Sydney – Mining giant Rio Tinto Thursday reported an 82 percent drop in its first-half net profit as a supply glut and slowing demand in key market China sent iron ore prices plunging.
The Anglo-Australian firm, which reports in US dollars, said net profit was $806 million in the six months to June 30 from $4.4 billion in the same period last year.
Its underlying profit, the measure preferred by the company, was down 43 percent to $2.9 billion.
“This is a robust set of results, given the tough operating environment,” Rio Tinto chief executive Sam Walsh said in a statement.
Walsh said the miner’s focus on cost-cutting had reaped savings of $641 million in the six months, and it was now increasing its target to $1.0 billion.
The world’s second-largest miner is heavily reliant on iron ore, a crucial steel-making component, and added that it was expecting capital expenditure to decline to about $5.5 billion this year and be around $6.0 billion in 2016.
It cut capital expenditure by $1.4 billion for the first half to $2.5 billion.
Rio declared an interim dividend of 107.5 cents, a 12 percent increase from 2014. Its shares closed 1.08 percent higher at Aus$53.55 ahead of the results.
The company’s underlying earnings for iron ore slumped 55 percent to $2.1 billion from $4.7 billion. Copper earnings sank 40 percent to $393 million while aluminium soared 113 percent to $793 million.
Diamonds and other minerals were broadly unchanged, slipping one percent to $75 million.
– Earnings beat expectations –
“It’s definitely strong all round and ahead of expectations on all key metrics,” CLSA’s head of resources research Andrew Driscoll told AFP of the results, despite the profit slump.
“But it hasn’t delivered the same surprise perhaps that the full-year result did as the market has become more expecting of increases in cost-out targets and reductions in (capital expenditure).”
Rio in February reported a 78 percent rise in 2014 annual net profit to $6.53 billion and a nine percent slide in underlying profit to $9.3 billion.
Mining companies have been hit by tumbling commodity prices over the past few months. The iron ore price fell to $44.59 in early July, its lowest level since 2009, but has recovered slightly since.
Analysts have said the tumbling prices are a result of mining majors BHP Billiton, Rio and Brazil’s Vale continuing to raise production despite an excess of supply and softening Chinese demand.
BHP last month reported a six percent year-on-year rise in ore output for the June quarter, while Rio recorded a nine percent jump.
The World Bank added in July that iron ore prices were projected to record the biggest fall among metals prices — about 43 percent — in 2015 compared to 2014 as new low-cost mining capacity comes online over the two years.
Rio said in its statement to the Australian Securities Exchange it expected the current cyclical weakness to pass as global economic growth strengthens and commodity markets rebalance.
“However, the recovery will be characterised by slower commodity demand growth compared to the past decade and a likely continued focus on productivity and costs over capital project development,” Rio said.
It added that it continued to expect long-term growth in Chinese crude steel production to reach about one billion tonnes towards 2030.