In the first half of 2018, the biggest factor outside Rio Tinto’s (RIO) control – commodity prices – moved in the miner’s favour. Though the index for Pilbara iron ore fines dropped 9 per cent, higher copper and aluminium spot prices meant that, underlying cash profits were up $604m (£460m), all else being equal.
Overheads – over which Rio has some control – rarely do stay equal, though a productivity programme is helping. The efficiency drive, which is part of a $5bn cumulative target by 2021, has apparently added $0.7bn since its launch in 2017, off-setting what chief executive Jean-Sébastien Jacques notes as a return to “inflationary pressures… across the industry”.
One area where Rio exerts complete control – capital expenditure – is rising, albeit gently. Exclude sustaining capital spend, and $1.4bn went to four sources: fresh exploration, the Amrun bauxite mine in Queensland, the underground development of Oyu Tolgoi, and a project to automate Rio’s train network in the Pilbara.
That helps explain the rise in net debt, though the half-year balance sheet would have nearly been cash neutral had $4bn of pre-tax disposal proceeds arrived a month earlier. A non-binding agreement to sell Grasberg should bring in another $3.5bn, though the mild uplift in 2020 capital expenditure plans from $6bn to $6.5bn points to further shareholder returns.
On average, analysts expect adjusted pre-tax profits of $12.7bn, and EPS of $4.97 this year, dropping to $10.7bn and $4.42 in 2019 on lower commodity price expectations.
RIO TINTO (RIO) | ||||
ORD PRICE: | 4,056p | MARKET VALUE: | £72.1bn | |
TOUCH: | 4,055-4,056p | 12-MONTH HIGH: | 4,541p | LOW: 3,256p |
DIVIDEND YIELD: | 5.8% | PE RATIO: | 10 | |
NET ASSET VALUE: | 2,458¢* | NET DEBT: | 11% |
Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
2017 | 19.3 | 4.96 | 184 | 110 |
2018 | 19.9 | 6.73 | 252 | 127 |
% change | +3 | +36 | +37 | +15 |
Ex-div: | 09 Aug | |||
Payment: | 20 Sep | |||
£1=$1.31. *Includes UK and Australian listed shares. |