Rio Tinto Ltd (RTNTF) (Q4 2024) Earnings Call Highlights: Strategic Growth Amidst Challenges

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Thu, Feb 20, 2025, 12:11 AM 4 min read

Underlying EBITDA: Decreased 2% to $23.3 billion.
Operating Cash Flow: Increased 3% with a 67% EBITDA cash conversion rate.
Net Debt: Ended the year at $5.5 billion.
Capital Investment: Rose to $9.5 billion.
Ordinary Dividend Payout: Maintained at 60%, equating to $6.5 billion.
Iron Ore EBITDA: Over $16 billion in 2024.
Unit Costs for Iron Ore: $23 per tonne, with a 3% increase expected this year.
Aluminum Product Group EBITDA: Increased by 61%.
Copper Unit Costs: Decreased by 4% compared to 2023.
Production Growth: Copper-equivalent production increased by 1% in 2024.
Decarbonization Progress: Emissions reduced by 14% from 2018 to 2024.

Warning! GuruFocus has detected 7 Warning Sign with CVI.

Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Rio Tinto Ltd (RTNTF) reported a 3% increase in net operating cash flow, supported by strong performances in copper and aluminum.
The company maintained a 60% payout for the ordinary dividend, marking the ninth consecutive year of consistent shareholder returns.
Rio Tinto Ltd (RTNTF) is on track for a decade of 3% compound annual production growth, driven by strategic investments and project developments.
The company has made significant progress in decarbonization, reducing emissions by 14% from 2018 to 2024, and is on course to meet its 2030 target.
Operational improvements and cost discipline have led to a 67% EBITDA cash conversion rate, up from 63% in 2023.

Negative Points

Underlying EBITDA decreased by 2% to $23.3 billion, impacted by an 11% decline in iron ore prices.
The company faces challenges from adverse weather conditions in the Pilbara, affecting first-quarter production and sales volumes.
There is uncertainty regarding tariffs on aluminum, which could impact the economics of Rio Tinto Ltd (RTNTF)'s Canadian operations.
The company is dealing with a complex macroeconomic backdrop, including a weak global property sector and mixed demand for its products.
Rio Tinto Ltd (RTNTF) has a small deficit of free cash flow to investment, raising concerns about maintaining dividend levels amid higher CapEx.

Q & A Highlights

Q: Peter, the dividend policy and the dividend today, obviously great consistency and predictability, having paid 60% of EPS over the past nine years. If I look through the detail, however, obviously the dividend represents a payout greater than 100% of the free cash generation. Are you comfortable adding debt to maintain that EPS payout level in future periods? A: Peter Cunningham, CFO: We are investing in attractive growth projects like OT Underground and Simandou, which will add incremental cash flows. We had a small deficit of free cash flow to investment, but these projects give us confidence to maintain the dividend level.

Q: Jakob, under a scenario where tariffs on Canadian goods come in, how would the aluminum business cope with that? A: Jakob Stausholm, CEO: The economic impact of tariffs on Rio Tinto might be both positive and negative, depending on how they are applied. If tariffs are applied to all countries, the impact is neutral. We could redirect aluminum to other markets if needed. It's too early to conclude anything definitive.

Q: Are you more or less minded to make more investments in the US and Canada given the volatility on tariffs? A: Jakob Stausholm, CEO: We are keen to invest in the US, particularly in copper, and also in Canada. Despite some uncertainty, we see opportunities arising from changes and are not cutting down on investments in Canada.

Q: Can you comment on the Pilbara replacement mines and when you expect to achieve the 345 to 360 shipment range? A: Jakob Stausholm, CEO: We are progressing as expected with our four big replacement mines. There is no change to the timelines, and we are making progress on approvals. The constraining factor is access to land, but we are confident in our current guidance.

Q: What are your observations on why Chinese iron ore imports continue to rise despite falling steel production? A: Peter Cunningham, CFO: Chinese steel production remains around 1 billion tonnes, driving iron ore demand. We see a robust market with cost support around the supply curve. Simandou's high-grade, low-cost iron ore fits well into this market balance.

Q: Of the $2.5 billion for Rincon, how much would you expect to spend this year? A: Peter Cunningham, CFO: This year is the first year of construction, so we expect to spend around $0.5 billion.

Q: Are we expecting upside risk to the $11 billion CapEx guidance with the Arcadium acquisition? A: Peter Cunningham, CFO: Our guidance is $11 billion for 2025, with a focus on maintaining it towards the $10 billion level. We have space for project funding in 2026 and 2027, accommodating Arcadium's projects within our current guidance.

Q: Can you give us an update on your discussions with Entree Resources regarding their JV with OT? A: Jakob Stausholm, CEO: There is no significant update, but we are working closely with the Mongolian government to resolve the tax dispute, which is a priority. Progress on this front will facilitate resolving the Entree Resources issue.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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