Rio Tinto Q2 Earnings: Key Insights & Market Impact

Rio Tinto (ASX: RIO) is the second-biggest miner on the ASX based on market value and one of the largest producers of commodities worldwide. The company’s iron ore operations, which account for about three quarters of our estimate of the company’s profits, are the main drivers of its profits and share price.

Rio Tinto is one of the few miners that has been profitable throughout the commodity cycle thanks to its broad portfolio of durable assets and cheap operating costs. Also, the majority of Rio Tinto’s main operations are situated in comparatively safe havens like North America and Australia.

Q2 earnings results & Rio shares

The short answer is that there weren’t many surprises in the earnings report. Rio’s Pilbara iron ore operations shipped 66 million metric tons in the second quarter of 2024, which is comparable to the same amount shipped the previous year. Jon Mills, the Rio analyst at Morningstar, had about the same expectations. Rio exceeded Mills’ full-year estimate of roughly USD 102 per ton by a small margin with first-half prices of USD 106 per metric ton. Despite the fact that shipments in the first half of 2024 were 3% less than in 2023, Rio kept its forecast for iron ore because H2 sales are expected to increase due to seasonal factors.

Mills left his fair value estimate at $112 per share unchanged in light of Rio’s earnings update. Rio revised its guidance for bauxite, alumina, and copper, but Pilbara iron ore continues to be the main driver, so the changes had no effect on his estimate.

Similar to last year, Mills predicts USD 24 billion in EBITDA in 2024, with iron ore accounting for about 75% of that amount. His prediction for fully franked dividends per share in 2024 of USD 4.35, or roughly AUD 6.44, is based on the assumption that Rio will pay out 60% of its target payout ratio of 40%–60% over the course of the cycle.

This yields roughly 5.5% at the current price and is comparable to 2023 as well. Rio shares are currently trading for about $117 a share.

Reasons behind today’s drop in Rio Tinto shares

On July 16, Rio Tinto Group shares saw a decline following the release of the company’s second-quarter production figures.

Due to a train collision in mid-May that caused rail capacity to be disrupted for approximately six days and resulted in full stockpiles at some mines, the company reported production of 79.5 million tonnes (67.5 million tonnes for Rio Tinto), a 2% year-over-year decrease.

Driven by greater efficiency and feed rates at Weipa, bauxite production increased to 14.7 million tonnes, up 9% from the previous year and in line with the company’s projections for the entire year to the upper end of 53 to 56 million tonnes.

Rio Tinto’s $9.2 billion investment: Key stock to watch

Rio Tinto recently declared that it has made great progress toward its strategic development, highlighted by an astounding $9.2 billion investment in Guinea’s high-grade iron ore project, Simandau. Authorities in China and Guinea have approved this bold move, demonstrating Rio Tinto’s dedication to growing its production capacity and diversifying its business.

According to Rio Tinto, iron ore production increased by 2% from the first quarter of 2024 to 79.5 million tonnes in the second quarter. Over the same time period, shipments of iron ore increased by 3% as well. Notwithstanding these successes, production fell by 2% in the first half of 2024 as compared to the year before. Rio Tinto, however, has stuck with its projected range of 323–338 million tonnes for iron ore in 2024, indicating that it is confident in meeting its yearly goals.

Analysts have pointed out that Rio Tinto’s strong long-term prospects should not be overshadowed by the recent 2.5% decline in the company’s share price owing to lower-than-expected results. An important development that will enable Rio Tinto to profit from expected increases in copper prices and offer strong inflation protection is the approval of the Simandau project.

Experts in the market point out Rio Tinto’s adaptability, especially given its exposure to copper and iron ore. Rio Tinto is still notable in spite of possible recessions and market volatility. The company is an appealing choice for investors looking for stability and growth in the commodities industry due to its robust dividend yield and potential for capital gains.

BMO keeps Rio Tinto at outperform, highlights strong operations

BMO Capital maintained its GBP65.00 price target for Rio Tinto Plc shares (NYSE: RIO:LN) (NYSE: RIO) and reiterated its Outperform rating mid-July. The production of iron ore met expectations, and the mining behemoth provided a strong operational update. Rio Tinto’s forecast was at the lower end of the previous guidance despite the company’s lower-than-expected copper production.

BMO Capital reports that the lack of copper production, especially from the Kennecott mine, resulted in a 4% decrease in the projected copper output for 2024, which is now estimated to be 669 kilotonnes. With a mere 1% decline, Rio Tinto’s EBITDA is still regarded as having little effect despite this adjustment. With an EV/EBITDA multiple of 4.6 for 2024 and 4.8 for 2025, BMO Capital emphasised the company’s attractive valuation.

The revised guidance is in line with Rio Tinto’s history of poor copper mining performance, with the Kennecott site consistently contributing to lower production levels. In spite of this, the company maintains a positive outlook, highlighting the general stability and strength of Rio Tinto’s operations.

The company’s expectations are being met by Rio Tinto’s performance in its important iron ore division, which could offset the decline in copper production. A key element of the business’s operational stability is its commitment to meeting its iron ore production goals.

BMO Capital’s price target indicates that the company is confident Rio Tinto can overcome obstacles in the copper production process and leverage its dominant position in the iron ore market. With an Outperform rating, Rio Tinto’s stock is expected to outperform the market for the foreseeable future according to BMO Capital.

Apart from that, the mining company Rio Tinto revealed that its Pilbara operations shipped 80.3 million tons of iron ore in the second quarter, less than the 82.1 million tons that analysts had predicted.

The company’s Western Australian operations’ mid-May train derailment is to blame for the shortfall. Rio Tinto nevertheless sticks to its guidance for the yearly shipment of iron ore, aiming for a range of 323 to 338 million tons. Jefferies analysts predict strong steel production in China, which could help Rio Tinto’s shipments and output going forward.

In other news, Rio Tinto’s stock was downgraded by Citi and Berenberg from Buy to Hold and Buy to Neutral, respectively, citing possible obstacles from China’s real estate market and economic recovery. As part of their transition to sustainability, Rio Tinto and BHP Group (NYSE:BHP) are assessing battery-operated electric transport truck technology in Western Australia.

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