Investing.com - Rio Tinto has reported a three-year low in its first-half underlying earnings due to falling iron ore prices despite increased shipments from Pilbara operations. Furthermore, the company announced that it would be reducing its dividends.
Iron ore is a significant contributor to Rio Tinto (ASX:RIO)'s profits, making up 70% of the total. The future outlook for steel-making raw material prices may brighten as China promises more growth-enhancing policies following an uneven economic recovery during this year's first half.
The CEO of Rio Tinto, Jacob Stausholm expressed cautious optimism about China’s economy for the rest of the year and acknowledged their ability to manage their economy effectively even when facing challenges.
During the six months ending June 30th, Rio experienced lower commodity prices aligning with global consumption slowdown but maintained steady demand from China - one of the biggest steel producers globally.
Financial services firm Jefferies noted that even slight improvements in Chinese property markets could positively impact Rio since it heavily leans on these markets.
However, decreased average realized prices for Pilbara iron ore were partially offset by a 7% increase in shipments led to lower-than-expected overall earnings at $5.7 billion compared to consensus estimates of $5.85 billion, according to the Visible Alpha data analytics platform.
Rio declared an interim dividend per share at $1.77, less than last year’s rate of $2.67 and slightly below Vuma's consensus estimate of $1.80.
Despite challenging conditions including high unplanned absences and supply chain disruptions among other issues affecting operations and growth projects; Stausholm reassured shareholders about continued attractive dividends while investing toward long-term business strength
In response to market conditions triggering higher projected costs tied specifically with decarbonizing efforts within Queensland alumina refineries; Rio took an after-tax impairment amounting to around $800 million.
Meanwhile, Rio is considering expanding mineral extraction through processing which includes gallium and germanium – critical metals used within semiconductor chip manufacturing industries especially after top producer China reduced exports earlier this year.
CFO Peter Cunningham emphasized how processing can recover critical minerals adding value to business capacity As news broke out regarding earning results; Australian-listed shares went up by 1.4%, however, London-listed counterparts fell behind by 2.3%.