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Rio Tinto’s most recent profit report

Investment Thesis

  • One of the largest miners in the world with a competitive cost structure.
  • Tier 1 assets globally, which are difficult to replicate. 
  • Highly cash generative assets with attractive free cash flow profile. 
  • Shareholder return focused – ongoing capital management initiatives.  
  • Commodities price surprises on the upside (potential China stimulus to combat Coronavirus impact). 
  • Strong balance sheet position.
  • Electrification and light-weighting trends in automobile industry provide long-term growth runway for aluminium demand.

Key Risks

We see the following key risks to our investment thesis:

  • Further deterioration in global macro-economic conditions.
  • Deterioration in global iron ore/aluminium supply & demand equation.
  • Production delay or unscheduled site shutdown.
  • Natural disasters such as Tropical Cyclone Veronica.
  • Unfavourable movements in AUD/USD.
  • Company not achieving its productivity gain targets. 

1H21 results summary

Relative to the pcp (1H20), and in US$: 

  • Net cash generated from operating activities of $13.7bn was +143% higher on higher pricing for iron ore, aluminium, and copper. 
  • $10.2bn free cash flow reflected stronger operating cash flows partially offset by a +24% rise in Capex of $3.3bn (driven by higher replacement and development capital as the Company ramp up its projects).
  • $21.0bn underlying EBITDA was 118% higher (on 61% margin). 
  • $12.2bn underlying earnings (reflecting underlying EPS of 751.9cps) was +156% (with underlying effective tax rate of 29%). 
  • The Board declared cash return of 561cps, broken into interim dividend of 376cps and special dividend of 185cps. Payout is 75% of underlying earnings. (6) Balance sheet was stronger with net cash of $3.1bn versus net debt of $0.7bn in the pcp.

Company Description  

Rio Tinto Limited (RIO) is an international mining company with operations in Australia, Africa, the Americas, Europe and Asia. RIO has interests in mining for aluminium, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock and diamonds.  

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.