The firm’s worst performance since 2004, Rio Tinto said that lower prices for iron ore, aluminium and copper, reduced its earnings by 65%, although this reduction was somewhat offset by cash cost improvements, lower energy costs and positive currency and other movements. For the six months, the firm reported net earnings of $1.5bn.
Underlying earnings, which stripped out $500m of impairments and onerous contracts, $558m in exchange rate gains, $88m in restructuring costs and $193m in gains on disposals, came in at $1.7bn.
The firm expects the uncertainty to continue, but new CEO J-S Jacques was quick to reassure investors that the firm remains focused on cash flow and returns to shareholders, a policy driven in recent years by former CEO, Sam Walsh.
“It wasn’t an exciting set of numbers said James Sutton, client portfolio manager on the JPM Natural Resources Fund, but it was reassuring to see that J_S is continuing that focus on shareholder returns.”
To this point, Jacques was clear to highlight that world class assets remain resilliant even when prices “dig deep into the cost curve”.
Speaking during the presentation to analysts following the release of the results, he added, while the medium-term prospects for growth remain reasonable, the graph below is a warning not to be too optimistic.
And, while he noted that it has seen higher prices so far this year and that Chinese consumption has pointed out “hope is not a strategy”.
“We will generate cash at every opportunity, which we will then allocate in a disciplined way to deliver returns to shareholders, while also investing in compelling growth.”
Asked during the Q&A whether or not he would retain Walsh’s pride in being a boring company, Jacques said the key for him remained consistency, while CFO Chris Lynch added: “Boring is the new exciting”.
“We said in February we wanted all assets to be free cash flow positive and that is where we are,” reiterated Jacques.