Rio Tinto Shares Tumble as Profit Declines, Despite Operational Gains

Rio Tinto (LON: RIO) shares HAVE DECLINED over 3% Thursday as the company reported a decline in profit after tax attributable to owners, which landed at $10.0 billion, a 14% decrease compared to the $11.6 billion reported in the previous year.

This decline occurred despite underlying EBITDA increasing by 9% to $25.4 billion and net cash generated from operating activities rising 8% to $16.8 billion.

The market's negative reaction seems to stem from concerns over the profit decline, even as Rio Tinto showcased operational excellence. While revenue increased by 7% to $57.6 billion, increased depreciation and amortization, higher taxes, and increased finance items weighed on the bottom line. The increase in net debt from $5.491 billion to $14.362 billion also likely contributed to investor unease.

Despite the profit dip, Rio Tinto highlighted strong operational performance, including an 8% uplift in copper equivalent production, driven by the ramp-up of the Oyu Tolgoi underground copper mine and record iron ore production from its Pilbara operations. The company also emphasized its commitment to cost discipline, which contributed to the increase in underlying EBITDA.

Rio Tinto is maintaining its commitment to returning value to shareholders. The company declared an ordinary dividend of $6.5 billion, sustaining a 60% payout ratio, which marks the tenth consecutive year at the top end of its target range. The board aims to sustain cash returns to shareholders between 40% and 60% of underlying earnings through the cycle.

Key Drivers of Rio Tinto's Performance:

• Copper Production Surge: A significant 61% year-over-year increase in copper production at Oyu Tolgoi underpinned volume growth.
• Cost Management: Disciplined cost management across operations led to a 5% reduction in operating unit costs.
• Simandou Progress: The Simandou high-grade iron ore project is progressing rapidly with first ore shipment expected in December.

Rio Tinto Chief Executive Simon Trott acknowledged the company's progress, stating, “Our solid financial results demonstrate clear progress as we embed our stronger, sharper and simpler way of working.” He also emphasized the company's commitment to safety following a tragic incident at the Simandou project. “Safety remains our highest priority. We are deeply committed to learning from the tragic death of one of our colleagues at the Simandou project last weekend and I will be spending time with the team on the ground, as we fully investigate how this happened.”