5 key takeaways from Rio Tinto's half-year result

Rio Tinto (ASX: RIO) delivered a first-half FY24 result that met consensus earnings expectations. However, the mining giant's dividend fell short of estimates as it balanced shareholder returns with investments in growth initiatives.

#1 First half FY24 at a glance

• Revenue up 1% to US$26.8 bn or 3.4% ahead of US$25.9 bn consensus

• Underlying EBITDA up 3% to US$12.09 bn, in-line with US$12.1 bn consensus

• Profit after tax up 14% to US$5.8bn or 1.7% ahead of US$5.9bn consensus

• Underlying earnings per share up 0.3% to 354.3 US cents

• Net debt increased by US$0.8bn to US$5.1bn but below US$6.0bn consensus

• Interim dividend flat at 177 US cents per share or 1.1% below 179 US cents

• Production guidance unchanged from previous guidance

A few brokers were a little more optimistic than consensus, with Macquarie expecting 188 US cents while Morgans was looking for 215 US cents.

Rio Tinto opted for a payout ratio of 50%, which is in line with historic practices. The company tends to return additional cash (if applicable) to shareholders in its final dividend.

#2 Management quotes

Notable remarks from Chief Executive Jakob Stausholm included:

• Copper growth: "Our overall copper equivalent production is on track to grow by around 2% this year, and our ambition is to deliver around 3% of compound annual growth from 2024 to 2028 from existing operations and projects."

• Growth inflection point: "We are at an inflection point in our growth, with a step change from our aluminium business and consistent production at our Pilbara iron ore operations. We have considerable growth in cash flow from the ramp-up of the underground copper mine at Oyu Tolgoi and more value to come as our Simandou investment and Rincon lithium project proceed at pace."

• Balancing growth vs. dividends: "Our strong balance sheet enables us to continue to maintain our practice of a 50% interim payout with a $2.9 billion ordinary dividend, as we continue to invest with discipline to shape Rio Tinto into an even stronger company."

#3 Commodity takeaways

The half-year report flagged choppy commodity markets and easing cost pressures.

• "In general, we saw lower prices for our commodities, as supply improved, outpacing modest demand growth."

• "Movements in commodity prices resulted in a $0.2 billion decline in underlying EBITDA overall compared with 2023 first half, reflecting a lower iron ore price and lower aluminium premiums, offset by an increase in the copper LME price."

• "The impact of circa 3.5% inflation on our cost base lowered underlying EBITDA by $0.3 billion compared to the 2023 first half. The easing of diesel prices and lower prices for natural gas partly offset this impact."

• "While inflation has eased, we continued to see lag effects in its impact on our third-party costs, such as contractor rates, consumables and some raw materials; as expected, we are seeing this stabilise in 2024."

#4 CAPEX Outlook

Capital expenditure has been a major challenge for resource companies. However, Rio Tinto's half-year result provided reassurance, with debt levels meeting expectations and capital expenditure projections remaining stable. This includes:

• "In 2024, 2025 and 2026 we expect it to be up to US$10.0 billion per year, including up to US$3.0 billion in growth per year, depending on opportunities."

• "Each guidance year also includes sustaining capital of around US$4.0 billion and US$2.0 to US$3.0 billion of replacement capital."

• "Sustaining capital includes around US$1.5 billion over the next three years on decarbonisation projects (US$5 to US$6 billion in total up to 2030)."

#5 Broker response

UBS is one of the first brokers to run the ruler on the results. "While the dividend is a touch soft, Rio Tinto's operational strength and its stronger comparative free cash flow keeps our preference over BHP," the analysts said.

UBS retained a NEUTRAL rating for the stock, with a $125 target price.

As of writing, Rio Tinto shares are currently trading 1.6% higher at $116.44.