Lower iron ore prices and higher production costs have seen Rio Tinto profits drop 8% year-on-year to US$10.86 billion - close to market expectations, yet with its lowest dividend payout for eight years.
Underlying profits compared to 2023 were affected by 11% lower iron ore sales, which the company says is primarily attributed to weakened demand in China, yet it's just agreed to enter a JV at the Rhodes Ridge iron ore project with Japan's Mitsui which has bought a 50% stake off the Wright family for US$5.6 billion.
Mitsui will purchase a 15% stake off Angela Bennett, the daughter of iron ore pioneer Peter Wright, leaving Bennett with10% of the project. MThe japanese conglomorate will also nab a 25% stake from Leonie Baldock and Alexandra Burt - the daughters of Bennett's late brother, Michael Wright.
2024 in the numbers
China’s depressed property market has meant a drop in steelmaking at Chinese furnaces and iron ore producers such as Rio Tinto (ASX : RIO) and BHP (ASX : BHP) are taking the expected hits to their profit margins.
Higher net cash generated from Rio’s operating activities of $15.6 billion was achieved, driven by what Rio says is a portfolio mix and effective working capital management.
The miner paid out a 60% full year dividend of $4.02 for $6.5 billion, marking a nine-year track record at the top end of the payout range, yet its lowest payout since 2017.
Compounding its iron ore woes during the year, cyclone activity in the Pilbara led to ~13Mt of lost iron ore sales - 50% of which management says can be mitigated and has already been incorporated into its outlook.
No changes were announced to Rio’s 2025 production and capex guidance for its iron ore division.
Future pipeline
Rio's copper production is set to increase - as long as it gets a deal over the line at its Oyu Tolgoi mine in Mongolia where it looks to purchase and incorporate Canada-based Entree Resources' nearby tenements into the mine plan.
Oyu Tolgoi is planning to ramp up to a whopping 500,000 tonnes per annum from 2028 to 2036 and volumes are set to increase at Kennecott in Utah.
Just hours before Rio’s full year report was announced, Mitsui agreed to purchase a US$5.3 billion stake in Rio’s Rhodes Ridge iron ore project in WA’s Pilbara.
And what may seem like a convenient coincidence to Rio is the biggest deal in the Japanese diversified industrial’s history.
Rio Chief Executive Jakob Stausholm says momentum is continuing despite iron ore affecting bottom line profits.
“With underlying EBITDA of $23.3 billion and operating cash flow of $15.6 billion, we are increasing our investments to underpin our plans for a decade of profitable growth,” Stausholm says.
“We are excited as we head into 2025, with all the building blocks for an incredibly successful, diversified and growing business in place including the expected closing of the Arcadium acquisition in March.”
RBC Capital Markets says Rio has delivered straightforward financials for the year with just a small miss to EBITDA, while production guidance remained as expected.
“Rio has delivered on strategy. It is one of the majors with better growth rates (3% p.a), in copper, iron ore and lithium,” the Canadian finance group said.
“We are expecting it to perform inline with the sector, but we do have concerns going into the second half of the year, with first ore expected from Simandou and the possible impact to the iron ore market. We rate Rio with a price target of A$120.”
Shares in the $171 billion market-capped miner closed yesterday at $121.95 per share - which is a 4.76% drop in value since this time last year.
