Rio Tinto urges caution as profits fall to lowest in 12 years

3rd Aug 2016 08:22

(ShareCast News) - First half profits at Rio Tinto fell to their lowest since 2004 as crumbling commodity prices hit home, but though the numbers were in bang in-line with analyst forecasts the mining behemoth said caution was still required for the medium-term.In the six months to 30 June, the day after which saw new chief executive Jean Sebastien Jacques officially take the reins, underlying profit fell 47% to $1.56bn, which was exactly the same as the consensus forecast.Pre-tax profits slumped 27% to $5.36bn, marginally falling short of expectations of $5.38bn.The miner cut the interim dividend 58% to 45 cents a share, reflecting the board's new policy to link the payout to underlying earnings.Having generated net cash from operating activities of $3.2bn, the dividend payout was worth around $0.8bn in total and, following the $1.9bn 2015 final dividend, saw net debt reduced 6% to $12.9bn during the half, which was much better than the market projections for a modest rise to $13.8bn.Rio said the falls in commodity prices removed $1.9bn from its underlying earnings, which was only partially offset by a $241m gain from currency movements and a $410m boost from lower cash costs.Its analysis of the global economic situation and demand for commodities was guarded, with uncertainty clouding China's "long transition path of slower and less commodity-intensive growth".The miner sees the global economy as "stuck in a subdued low-productivity growth pattern which would indicate that continued caution is required for the second half of 2016".Jacques said the board's focus was on "delivering value to shareholders", adding: "Our balance sheet strength and Tier 1 assets provide a stable foundation in these uncertain and volatile markets, which is fundamental in a cyclical and capital-intensive industry. We will generate cash at every opportunity, which we will then allocate in a disciplined way to deliver returns to shareholders, while also investing in compelling growth."