12-MONTH HIGH: | 3,642p | LOW: 2,905p |
| DIVIDEND YIELD: | 3.5% | PE RATIO: | 17 | |
| NET ASSET VALUE: | 2,648¢* | NET DEBT: | 28% | |
| Half-year to 30 June | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2013 | 24.5 | 3.2 | 93 | 83.5 |
| 2014 | 24.3 | 6.1 | 238 | 96 |
| % change | -1 | +90 | +156 | +15 |
Ex-div: 13 Aug Payment: 11 Sep *Includes intangible assets of $7.6bn, or 413¢ a share £1=$1.69. NAV and market value reflect both UK and Australian listed shares | ||||
