ii view: Rio Tinto underlines growing diversification

First-half results to 30 June

• Revenue flat at $26.9 billion
• Adjusted profit (EBITDA) down 5% to $11.5 billion
• Interim dividend down 16% to $1.48 per share
• Net debt up 166% to $14.6

Guidance:

• Continues to expect full-year 2025 Australian Pilbara iron ore shipments of between 323 to 338 Million tonnes (Mt)

Chief Executive Jakob Stausholm said:

"We are delivering very resilient financial results with an improving operational performance helped by our increasingly diversified portfolio.

"We are well positioned to generate value from our best-in-class project execution, together with growing demand for our products, now and over the coming decades. 

“We remain on track to deliver strong mid-term production growth, with solid foundations in place and a diverse pipeline of options for the future."

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ii round-up:

Rio Tinto Ordinary Shares (LSE:RIO) today detailed results that broadly matched City forecasts, with the mining mammoth underlining its ongoing focus on commodity diversity. 

First-half adjusted profit fell 5% to $11.5 billion, with a near one-quarter fall in profitability for iron ore countered by 50% or more gains for copper and aluminium given increasing production. Group net debt jumped 166% to $14.6 billion and follows 2024’s acquisition of US listed lithium miner Arcadium. Full-year production guidance for all commodities was unchanged. 

Shares in the FTSE 100 company fell 1% in post results UK trading having come into these latest numbers down around 6% over the last year. That’s similar to fellow iron ore focused miner BHP Group Ltd (LSE:BHP) and in contrast to a 10% gain for the FTSE 100 index over that time.

A 16% fall in adjusted earnings to $2.96 per share for the period underwrote the reduction in the interim dividend from a year ago to $1.48 per share. A payout ratio of 50% was down from 60% at the 2024 annual results. 

Copper production during the period climbed 16% year-over-year, with output for its Oyu Tolgoi mine in Mongolia on track to increase by more than 50% this year. 

Stable smelting operations and strong pricing helped push an improvement in financial performance for aluminium. Rio is currently adjusting the commodity’s shipping destinations to help manage the changing trade tariff environment.  

Iron ore performance was hindered by early year cyclones reducing output by 2% to 153 million tonnes (Mt) as well as a 13% fall in price. Rio maintained its prior guidance for 2025 Australian Pilbara iron ore shipments of between 323 and 338 Mt, although with the outcome expected to come in at the lower end of the range. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results. A third-quarter production update is scheduled for 16 October. 

ii view:

Started in 1873, Anglo Australian miner Rio Tinto today employs over 55,000 across more than 30 countries, with strong presences in Australia and North America. Iron ore continued to generate most profits during this latest period at 54%. That was followed by copper at 25%, aluminium at 19% and other minerals such as lithium the balance of 2%. Headquartered in London, rivals include Anglo American (LSE:AAL), Glencore (LSE:GLEN), Antofagasta (LSE:ANTO) and BHP.

For investors, the weather can impact production as seen with ore production during this latest period. A forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap. Attempting to navigate US trade tariffs is impacting standard operations, while concerns about the economic health of the miner’s biggest customer China, at around 55% of overall sales, persists.

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To the upside, a focus on increasing production of commodities such as copper and lithium used in energy transition across products such as solar panels, wind turbines, and energy storage systems, is ongoing. Rio considered its previous acquisition of lithium miner Arcadium as counter-cyclical, with the price of lithium down more than 80% since its peak at the time of approach. Efforts to improve its environmental, social and governance (ESG) policy continue, while Rio summarises the balance sheet as strong, with net debt of $14.6 billion (£11 billion) comparing to a stock market value of £75 billion.

In all, and despite ongoing risks, a consensus analyst estimate of fair value above £52 per share and a forecast dividend yield of more than 5.5%, are likely to see investors remain supportive. 

Positive

• Selection of different commodities mined
• Attractive dividend payment (not guaranteed)

Negative

• Uncertain global economic outlook
• The weather can impact performance

The average rating of stock market analysts:

Buy