Rio Tinto’s earnings plunge from record levels as weakened demand from China hits iron ore prices
- The mining giant reported net earnings declined by 41% to $12.4bn in 2022
- Its bumper 2021 results enabled the firm to pay full-year dividends of £12.6bn
- Rio Tinto relies heavily on exporting iron ore that is mined in Australia to China
Rio Tinto’s annual profits tumbled after commodity prices slumped under pressure from lockdown restrictions in China and slowing global economic growth.
The mining giant posted a 41 per cent decline in net earnings to $12.4billion in 2022 after posting record profits the previous year on the back of surging prices of iron ore, aluminium and copper.
Its bumper 2021 results enabled the group to hand full-year dividends of £12.6billion to investors, the second-highest ever payout by a FTSE 100 company.
Results: The mining giant reported net earnings declined by 41 per cent to $12.4billion in 2022 after posting record profits the previous year on the back of surging commodity prices
This time around, the company has announced no special shareholder rewards and slashed its ordinary dividend for the first time in five years to $4.92 per share.
Rio Tinto’s revenue fell by 13 per cent to $55.6billion, primarily due to the sliding price of iron ore.
The business relies heavily on exporting iron ore mined in Pilbara, Australia, to China, where it is turned into steel that is often used in construction projects such as house building.
China’s property sector is currently experiencing a prolonged downturn caused by rising unemployment, high debts, and some homebuyers boycotting mortgage payments.
Rio Tinto also supplies China with a significant volume of copper, which saw its average realised price drop to just over 400 cents per pound, causing an estimated $700million hit to underlying profits.
Copper earnings were further hit by increasing input, and employee costs from a collective bargaining agreement struck at the Kennecott site in Utah and new labour regulations in Mongolia.
Chief executive Jakob Stausholm said the company had ‘delivered strong financial results’, enabling it to ‘continue to invest in strengthening the business’.
The company recently doubled its ownership stake in the Mongolia-based Oyu Tolgoi project to 66 per cent after completing a £2.9billion takeover of Canadian miner Turquoise Hill.
Oyu Tolgoi is home to some of the world’s largest deposits of copper, a mineral considered a vital component of renewable technologies like wind turbines, solar panels and rechargeable batteries.
Rio Tinto is also set to benefit from the resurgence in iron ore prices, which reached an eight-month peak yesterday, following the recent relaxation of Covid-19 restrictions in China earlier this year.
Jamie Maddock, equity research analyst at Quilter Cheviot, said: ‘China’s reopening and the demand surge there has meant miners should benefit as infrastructure spend restarts, industrial output increases and property restrictions loosen.
‘Indeed, iron ore prices have recovered somewhat as a result of China’s reopening, so it will be crucial to see how that plays out for 2023.’
Rio Tinto shares had fallen 2.8 per cent to £60.28 on late Wednesday morning, although they have expanded by over 80 per cent since the pandemic started.
