Rio Tinto reported a 1% drop in full year revenue to $53.7bn and a 2% drop in underlying cash profit (EBITDA) to $23.3bn ($23.8bn expected). Performance was driven by an 11% drop in iron ore prices, offset by higher copper and aluminium prices, as well as good cost control.
Production rose 1%, largely driven by the ramp up in copper from the Oyu Tolgoi operation. Guidance for 2025 points to a 4% rise at the midpoint.
Free cash flow fell 27% to $5.6bn, driven by higher capital expenditure. Net debt rose 30% to $5.5bn.
A dividend of $4.02 per share was announced, down 8% on the prior year.
The shares were broadly flat in early trading.
Our view
Rio’s managed a drop in iron ore prices well, with growth in copper and cost actions helping to limit the impact on the bottom line. Management remained relatively optimistic about the outlook, and if iron ore prices can stick around the $107 per tonne they’re currently at, there’s scope for some decent cash generation – not guaranteed.
Iron ore is still the main performance driver - accounting for 70% of underlying cash profit over 2024. Question marks remain around the demand picture from China, the world's largest consumer of iron ore, as economic growth here is slowing. Recent stimulus measures suggest a more hands-on approach from the government, but it remains to be seen if it’ll go far enough to really drive a step change in growth.
Despite a rebase in prices, one of Rio's main attractions remains very much intact. Its flagship Pilbara iron ore business is the group's cash cow. It's not immune to inflation though and costs have been rising, but we're starting to see the pressure ease.
The biggest new project eating the bulk of the planned $3bn annual growth investment is in iron ore, with the Simandou project in Guinea. It’s one of the world’s largest untapped reserves of high-grade iron ore and the only real large-scale driver of new global supply set to come online in the foreseeable future.
Rio recently took advantage of weakness in the lithium market to snap up a set of major assets, and propel its lithium operation to the next level. This is all part of the strategy to build more exposure in areas needed for the energy transition, with aluminium and copper the two other materials in focus.
Copper is becoming a more important part of the story, with the ramp up of operations in Mongolia expected to be a key contributor to production growth again next year.
That level of spend is propped up by a resolute balance sheet, which gives options. But there’s unlikely to be much excess capital to return to shareholders over and above the standard 40-60% payout. Nothing is guaranteed.
All in, Rio looks relatively attractive. The iron ore portfolio has room to grow with the Simandou project, and Rio is well placed to benefit from demand for decarbonising metals like copper, lithium and aluminium. Commodity price moves will always be key to performance, so investors should prepare for ups and downs.
Environmental, social and governance (ESG) risk
Mining companies tend to come with relatively high ESG risk. Emissions, effluences and waste, and community relations are key risk drivers in this sector. Carbon emissions, resource use, health and safety and bribery, and corruption are also contributors to ESG risk.
According to Sustainalytics, Rio Tinto's management of material ESG issues is strong.
There are comprehensive policies and strong management programmes that address material ESG issues and it has adopted a 2050 net zero climate change target for Scope 1 & 2 emissions across operations. But in recent half-year results, management warned its interim target of a 15% reduction by 2025 would not be met without the use of carbon offsets.
Rio Tinto key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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