Rio Tinto (ASX, LON, NYSE: RIO) surprised
investors on Thursday with a $1 billion special dividend on the back of strong
prices for iron ore, its main commodity, and despite an $800 million write-down
on
its massive Oyu Tolgoi underground copper project in Mongolia.
The world’s second largest miner reported
a $4.93 billion underlying profit in the six months to June, up 12% on the same
period last year — its best half-year earnings since 2014.
It also said it would raise its
interim dividend to $1.51 a share from $1.27 a share a year ago, continuing to
benefit mining investors amid prices for iron ore trading above $120 a tonne,
their highest in more than five years.
Net profit, however, dropped by 6% to $4.13 billion as Rio wrote down $800 million from its investment in an underground expansion at Oyu Tolgoi, located in Mongolia’s southern Gobi Desert.
Despite being Rio’s best half-year earnings since 2014, net dropped by 6% to $4.13bn as it wrote down $800 million from its investment in the Mongolian mine.
The impairment was considerably higher
than the $597 million booked on Tuesday by the mine’s operator, Canada’s Turquoise
Hill (TSX, NSYE: TRQ).
Rio warned
last month the project would take 16-30 months longer than expected and cost
as much as an additional $1.9 billion to the projected $5.3 billion investment,
due mainly to a heightened risk of rockfalls.
The company has also faced challenges
at its iron ore mines in the Pilbara, with its production guidance previously
downgraded for 2019 because of severe weather and mine planning issues at its Greater
Brockman Hub.
“We have operational issues, but
this is mining,” chief executive Jean-Sébastien Jacques said.
Despite the problems, most of Rio’s
revenue in the period was generated by its iron ore operations, with underlying
earnings from the division up a whopping 33%, compared to the same period last
year, to $7.55 billion.
Under Jacques, who took over from former boss Sam Walsh in July 2016, Rio
has focused on cutting costs, generating cash and returning as much of it as
possible to investors through dividends and share buybacks.
Copper boost
The mining giant also provided an
update on its Winu discovery, in Western Australia, which could be the
company’s next major copper project.
It has so far drilled 42 holes at
the site and will continue extensive drilling in months to come as part of its
$250 million exploration program. The objective is to determine whether Winu is
“Tier 1” asset.
The copper-gold-silver asset is
about 130 km. from Newcrest’s Telfer copper-gold mine in the East Pilbara. It’s
also close to numerous copper prospects discovered recently by juniors and 350
km southeast of Port Hedland, the world’s largest bulk export port.
Rio Tinto believes the copper
market will go into deficit by 2020 amid expectations that
bigger power grids around the world and an electric-vehicle boom will boost
demand, while supplies will remain constrained.