MaxMarioni
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Posted on 15 February 2016, 3:32 PM

Fallen mining Sector Giant Rio Tinto Posts Losses

Other Insights on Related Shares: RIO.L
Related Shares: Rio Tinto Share Price

Rio Tinto, the second biggest mining company in the world by market share, has reported a loss in profits in its 2015 annual results. Underlying net earnings came in at US $4,540 million, a considerable drop of US$4765 from the total 2014 figures, with net losses totalling US $866 million. The Anglo-Australian company conceded that reduced prices on the raw materials it provides played a major effect on the results, reducing earnings by over 80%. This was partially offset, however, by US$ 2,007 millions gains due to favourable foreign exchange conditions.

The group also announced a change to its progressive dividend policy taking effect from next year. In the interest of keeping the right balance between cash returns and investment, the company would target a 40-60% ratio of dividend payouts to cycle underlying earnings and that future dividend payouts will be determined by earnings and cash flows. The dividend, however, has currently been maintained at $$2.15 per share. The Rio Tinto chief executive, Sam Walsh, commented that “future dividend outcomes will really rely on the market conditions,” and that “we don’t run our business on hope”. Rio Tinto's announcement is only the latest in a string of dividend cutbacks by mining companies, following Glencore PLC earlier this year. BHP Billton, another Australian miner, is expected to follow suit later this month when its presents its own earnings report. Credit rating agencies have released comments saying that the decision of slashing the dividend was “sensible”, given the pressure on its credit rating that would ensue after posting the losses.

 

The market reaction was as dramatic as it could be expected: Rio Tinto lost more than 7% on the day of the earnings announcement and its price to earnings ratio slipped to a negative -0.31; the stock however was back in the black by Friday close with 1,849,50 p. Rio Tinto management, in response to the rapid shifts in commodity prices, are trying to act on its spending patterns. The mining corporation indicated that it continued to focus on generating savings on its balance sheet, and reported that it has achieved $6.2 billion of cost reductions. This cost reduction exercise helped it deliver an EBITDA margin of 34% - 4% down from its 2014 EBITDA margins. The company also said that it would be targeting this year a reduction of $2 billion of operating and working expenses, by $1 billion in 2016 and a further $1 billion in 2017. At least debt did not rise, with the net debt ratio remaining flat in 2015: The company is in a stronger position than its rivals as it has reduced net debt over the past three years.

 

Max Marioni

 


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