Rio Tinto 1H24 Earnings Call Highlights

Rio Tinto (ASX: RIO) reported an operationally strong first-half FY24 result, backed by earnings and capex that met analyst expectations. The interim dividend was a little softer-than-expected but the payout ratio was in-line with the company's longstanding policies.

First-half FY24 Earnings Highlights

• 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

Earnings Call Highlights

Balancing near-term and long-term returns: "We are profitable, and we are growing. Growing because we are improving the performance of our assets. Growing organically because we are investing with discipline in projects that will create significant value, not just in one or two decades time, but also in the near term." – CEO Jakob Stausholm

Disciplined capex: "Our guidance for growth CapEx is also unchanged at $3 billion. Now as I have said many times before, we will remain very disciplined. Our investments in growth are highly dependent on the timing of commitments, but most importantly our ability to generate value." – CFO Peter Cunningham

On costs and inflation: "Overall, these pushed EBITDA down by some $400 million. With our iron ore volume set to rebound and our active focus on cost management, we would expect a more positive cost performance in the second half." – CFO Peter Cunningham

Copper production outlook: "Oyu Tolgoi is ramping up to deliver half a million tonnes a year of copper from 2028 to 2036. ... Progress at Oyu Tolgoi underground has been exceptional, and we expect to complete our spend on the project by the end of '25 as planned." – CEO Jakob Stausholm

Don't underestimate iron ore prices: "If we look back over the last five years, consensus has underestimated the price by about $22 a tonne on a one-year forward-look and an average of $39 a tonne on a two-year forward. And over the last three years, iron ore has averaged around $120 a tonne, trading at a range of around $20 per tonne either side, highlighting the market's resilience." – CFO Peter Cunningham

On M&A: "And while we do not depend on M&A to grow strategic acquisitions have added value to our portfolio. We moved quickly to close the Matalco joint venture for half a year. Now we have been able to tap into the growing market for recycled aluminum." – CEO Jakob Stausholm

Analyst Q&A Highlights

Kennecott copper mine issues: Kennecott faces ongoing geotech challenges, but management believes they have the expertise to handle it.

On M&A synergies: "My experience is that in mining, it's not often that you have a high percentage of synergies compared to the enterprise value. And that's why it's quite difficult actually to pay high premiums. There are exceptional cases, but they have to be exceptional. And yes, we're not afraid of M&A. ... it's a fairly hot market out there. So it's not easy to make a couple of acquisition working right now." – CFO Peter Cunningham

On the Dual Listed Company (DLC) structure: The company views the DLC as efficient, with unification deemed not economically sensible due to high tax costs. A few interesting stats from CFO Peter Cunningham include:

• "The tax costs would be in the mid-single-digit billions of dollars."

• "At the moment, it's a 77:23 DLC with 77 being held through PLC and international investors"

• "At the moment, it's about 15% of our shareholders based in Australia, who would be enjoying the franking benefits that underpin that premium that we see in the market."

On ROCE across the portfolio: Management acknowledged some underperforming assets but sees improvement potential, particularly in aluminum and copper segments. "It goes without saying a product group should have double-digit return on capital employed, absolutely. And you can see aluminum getting there. Minerals is there. And you can also see copper getting there because we are just at the inflection point." – CEO Jakob Stausholm

Investing in Argentina: "I think fundamentally, we would like to invest more in Latin America and particularly Chile and Argentina. And you've seen what we have in Chile with the Nuevo Cobre. It's very, very interesting. We are very happy. .. I have lived in Argentina, there are still risks. So we are very cautious, but I'm excited about the opportunities in Latin America. " – CEO Jakob Stausholm

On lithium's impact on portfolio: Management expects lithium to provide meaningful diversification in the future, driven by projects like Rincon and potentially Jadar. "We really have to think about what's going to be the average price over the next 10, 15, 20 years. I think it's fairly given that the world will need lithium because you do need lithium for at least high-performance batteries and the world needs more batteries." – CEO Jakob Stausholm

Uranium strategy: Management views uranium as a long-term consideration dependent on societal choices. They're open to nuclear as part of decarbonisation but don't see urgent demand for uranium.

This article was generated with the support of AI and reviewed by an editor.