Understanding Rio Tinto’s first-half results in under 60 seconds

Mining giant Rio Tinto (RIO) saw its share price rise moderately on Thursday following the release of its first-half (H1) earnings results.

Understanding Rio Tinto’s H1 results in under 60 seconds

Looking at the highlights from these results, on a year-over-year basis, RIO reported:

• Consolidated sales revenues of US$19.4 billion, down 7%
• Underlying earnings (EBITDA) of US$9.6 billion, down 6%
• Net earnings of US$3.3 billion, down 20%
• An ordinary dividend of 155 US cents per share, up 3%
• Pilbara iron ore production (100% basis) of 161.1 million tonnes, up 3%

Rio Tinto closed out Thursday’s session up 1.06% at $104.50 per share.

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Deeper implications of today’s first-half results

While Rio Tinto’s first-half results showed declines across both the top and bottom line, investors look to have been appeased by a healthy dividend.

Overall, UBS described these results as solid, noting that earnings (EBITDA) came in ahead of both consensus estimates and of the Swiss investment bank's own forecasts. ‘The beat was due to lower costs at Escondida and a lower net interest charge due to an increase in capitalisation and a step down in interest rate,’ UBS analysts concluded. Though described as a beat, earnings came in 6% lower, a result driven by lower aluminium and copper prices.

On a more granular level, iron ore continues to be the largest driver of group profitability, making up close to 80% of Group earnings (EBITDA). Iron Ore remain favourable, driven by robust Chinese demand for the miner’s products and seaborne supply-side constraints. At the time of writing, CME’s iron ore front-month futures contract traded confidently above US$100 per tonne. Unit cash costs came in at US$14.5 per tonne during the first half, but are expected to creep higher over the full-year.

'Our world-class portfolio of high-quality assets and our strong balance sheet consistently serve us well in all market conditions and particularly in turbulent times,’ Chief Executive Officer J-S Jacques said as part of the Interim Results 2020 release. ‘This together with our disciplined capital allocation, underpins our ability to sustain production, increase our investment in the business, pay taxes and royalties to governments and continue delivering superior returns to shareholders.’

FY20 guidance at a glance

Looking forward, management expects full-year capital expenditure (CAPEX) to come in at around US$6.0 billion, while maintaining an effective tax rate of 30%. From a dividend perspective, management said they would continue to target a payout ratio of between 40-60% of underlying earnings throughout the cycle.

Elsewhere, RIO’s management guided for the following 2020 production outcomes, including: Pilbara iron ore shipments (100% basis) of between 324-334 million tonnes; mined copper production of between 475-520 kilotonnes; refined copper production of between 165-205 kilotonnes; alumina production of between 7.8-8.2 million tonnes; and aluminium production of between 3.1-3.3 million tonnes.

How to trade mining stocks

With iron ore trading at multi-year highs, where do you stand on Australia’s big three iron ore miners: Rio Tinto, BHP Group and FMG? Whatever your stance, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Rio Tinto using CFDs, follow these easy steps:

• Create an IG Trading Account or log in to your existing account
• Enter ‘Rio Tinto’ in the search bar and select it
• Choose your position size
• Click on ‘buy’ or ‘sell’ in the deal ticket
• Confirm the trade