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Rio Tinto Reduces Dividend As Profits Fall; Shares Fall

Rio Tinto Reduces Dividend As Profits Fall; Shares Fall
Rio Tinto announced a 29 per cent decline in first-half profit and reduced its dividend for more than half on Wednesday, as the global mining giant was affected by lower iron ore prices owing to cooling demand from major client China, rising expenses, and labour shortages.
It is still the second-highest interim payout ever, following last year's record distribution when global miner profits benefited from a jump in commodity prices.
Since then, iron ore prices have fallen due to chronic demand concerns from China's main steel producer, with the country's zero-COVID policy stifling economic activity and dragging on ferrous markets.
Mining firms around the world have been struggling as a result of a pandemic-related scarcity of trained workers and rising inflation, at a time when iron ore prices have fallen from their 2021 highs and are anticipated to remain low.
"While the pricing environment is becoming more challenging, the demand outlook remains positive," CEO Jakob Stausholm told a media briefing after the results were released.
"I always said it will take time to build a stronger Rio Tinto. It does," he added.
Rio Tinto, one of the world's largest iron ore producers, reported an underlying profit of $8.63 billion for the six months ended June 30, compared to a record $12.17 billion a year earlier and analysts' projections of $8.37 billion published by the firm.
The corporation cut its interim dividend by more than half, to $2.67 per share, down from $5.61 per share a year ago. The first-half dividend of $4.3 billion was still Rio's second-highest interim payout ever.
In addition, the corporation reduced its capital investment forecast for 2022 by $500 million, to $7.5 billion.
Rio shares fell 3.7 per cent in London as profits and dividends fell.
"The combination of declining prices and rising costs led to weaker than expected 1H22 results for Rio," Jefferies said in a note.
"We expect the declining trend in earnings and cash flow to continue in 2H with a trough not likely until 4Q."
Citibank stated in its report that the market's immediate attention will be on capital management commentary, China demand expectations, and iron ore shipments for the remainder of the year.
Rio noted that high unplanned absences, tight labour markets, increased input costs, and supply chain disruptions continue to have an impact on its operations and growth projects.
Weakened demand in China, as well as policy changes there, have had a significant impact on the iron ore sector's sentiment.
Last week, Beijing announced a proposal to centralise iron ore procurement, casting further doubt on miners' prospects.
Stausholm, on the other hand, expressed optimism about China in the medium run.
"China has more means to fix their economy and that includes sorting out challenges that they have faced recently in the property market. In the medium term...I am very optimistic that China will find solutions to the different parts of the economy...," he told reporters in the media briefing.
Rio said talks were ongoing with the Guinean government, which has put a halt to all activity at the Simandou project, the world's largest undeveloped iron ore resource.
"Our negotiation team Guinea are working with our joint venture partners (Chinese-backed consortium WCS) and the government of Guinea," Stausholm said.

Christopher J. Mitchell

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