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(Reuters) -Rio Tinto reported a 29% drop in first-half profit on Wednesday and more than halved its dividend, as the global miner was hurt by weaker iron ore prices due to cooling demand from top consumer China, higher costs and labour shortages.
It is still the second-highest interim payout ever, but short of the record payout dispensed last year when the global miner’s profits benefited from a surge in commodity prices.
Since then iron ore prices have come under increased pressure due to persistent demand worries from top steel producer China, with the country’s zero-COVID policy curtailing economic activity and weighing on ferrous markets.
Mining companies around the world have also been struggling due to a pandemic-related shortage of skilled workers and surging inflation, at a time when iron ore prices have come off their 2021 highs and are expected to remain subdued.
“While the pricing environment is becoming more challenging, the demand outlook remains positive,” CEO Jakob Stausholm told a media briefing after the results were released.
“I always said it will take time to build a stronger Rio Tinto (NYSE:RIO), it does,” he added.
The company said in its operations and growth projects continue to be impacted by the high unplanned absences, tight labour markets, rising input costs and supply chain disruptions. (https://refini.tv/3OEkhaO)
Rio, one of the world’s top iron ore producers, posted an underlying profit of $8.63 billion for the six months ended June 30, compared with a record $12.17 billion a year earlier and a company-compiled estimate of $8.37 billion.
The company more than halved its interim dividend to $2.67 per share from $5.61 per share a year earlier. The dividend for the first half equates to $4.3 billion and was still Rio’s second-highest interim payout ever.
The company also cut its capital investment forecast for 2022 by $500 million to $7.5 billion.
“We expect ’22 consensus earnings downgrades given lower than expected first-half earnings and potentially lower mark-to-market iron ore prices in the second half,” Citibank said in its note after the results.
“The market’s focus in the near term would be commentary around capital management, China demand outlook and iron ore shipments for the rest of the year.”
CHINA GROWTH FEARS
China’s plan to centralise iron ore purchases has also cast doubt on the prospects of miners.
Jakob said he was optimistic about China in the medium term.
“China has the means to grow and they are not fighting inflation the way the Western world is right now,” he told reporters.
Activities at Rio’s Simandou iron ore project in Guinea 2 have stopped following an order from the Guinea government to halt work.
“Our negotiation team are in Guinea are working with our joint venture partners and the government of Guinea,” Jakob said.
