Rio Tinto profit tumbles to $US12.4b on lower iron ore prices, rising costs

As the global mining giant reported its full-year net profit plunged 41 per cent to $US12.42 billion ($18.18b) compared to the previous year’s bumper $US21.1b result, Mr Stausholm acknowledged surging energy costs and the tight labour market in Western Australia had eaten into earnings.

Rio cut its final dividend to $US2.25 a share, taking the full-year total to $US4.92. While less than half of 2021’s record $US10.40 per share, it still represented a payout ratio of 60 per cent of Rio’s profit and beat most analysts’ estimates.

“Last year was really tough in terms of much higher energy costs . . . we also saw massive increases in the input prices in our aluminium business which really squeezed our profitability in the second half,” Mr Stausholm, who visited Perth earlier this month, told The West Australian.

“I don’t think we’ll see a repeat of that but it is a fact that we are operating in some places where there’s very, very little unemployment and therefore a very heated labour market. One of those areas is Western Australia.”

Inflation was also felt across Rio’s powerhouse iron ore division, with average unit cash costs coming in slightly above guidance at $US21.30 a tonne in the 2022 calendar year. Rio expects costs will fall between $US21-$US22.50/t in 2023.

Rival miners BHP and Fortescue Metals Group have also slashed their dividends following lower first half profits and uncertainty over inflation and commodity prices.

However Mr Stausholm insisted he would not compromise on asset maintenance “for the sake of achieving a short-term cost target”, saying Rio would instead focus on being efficient on manpower and recruiting less.

“It’s really about how can we do things smarter so that we don’t need to staff up,” he said. “We have staffed up quite a lot the last two years and I hope and expect it shouldn’t be necessary to continue that trend.”

Mr Stausholm said Rio had put climate at the heart of its strategy and expected demand for the products it produces in aggregate would grow at a rate of 3.7 per cent each year through to 2035, “with around half stemming from the energy transition”.

“That is why our strategy is about growing in the materials needed such as copper, lithium, aluminium and high quality iron ore, and while it’s early days in a long journey . . . I’m confident we have the pathway to achieve our 2030 and 2050 emissions targets,” he said.

Asked whether markets were nearing the end of a commodities supercycle, Mr Stausholm said it had been an “extraordinary period” but that had stemmed from unexpected disruptions such as COVID-19.

“I’m not sure that what we’re really seeing is a supercycle here. What you see is a normal, good demand from urbanisation globally and then of course we get this extra kicker which is bound to go on for decades from the energy transition,” Mr Stausholm said.

“So the demand will be there. What the pricing environment will be, that’s probably anybody’s guess, but I would agree it has been good years and it looks like we’re entering well into 2023.”

China’s reopening will also help fuel demand, Mr Stausholm expected, adding he was “quietly confident” the country would be a stabilising factor for the world economy in 2023.

Mr Stausholm also noted recession fears in the US and Europe appeared to be easing.

“You combine that with a opening of China and you’re actually in a fairly good position, certainly a much better position than we would have predicted three or four months ago,” he added.

The full-year results were lodged on the ASX after the market closed. Rio Tinto shares were 62¢ lower at $125.51 on Wednesday.

Rio’s results showed underlying earnings before interest, tax, depreciation and amortisation dropped 33 per cent for its iron ore division to $US18.61b while copper earning plunged 40 per cent to $2.37b.

“We saw significant movement in pricing for our commodities, amidst growing recession fears and a decline in consumer confidence,” the company said.

“Movements in commodity prices resulted in a $US8,1b decline in underlying EBITDA overall compared with 2021. This was primarily from lower iron ore prices ($US9.15b) and lower London Metal Exchange copper prices and a negative provisional pricing impact ($US733m).

“This was partly offset by a price uplift for our aluminium business ($US886m), driven by a first-half rise in LME prices, improved product premiums and higher alumina pricing, which fell away sharply in the second half.”

Its report showed an $801m benefit to its underlying earnings from a stronger US greenback against the Australian dollar was all but erased by higher energy prices compared to 2021, which slashed EBITDA by $US1.17b, mainly due to higher diesel prices for trucks, trains and ships.

“In addition, rising general price inflation across our global operations resulted in a $1,478 million reduction in underlying EBITDA,” it said.

Overall production from Rio’s Pilbara iron ore operations rose one per cent to 324.1 million tonnes at a cost of $US21.30/t, excluding US40¢/t to cover COVID costs. That was well up on the $US18.60 cost per tonne recorded for 2021, excluding US50¢/t COVID costs, which the miner blamed on higher diesel and labour costs.