Rio Tinto hands back extra $1bn

The first half was hit by production challenges in the iron ore division and the announcement Oyu Tolgoi underground would arrive later and at a higher cost, which hit profitability through an $800m impairment. The cashback bonanza has been funded by iron ore prices, which were above $100 per tonne for much of the half. This pushed free cash flow up by a third year on year to $3.9bn. 

However, Rio chief executive Jean-Sebastien Jacques said in a presentation that the performance in the Pilbara was “not good enough” and that the company would do better at “optimising” production. The major cut guidance from its Pilbara assets for 2019 from 333-334 million tonnes (mt) to 320-330mt, and pushed its cost guidance from $13-14/t to $14-15/t. Mr Jacques said the cut was made to “protect the blend” coming out of the Pilbara. “We didn’t want to pass on the problem to our customers,” he said. Looking ahead, the chief executive said he was confident in China keeping domestic steel demand high through infrastructure funding, supporting iron ore prices even as supply comes back online.  

The copper division's Ebitda was down 11 per cent year on year to $1.2bn on the back of a weaker price. Aluminium was a bigger loser, with Ebitda falling 38 per cent on last year to $1.1bn as prices for the metal came down 17 per cent. The company has returned to a net debt position of $4.9bn after reaching net cash at the end of 2018. This is because of $7.8bn in shareholder payouts in the half and an IFRS 16 non-cash addition of $1.2bn, but still represents an 11 per cent reduction on a year ago. 

Consensus forecasts for the full-year Ebitda are $22bn, before a fall to $20.5bn in 2020.