Rio Tinto PLC (NYSE:RIO) 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 at the top end of the range.
RIO's strategic diversification into copper, aluminum, and lithium is progressing well, with significant growth expected from projects like Oyu Tolgoi and Simandou.
The company has shown resilience in maintaining profitability despite an 11% decline in iron ore prices, thanks to its diversified portfolio.
RIO's decarbonization efforts are on track, with a 14% reduction in emissions from 2018 to 2024, and a commitment to further reduce emissions by 50% by 2030.
Negative Points
Underlying EBITDA decreased by 2% to $23.3 billion, primarily due to lower iron ore prices.
The property sector, particularly in China, remains weak, impacting steel demand and consequently iron ore sales.
RIO faces challenges with weather conditions in the Pilbara, which have affected production and may continue to impact operations.
There are concerns about the impact of potential tariffs on aluminum exports from Canada to the US, which could affect profitability.
The company is dealing with operational challenges at IOC and the need for further improvements to achieve stability.
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. However, 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. Although there was a small deficit of free cash flow to investment, 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 could be both positive and negative, depending on how they are applied. If tariffs are applied universally, the impact is neutral. We could redirect aluminum to other markets if needed, and we are trying to understand the US's objectives regarding tariffs.
Q: Are you more or less minded to make more investments in the US and Canada given the volatility around tariffs? A: Jakob Stausholm, CEO: We are keen to invest in both the US and Canada. We have potential projects like the Resolution copper mine in the US and are investing in Canada with projects like the AP60 smelter. Despite uncertainties, we see opportunities arising from changes in trade conditions.
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 the four big replacement mines. Western Range is on schedule, and we are focusing on getting access to land. There is no change to the timelines discussed at the Capital Markets Day.
Q: How do you view the roadmap for the Resolution project under the new US administration? A: Jakob Stausholm, CEO: We are waiting on the Supreme Court's decision regarding the case. If favorable, we will proceed with the land swap and further drilling to design the best project. We are optimistic but acknowledge that first copper is still some years away.
Q: Can you provide an update on your discussions with Entree Resources regarding their JV with OT? A: Jakob Stausholm, CEO: There are no immediate implications for the mine plan, but resolving the tax dispute with the Mongolian government is a priority. Progress is being made, and we are working closely with the government to resolve issues.
Q: Regarding the DLC structure, does it make you think more positively about the merits of dissolving or unifying the DLC? A: Jakob Stausholm, CEO: We can use script with the DLC, and there is no immediate need to change the structure. We will address this in the upcoming AGM invitation and the Board's response to Palliser's resolution.
Q: Could you give us more clarity on the Simandou ramp-up over the 30-month period? A: Jakob Stausholm, CEO: The ramp-up will take time to ensure a reliable system. While I can't promise a straight line, we will work to balance capacity between the consortia and ensure a smooth ramp-up process.
Q: How do you think about the capacity for potential inorganic growth given your current organic growth program? A: Jakob Stausholm, CEO: We are running close to full capacity with our current projects and the Arcadium acquisition. While we are open to opportunities, our focus is on maximizing the potential of our existing assets and technical capabilities.
Q: Can you provide an update on East Intercourse Island remediation work and the timeline for the port to return to nameplate capacity? A: Jakob Stausholm, CEO: The timeline remains the same, with heroic work being done to restore operations. The flooding impacted electrical installations, and we are working to replace them quickly. This is a learning experience for us regarding climate change impacts.
